Select Committee on Trade and Industry Third Report


Luton Vauxhall Partnership

  55. There is by now a fairly standard pattern of official reaction to major car plant closures. Lessons have, we hope, been learned from experience at Dagenham and Longbridge. We heard oral evidence in January at Luton Town Hall from representatives of the Luton Vauxhall Partnership, headed by Mr Bill Samuel, Chief Executive of the East of England Development Agency. He warned that substantial resources would be needed, to be measured in tens of millions of pounds, although he was cautious about putting forward an exact figure.[79] The paper from the Partnership warned that "further Government support will be required in the short, medium and longer term if we are to provide a solution that is sustainable".[80] Luton was made an Assisted Area in 2000 and so qualifies for Regional Selective Assistance, whilst surrounding areas do not. There is no realistic prospect of changing the map, nor any proven need to do so. The wider area is, however, eligible for the new Enterprise Grant for smaller capital projects, and we have been told that the Government Office "is willing to consider applications from the Luton/Dunstable area for special support outside the regional limit", which is £300,000 for the current year.[81] Luton is funded under the Single Regeneration Budget, which may offer an appropriate vehicle for any further funding to be made available. European Regional fund money is also available through Objective 2.[82] The complex network of national and European funding should be flexible enough to ensure that support is available when and where needed. If it is not, the Government Office for the Region must ensure that any procedural logjam is broken. We also expect the partnership to be as loud as necessary in its call for sufficient funding .

56. It is premature to be making plans for the Vauxhall site. As we refer to above, it is not to be vacated for some time even under the worst case scenario of closure of the Vauxhall plant. The site is exceptionally well placed near the airport, beside a motorway and a rail line, so that there are grounds for expecting substantial employment opportunities, given prudent planning and the necessary investment. The leader of the local council told us in oral evidence of the recent refusal of plans for retail development in the area. The proportion of manufacturing to service sector jobs in Luton has been shifting rapidly in the past decade. The proportion of motor vehicle jobs to others in Luton has fallen from 11.4% in 1996 to 7.3% in 1998. There is and has been for some time more to Luton than Vauxhall, as evidence from the Partnership demonstrated. Efforts were already underway to attract more inward investment and to change the image of Luton.[83]

57. Most of those who may be seeking work as a result of the decision are male and relatively old. We gained the impression that many have worked only for Vauxhall all their working lives. Evidence from the Director of the Regional Employment Service and the Vice-Chancellor of Luton University emphasised the existing commitment in the area and in the industry to training and qualification . The Vice-Chancellor described present support arrangements for mature study as "terrible...the prospect of many years before you can cash in that qualification will tend to act as a deterrent."[84] Evidence provided subsequent to the hearing referred to 333 students managed for Vauxhall by Luton University, including a number enrolled at the University in degree level courses in business or management studies and ITC, as well as many doing courses at Dunstable College.[85] It is essential that means be found to ensure that those who genuinely seek retraining are not excessively financially disadvantaged as a result of that retraining, compared with those who choose to remain in well-rewarded employment at Vauxhall until the bitter end; and that those midway to a recognised qualification are able to complete their courses. We look to the Partnership to engage in dialogue with Vauxhall on these matters of immediate practical importance to the workforce.

Nissan at Washington


  58. Members visited the Nissan plant at Washington near Sunderland in September 2000. It is the most productive car plant in Europe in the industry's league tables, and one of the newest, although there has been little significant new investment in the last few years. It has a notional capacity of 500,000 cars based on three shifts. Around 4,900 people are employed there. Production of the Primera began in 1990, of the Micra in 1992 and of the Almera in 2000. In 2000 the plant produced 328,000 cars, comprising 123,000 Micras, 115,000 Almeras and 90,000 Primeras. Around 75% are exported.


