Select Committee on Trade and Industry Third Report


(a) Context and debate  

    It is over a quarter of a century since the UK vehicle industry faced a similar sense of crisis. The UK vehicle manufacturing industry is seen by some as in the midst of a crisis which could lead to the meltdown of a significant part of the UK's manufacturing base. Others emphasise the good news, which is rarely given the same attention. A select committee cannot usefully or properly comment on the prospects of large publicly quoted companies. What we can do is to set out what we have been told and try to present a balanced view of the current situation, and some pointers to future developments. In view of the great interest in the House in the subject, an early debate in the House on UK vehicle manufacturing would be welcome (paragraphs 5, 8 and 9).

(b) Cycle of models

    The number of vehicle manufacturers in the UK and the number of models being made means that every year the future of one or two UK-manufactured models, and by extension that of the manufacturing plants where they are assembled, is called into question. The outcome of this cycle of decision-making is of course of crucial importance to the whole industry and to those working in it. While the individual decisions are indeed affected by the prevailing economic and fiscal climate, including exchange rates, the regular cycle of decisions on the place of assembly of new models is the normal practice in the industry. We trust that the significance of this cycle is fully appreciated by all concerned, including those responsible for these issues within Government (paragraphs 68 and 69).

(c) Overcapacity and losses

    Vehicle manufacturers are either losing money on their European and UK operations or are making a very small return on their investments. Most car manufacturers are feeling the cold winds of low or negative returns on assets and are under pressure from unhappy shareholders. There is generally said to be substantial overcapacity in global, European and UK vehicle manufacturing plants. In the past, overcapacity as a result of excessively optimistic sales forecasts could be tolerated. Rightly or wrongly, however, the universal perception of overcapacity combined with the disappointing financial returns of many companies in the recent past, reflected in their share value, is now producing a worldwide pattern of plant closure, reduction in the number of models produced and reductions in the number of employees (paragraphs 70-72).

(d) Globalisation and the UK

    The vital decisions affecting the future of UK vehicle manufacturing and vehicle component plants are taken at a European or global level, and generally not in the UK. As the European vehicle industry is increasingly centred elsewhere in Europe, the UK is likely to suffer from decisions taken there, sometimes on other than purely economic grounds. Global companies have choices which purely national companies do not. The emergence of global producers has [also] extended the possibility of production of vehicles and components outside the traditional markets for cars, particularly in the new economies of central and eastern Europe, in Turkey and in the Far East (paragraphs 73-76).

(e) Core business

    The trend towards concentration on core competences challenges the future of all non-assembly operations carried out by the manufacturers, and is likely to lead to difficulties for some of the UK plants thus cast adrift. It is important that the Department is not taken by surprise by such developments (paragraph 82).

(f) Flexibility and UK single-model plants

    Dagenham and Luton were single-model plants. It is a matter of some concern that a number of the remaining UK car assembly plants are also single-model plants, notably Ryton, Cowley and Ellesmere Port (paragraph 85).

(g) New automotive technologies and R & D

    We detect in the industry a fundamental uncertainty as to the medium term future of its technology. The fact that most companies assembling cars in the UK have their main engineering and development centres outside the UK does not help the industry. There would in our view be benefit in Government and industry exploring ways of ensuring that the UK vehicle manufacturing industry is in the best possible position to benefit from the exploitation of new automotive technologies. We recommend an independent review of the direction of effort in Government-sponsored or supported automotive R&D with a view to ensuring that it is more closely focused on those areas where the UK stands to gain the most from such input (paragraphs 79, 110 and 113).

(h) Workforce contribution

    It must not be forgotten by those who own and manage the industry that a large measure of the success of the industry over the past decade should be attributed to its workforce. They are now entitled to some return for their efforts and their loyalty (paragraph 86).

(i) Labour law

    Our attention was drawn by all the trades unions representing the workforce in the industry to the alleged ease with which employers can shed surplus labour in the UK, in comparison with the situation elsewhere in the EU. The allegations made to us, not only in this inquiry but also in relation to the UK steel industry as well, that British workers are losing their jobs because it is easier to sack them than their European counterparts is sufficiently grave to justify the devotion of some time and effort to examining it. We had already been minded to recommend a general review of employment legislation with a view to identifying those elements of other European systems of employment protection and of the proposed EU directive which could and should be extended to the UK (paragraphs 87, 91 and 94).

(j) Review of labour legislation

    We have to sound a note of caution about the proposed terms of reference of the review announced on 13 December 2000 and again on 18 January 2001. The justifiable criticism over both the Dagenham and Luton closures and the BMW decision on Longbridge was that the workforce were given no opportunity to comment on the proposals being developed and to come up with alternatives before final decisions were made and announced. There is evidence that viable alternative options overlooked or summarily dismissed by management can come out of such consultation. Prior consultation can make good management sense. The proposed review must explicitly address this point. It has to go beyond "fine-tuning" of the law and practice of redundancy if it is to carry any credibility. Nothing must be ruled out, including primary legislation. The review must also be conducted transparently and swiftly. We recommend early publication of a date for the conclusion of the review. Subject to those observations, it is in our view a welcome development, although too late to save jobs recently lost in the car industry (paragraph 95).

(k) Company law

     This sacrifice of a car plant by a multinational intent on improving its short term profitability does plainly raise the question of to whom the directors of public companies such as General Motors should owe their duties. The lessons of this decision, and of Ford's very similar decision, must be fed into the company law review process, to see how changes in the legal duties of directors might have lead to a different outcome (paragraph 49).

