Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 2

Memorandum by Toyota (GB) PLC

THE ECONOMIC IMPACT OF THE ELVs DIRECTIVE

EXECUTIVE SUMMARY

  1.  Toyota (GB) PLC supports the principles and objectives of the ELVs ("ELV") Directive and wants to see an effective regime established. It is vital for the industry's continued competitiveness, however, that this regime be introduced with a "light regulatory touch" and is no more onerous than those introduced elsewhere in the EU.

  2.  In implementing the ELV Directive, the UK Government must introduce responsibility no earlier than the dates set out in the Directive. Hence, responsibility for new cars should commence in 2002 and for all vehicles no earlier than 2007. This is because:

    —  The recycling and recovery targets required by the Directive do not come into force until 2006. This provides a five year period to enable involved economic operators to establish appropriate systems and infrastructure.

    —  The current de-registration data held by the DVLA requires cleansing and improvements in system accuracy. An effective Certificate of Destruction process needs to be established, linked to a form of continuous vehicle taxation.

    —  Few UK ELV Treatment sites currently operates to Annex 1 requirements. Time is needed for the ELV treatment industry to invest in appropriate facilities and for the Environment Agency to implement adequate permit and licensing arrangements.

  3.  To our knowledge no other Member State is contemplating early introduction of the Directive. The imposition of a more costly or onerous regime in the UK would send a very negative signal to global vehicle manufacturers and jeopardise future investment.

  4.  We recognise that the implementation of the Directive will have a significant effect on the financial operation of Toyota (GB) PLC. As a point of principle, Toyota believes that the cost of treating ELVs should be spread over all economic operators (as set out in the Directive) involved in the lifecycle of the vehicle.

  5.  Whilst the vehicle manufacturer should be responsible for part of the cost of treating an ELV, Toyota strongly believes that it should be up to individual vehicle manufacturers to determine the methods by which these financial obligations are met. Minimising actual ELV costs is a more important commercial consideration than the avoidance of a provision in the company accounts.

  6.  Each vehicle manufacturer should be responsible solely for its ELVs entering the contracted collection network. Any costs incurred would therefore be attributable to that marque alone, based on the actual number of its ELVs.

  7.  The development of Toyota in the UK was for many years inhibited by import restrictions on non-EU vehicles. This barrier to growth was overcome only as a result of a £1.6 billion investment in production facilities at Burnaston and Deeside. It would be unreasonable if those manufacturers who have profited in the past from higher sales now benefit from a system which apportions the cost of treating ELVs by current market share.

  8.  Toyota would therefore reject any proposal that makes the company liable for the cost of processing ELVs of other brands, irrespective of the current position of those brands.

1.  INTRODUCTION

  1.1  The Toyota group is the world's third largest automobile manufacturer, producing over 5.5 million vehicles each year—equivalent to one every six seconds. Toyota vehicles are manufactured in 55 plants in 25 countries and marketed in over 160 countries.

  1.2  Within the UK Toyota has invested over £1.6 billon, with a car manufacturing plant in Burnaston, Derbyshire and an engine production plant in Deeside, North Wales. Production levels for 2001 are anticipated to be approximately 170,000 vehicles and 185,000 engines. Production output for 2002 is forecast to increase to around 220,000 vehicles and 300,000 engines. 80 per cent of vehicles produced in the UK are exported, predominantly to the rest of Europe. As well as exporting engines to Europe as part of completed vehicles, future plans include the supply of engines to Toyota plants in South Africa and South America.

  1.3  Toyota (GB) PLC is the importer and distributor for Toyota and Lexus vehicles in the UK and is responsible for sales, marketing, after-sales and customer satisfaction. Sales are managed throughout England, Wales, Scotland, Northern Ireland and offshore islands by a network of around 214 Toyota dealer outlets (September 2001) and 56 dedicated Lexus sales centres (September 2001). We currently offer the UK's widest product range comprising 14 different Toyota vehicles as well as six Lexus models. Around 100,000 of our vehicles are sold in the UK each year giving Toyota/Lexus a market share of approximately four per cent.

  1.4  Of the total UK vehicle park of just over 27 million vehicles, there are 923,857 Toyota and Lexus vehicles which represents 3.4 per cent of the total park. Toyota/Lexus is currently the eighth best selling manufacturer in the UK, having grown consistently over the past few years and has ambitious but realistic plans to continue that growth.