  59. In 1999 the French car manufacturers Renault bought a 36.8% stake in Nissan Motor and in effect took control of their European vehicle operations, including sales and marketing. In March 1999 an Agreement was reached between the two companies on sharing of platforms for future models. The Nissan Micra, a small car in the "B" segment, where it competes with the VW Polo, Fiat Punto and others, is due for replacement in 2002-03. Renault and Nissan have agreed that it will share a platform with the Renault Clio/Twingo replacement. The new Micra is to be produced in both 3- and 5- door hatchback versions and in a third derivative.

New Micra

  60. In the course of 2000 Nissan made it repeatedly and publicly clear that the unfavourable euro:sterling exchange rate was making it increasingly difficult to justify continuing production of the Micra in the UK, even with a reduction in UK content, reductions in supplier prices and the agreement of the workforce to changes in working patterns which brought sizeable productivity gains. It also made it plain that it was actively considering production of the new Micra at Renault's Flins plant near Paris where the Renault Clio is now assembled. The Flins plant has a capacity of around 600,000, and produces around 450,000 cars a year. The Clio is also produced in Spain and Slovenia. Assembly at Flins would be cheaper than producing it at Washington, and give the full benefit of the common platform between the two models, as well as enjoying the advantage of using nearby suppliers from the eurozone and being nearer export markets in the south of Europe. Nissan's 25 January 2001 statement referred to "many purchasing, production and logistics advantages". The principal reason advanced for this option was, however, monetary: that, as Mr Ghosn of Nissan put it recently, car production outside the eurozone was "practically impossible". Other manufacturers do not seem to find it so.

Regional Selective Assistance

  61. On 25 July 2000 the UK authorities notified the European Commission of their offer to Nissan of a Regional Selective Assistance grant of £40 million to help meet the estimated difference in costs of £79 million of producing the new Micra at Washington rather than Flins. Two months after receiving this notification, the Commission decided on 20 September 2000 to open a formal state aid investigation procedure, as is now a more or less standard procedure in such cases.

   62. On 29 September 2000 the Commission forwarded to the UK authorities a detailed paper setting out a number of questions to which it required answers, including whether it was likely that Nissan would abandon so much of its previous investment in Washington; the extent to which Washington could be profitable if running at barely half capacity and producing only the Primera and Almera; the potential loss of UK customer loyalty in the event of Micra production on the continent; and the practical feasibility of producing the planned output of new Micras at the Flins plant.

63. There were no objections to the proposed aid from other Member States or from other companies. The DTI evidently gave satisfactory answers to the reasonable queries raised by the Commission. On 16 January 2001 the Commission, at its first meeting after Christmas, authorised the proposed aid.

64. The process of discussion between the parties seems to have altered some of the underlying figures. The Commission's 29 September 2000 letter shows the original cost difference between the two sites of £79.2 million as representing 42.7% of the net present value, recorded as £185.3 million, of the proposed eligible investments Nissan were to make in machinery and equipment and supplier tooling. This is known in Brussels state aid-speak as the "handicap intensity of the project". Commission Press Notice IP/01/63 of 17 January 2001 stated that "the final intensity of the regional handicap, i.e. the extra cost for locating the Micra production in Sunderland rather than in Flins, came to 32.48%". Either the net value of eligible investment to be made by Nissan has risen; or there has been a substantial reduction in the estimated extra cost of locating the new Micra in Sunderland; or both.

65. We were of course delighted to learn on 25 January 2001 that the new Micra is to be produced at Washington, safeguarding the existing jobs at the plant and possibly creating more. The first car should come off the lines in late 2002. The 30% cost reduction programme and the purchasing policy "designed to minimise the present negative impact of the unfavourable currency exchange rate"[86] will of course bear down heavily on UK-based component suppliers. But a 35% UK content Micra assembled in the UK is a lot better than no Micra. Whilst the UK is likely to be the largest single national market for the car, it is intended that around 70% of the output will be exported. The new Micra will have access to the Europe-wide Renault network. The '555' campaign slogan of 5,000 employees on a 5 day shift making 500,000 cars can now become a reality. We hope that, when a similar decision comes to be made in a few years time about the Almera, it will have an equally satisfactory outcome.