(m) Workforce skills

    The industry can only survive if the skilled personnel are there to sustain it. At the level of engineering skills, there are worrying signs of failure, not least as a result of the obstacles placed in the way of existing employees increasing their skills and so becoming able to use new technology. We recommend consideration of a link between training grants and incentives for investment in new technology, so that investment in skills attracts comparable public funding to investment in new technology (paragraph 116).

(n) Euro

    The vehicle industry illustrates the arguments for and against UK membership of the euro, particularly because of the global alternatives open to the assemblers and to the major component manufacturers, and the high proportion of vehicles which are traded in intra-European trade (paragraph 97).

(o) Components industry

    The continuing presence of vehicle assembly operations in the UK is a crucial condition for the survival of the UK component industry. From our discussions and from evidence presented to us, it is indeed evident that the UK content of vehicles assembled in the UK has fallen, is falling and is likely to fall further, almost entirely as a result of the weakness of the euro. Those in an advanced stage of planning for new models or who have recently introduced such models have shifted towards sourcing from elsewhere in the eurozone or outside it. The danger with this trend is that it is not readily reversible, even if and when the euro strengthens against sterling or if the UK were to join the euro in due course. The loss of component manufacturing capacity cannot always be replaced, in particular in small firms with insufficient other markets for their products (paragraphs 99 and 104).

(p) Engines and powertrain

    There would be advantage in seeking to attract more engine and powertrain manufacture to the UK. Building on the existing business, and on the UK's design and engineering strengths, we recommend an active policy of encouraging by a variety of means the development and production in the UK of engines and powertrain for UK-assembled vehicles and for export (paragraph 107).

(q) Diesel

    We recommend that the departments concerned review the overall policy towards diesel engine use in cars in the light of objective study of modern diesel engine technology and its environmental effects (paragraph 109).

(r) Logistics

    The position of the UK as a desirable centre of vehicle assembly would be considerably enhanced by improvements to the reliability of cross-Channel transport links as well as by reductions in their costs, and by generally improved transport infrastructure (paragraph 117).

(s) Rail

    We recommend that the SMMT examine with its member companies the obstacles in the way of greater use of rail transport, and seek in discussion with commercial rail freight interests to identify what could be done by all concerned to encourage greater use of rail freight in the automotive industry (paragraph 118).

(t) Government policies

    It is not our view that the UK vehicle industry has any complaint of much substance against the Government's policies. There are limits under international and European laws and conventions to what even the most interventionist Government can do to assist a national vehicle industry. We recommend that DTI Ministers discuss with the Society of Motor Manufacturers and Traders and other trade bodies means of demonstrating the reality of Ministerial support for the UK vehicle industry, going beyond reactive commitment at moments of crisis (paragraph 121).

(u) Consumers

    There is no reason why individual consumers, including businesses, should not exercise their freedom to choose which vehicles to buy in such a way as to assist the UK car industry. There would be advantage in consumers being aware that there is a UK-assembled car in almost every segment of the market, and that buying such a car is one way of supporting the national industry and of conveying to the companies concerned that the British public does wish to maintain an vehicle industry in the UK (paragraph 123).

(v) Luton: choice of plant

  • It does seem to us an anomaly that, in the absence of simple information [on profitability at plant level] being available to management, unprofitable plants may be retained at the expense of profitable plants.
  • In broad terms, it would seem that the weakness of the euro against sterling played no significant role in this decision.
  • If it is indeed intended to produce as many as 160,000 new Vectras at a flex plant, it calls into question the rationale given for the closure of Luton.

    Luton is in effect paying the price of GME's pessimistic view of the sales prospects on the continent of the new Opel Vectra. Luton was the plant producing the wrong model at the wrong time. It was the only way General Motors Europe could take out a significant amount of capacity in the short-term (paragraphs 41, 46, 47, 52, 53).

(w) Luton: separation terms

    In the absence of comparative figures we are unable to confirm that the [separation] terms are comparable to those to be offered to employees in a similar position in Germany or Belgium. The employment laws in those countries seem to offer workers' representatives a greater opportunity to negotiate the terms of separation (paragraph 33).

(x) Luton: support

    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. 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 (paragraphs 55 and 57).

(y) Ellesmere Port: successor to Astra

    The threatened ending of car production at Luton is bound to have some effect on the future of Ellesmere Port, the principal remaining site of Vauxhall operations in the UK. The future of the Ellesmere Port plant largely depends on the successor to the Astra being assembled there, from 2003/2004 onwards. An undertaking that this would be the case was included in the 1998 Agreement with the trades unions. The worthlessness of such an undertaking is now all too apparent. GME may feel that it is open to do to Ellesmere Port what they are proposing to do to Luton, and that it will be easier to close Ellesmere Port than comparable plants in Germany, should similar circumstances arise for the Astra model in a few years time. A plant with only one model, on the geographic edge of the European market, and in a country whose labour laws make closure potentially easier and cheaper than elsewhere in the EU, would obviously be vulnerable to the "hawks" (paragraphs 39 and 40).

(z) Ellesmere Port: new Vectra

    It is crucially important that the DTI and the Government's representatives in Brussels do all they can to ensure both a swift and a favourable decision on the proposed RSA grant: and that the Government make every effort to assist the eventual production of the new Vectra at Ellesmere Port (paragraph 42).

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 8 February 2001