  1.5  Toyota regards the protection of the global environment as one of its main priorities. We are committed to developing technologies that minimise the impact of vehicles on the environment, which means both reducing emissions and minimising the resources used in production and operation. We are striving for "zero emissions" at every stage of the vehicle's life cycle—research and development, design, production, use and disposal. Toyota spends annually around £3 billon on R&D, a high proportion of which (£600 million) is focused on reducing emissions and environmental impact of both manufacturing operations and new products and maximising use of recycled material.

  1.6  Toyota has been a long-term active participant in UK groups such as the Consortium for Automobile Recycling (CARE) and the Automotive Consortium on Recycling and Disposal (ACORD). We also ensure proper dismantling instructions via public dissemination of the International Dismantling Information Service (IDIS).

2.  IMPLEMENTING THE ELV DIRECTIVE

  2.1  Toyota supports the principles and objectives of the ELV Directive and is confident that it can meet the obligations in each of the Member State markets providing the respective regimes introduced are fair, flexible and in accordance with the Directive itself. In determining an effective regime, Toyota believes the Government should ensure five main principles are met:

    (a)  It should satisfy the main objectives of the Directive—The regime should be simple, easy to monitor and should satisfy the main objectives of the Directive; "prevention of wastes from vehicles"; "reduction in disposal of waste via reuse"; "recycling and recovery; and improvement in the environmental performance of all economic operators".

    (b)  It should be fair to all—Whilst recognising that as automobile manufacturers Toyota should make a contribution to the cost of treatment of ELVs, this burden should not be onerous. Similarly, it is right that the burden should not fall solely onto the last owner as that would inevitably and understandably lead to an increase in abandoned vehicles. All economic operators, plus vehicle users and the Government, who benefit from a vehicle throughout the product's lifetime, should contribute.

    (c)  It should not affect the viability of the UK Motor Manufacturing Industry—Toyota was encouraged by recent remarks by the Prime Minister and, latterly, Trade and Industry officials, that the Directive would be introduced with "a light regulatory touch" and would be no more onerous that any other regime proposed by any of the other member states. It was therefore surprising to see the consultation paper suggest the 2007 date is pulled forward to 2002. It is understood that a Government subsidy would be provided between these dates but this will not cover the additional costs incurred by Vehicle Manufacturers and will place the UK industry at a competitive disadvantage to the rest of Europe.

    (d)  It should be fair to all manufacturers—In introducing a regime, the Government will be conscious that its impact will affect differently sized manufacturers in different ways. As a relatively small marque but with a growing market share, Toyota cannot afford to subsidise those with a declining market share or those which are no longer in business. The ELV regime, should, therefore be fair and flexible to all manufacturers.

    (e)  Funding provided by Vehicle Manufacturers should be used solely to pay for the treatment of ELVs—Given the widespread concerns over the standard of the UK salvage, dismantling and treatment industries, the Directive should not be used by the Government as a panacea for these industries' ills. Raising the standards of treatment and recovery of vehicles will require significant investment, training and new procedures. Ensuring such change takes place should be the responsibility of the Environment Agency and not, by default, the motor manufacturing industry. Any regime whereby the motor industry is, in effect, subsidising the improvement of these facilities that currently operate in the main to very low standards should be rejected.

  2.2  Toyota is concerned that the Government's current proposals will not result in a regime that can meet the above listed principles.

3.  SAFEGUARDING THE COMPETITIVENESS OF THE UK MOTOR INDUSTRY

  3.1  The Committee's inquiry has as its focus the economic impact of the ELVs Directive. The impact will be felt by all manufacturers and comes at a time when the UK motor manufacturing industry is in a fragile state.

  3.2  Recent closure announcements by Ford and GM and the disposal of Rover by BMW brought into sharp relief the tight financial constraints under which motor manufacturing operates in the UK. Toyota is no different and although increased production levels were announced at Toyota's Burnaston and Deeside plants, the decision was very much a strategy within the "survival plan" of Toyota's UK manufacturing company. It should not be interpreted as a signal of Toyota's confidence in the future of UK manufacturing.

  3.3  Against this financial backdrop, the implementation of the ELV Directive and its possible implementation in the UK may place further pressure on the industry as manufacturers will incur a significant share of the costs. It is essential, therefore, that the UK regime is no more onerous than those introduced in other member states. Given the dynamic and shifting nature of international capital and the competition for productive capacity amongst manufacturing plants, it is essential the regime introduced does not put the UK at a competitive disadvantage.