Good news

  66. Some recent developments put the future of the industry in a less gloomy light than the Dagenham and Luton decisions —

  • Land Rover: Ford are to invest £130 million in Land Rover to the end of 2001, and plan to raise production from the 175,000 vehicles produced in 2000 to 270,000 a year within the next five years, employing 9000 people at Solihull, and exporting around 70% of production;

  • MG Rover: although there is a long way to go, the Longbridge operations of the MG Rover group have now survived for over six months. It has been reported that for the first time they had increased market share and that the Rover 75 was selling well;

  • Peugeot: Peugeot are producing the Peugeot 206 at the Ryton plant in Coventry as fast as they can, in response to high consumer demand; over half of the output is exported. Although future prospects may have been clouded by the announcement on 14 December 2000 by PSA Peugeot Citroen of an intensive review of plans for the new paint shop due in 2003, said to be crucial to the future of the plant, the strengthening of the euro against sterling may help assure the future of the plant;

  • Honda: Honda are engaged in expanding the productive capacity of their Swindon plant in preparation for the introduction of either new models or — as now seems likely — higher production of some existing models. It is reported that the 3-door Civic to be assembled there is for export to Japan;

  • Nissan: Nissan's plant at Washington began production of the new Almera in 2000 and continued its production of the Primera, against potential opposition from Japan. The plant remains the most efficient and productive plant in Europe. The January 2001 announcement that the new Micra would be assembled there is a major boost to the industry;

  • Toyota: Toyota announced in January 2001 that it would be transferring production of the 3 door Corolla model from Japan to Burnaston by the end of the year, raising production at the plant from 170,000 to closer to its full capacity of around 220,000 a year, and creating extra jobs at Burnaston and the Deeside engine plant;

  • BMW: BMW will shortly begin full-scale production at Cowley of their new Mini, aimed at a North American and Europe-wide market: they are also planning a new and advanced plant at Goodwood in Sussex for the annual production of around 1,000 Rolls-Royce cars;

  • Bentley: VW are reported to be considering an increase in the annual production of Bentleys from 2,000 to 9,000;

  • commercial vehicles: the UK commercial vehicle business, including buses as well as trucks and vans, is looking in better shape than for some years, with new investments, for example by ERF at Middlewich, Cheshire. The transfer to Leyland in Lancashire from Eindhoven of all 65 Series Leyland DAF truck production will lead to production volumes at Leyland increasing by 30%.[89] The Ford Transit plant at Southampton, which the unions told us had been near closure in the recent past, is now engaged in full-scale production of the new Transit, as we heard on our visit there. Subject to the plant being able to produce vans of a quality equal to or above those produced at the comparable plant at Genk in Belgium the plant should have an assured future for some years, producing for export as well as for the domestic market.[90] At Luton, investment is under way in preparation for production, mainly for export, of up to 80,000 Vivaro vans a year in a joint venture between Vauxhall's IBC company and Renault;[91]

  • recreational vehicles: recreational vehicles such as Land Rover, Frontera, and Honda's CRV are manufactured in growing numbers in the UK for export to elsewhere in Europe and to the US;

  • motorsport etc: the motorsport industry is thriving, generating thousands of jobs directly and indirectly.[92] A recent report suggested that the scale of wealth created and of employment in this sector had not even now been fully appreciated. The smaller specialist UK manufacturers are also thriving.

79  Q 425 Back

80  Ev, p 128  Back

81  ibid, p 127 Back

82  ibid, p 128 Back

83  Qq 426ff Back

84  Q 438 Back

85  Ev, Appendix 19 Back

86  Nissan News Release, 25 January 2001 Back

87  See paras 41-2 above Back

88  Qq 135-6 Back

89  Ev, p 89 Back

90  Q 73 Back

91  Q 134 and see para 36 above  Back

92  Ev, pp 115-8 Back

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