  3.4  Toyota was encouraged by the recent remarks by the Prime Minister and, latterly, Trade and Industry officials, referred to in paragraph 2.1 (c) above. We have therefore been disappointed to hear from officials that the compliance dates may be brought forward—albeit with the possibility of partial Government subsidy. Disturbingly, the consultation document does not rule out this option, raising the prospect of an additional cost burden on the UK automotive industry.

  3.5  Proposals already submitted by other Member States, most notably France and Germany, which both have strong motor manufacturing sectors, are simpler and less onerous on manufacturers with shared responsibility incorporated into the systems. It is significant that to our knowledge no other Member State is contemplating early introduction of the Directive.

  3.6  There are also more practical reasons why bringing forward the implementation dates would be inappropriate and unproductive:

    —  The recycling and recovery targets required by the Directive do not come into force until 2006. This provides a five year period to enable involved economic operators to establish appropriate systems and infrastructure.

    —  The current de-registration data held by the DVLA requires cleansing and improvements in system accuracy. An effective Certificate of Destruction ("COD") process needs to be established, linked to a form of continuous vehicle taxation.

    —  Few UK ELV Treatment sites currently operate to the requirements of Annex 1 to the Directive. Time is needed for the ELV treatment industry to invest in appropriate facilities and for the Environment Agency to implement adequate permit and licensing arrangements.

  3.7  Toyota urges the Committee to look at other European schemes and consider their likely impact on the UK sector, especially in the light of possible changes to the dates of implementation.

4.  MEETING THE COSTS OF ELV

  4.1  As the producers of vehicles, Toyota recognises its moral responsibility to shoulder some of the burden. Under the current proposals, however, the liability for the cost of treating ELVs lies solely with the manufacturer. We believe responsibility should be shared. All economic operators, users and the Government—all of whom have benefited financially throughout the life of the vehicle—should bear a proportion of the cost of treating these vehicles.

  4.2  Some recent analysis by the Society of Motor Manufacturers and Traders highlighted just how much more other economic operators benefit over the life of the car than the motor manufacturer. The following table shows that during the life of an average car costing £9,400 (inc VAT) in 1992, it had generated revenues of £51,000 by 2000. the income generated is distributed as follows:

Table 1

DISTRIBUTION OF REVENUE RAISED OVER LIFE OF VEHICLE


Economic Operator
Per cent of
Revenue Raised

New sale
15.6
Used sale
27.2
Government Tax
23.0
Maintenance
4.4
Fuel Companies
8.0
Finance/Insurance
16.3
Parking
2.3
Other
3.2


  4.3  On this basis the proportion of revenue derived by the manufacturer is only 16 per cent; a glaring contrast with the 100 per cent responsibility for disposal being proposed by the Government. Toyota would seek to ensure that shared responsibility is built in to any proposed ELV system in the UK.

  4.4  To meet the costs of future ELV compliance, vehicle manufacturers will have to levy an additional charge on the sale of all new vehicles to cover their eventual treatment. When this levy will be introduced will depend on the dates of implementation—again underscoring the importance of parity with other Member States if UK manufacturers, distributors and dealers are not to be at a competitive disadvantage to other European states.

  4.5  Disappointingly, the Government's consultation paper makes no mention of how the take-back and treatment costs should be financed. Manufacturers are therefore in an invidious position, trying to gauge their individual liabilities and the impact those liabilities will have on their financial position without a clear indication of the date of implementation, the availability of any Government assistance, or, indeed, the precise nature of the scheme.

  4.6  Given that the consultation document proposes two very different options (plus a hybrid version combining elements of the two options) together with an invitation to submit alternatives, determining the best way forward is fraught with difficulty. Each option implicitly has a large number of variables regarding the dominant involved players, cost of treatment, capacity and standards of the treatment market, the apportionment of a vehicle manufacturer's target, the likelihood of Government assistance, the date of implementation and liability for other brands. As a result, many models have been run using a combination of assumed and known values to give a range of per unit ELV cost. What is not in doubt however, is that the figure will be sufficient to threaten the continued viability of individual businesses. For Toyota in the UK, we estimate a potential liability based on our historic vehicle parc of around £70 million (based on assumption of £100 cost per ELV—which, if it has to be shown as a provision within our audited accounts would make us technically insolvent, unless the company was re-capitalised.

  4.7  The need to abide by standard accountancy principles (UK GAAP) will require all companies to enter any liability onto the profit and loss account. As a consequence, companies with loan agreements could find debt repayments triggered instantly due to breach of loan covenants. All companies will face higher financial costs undermining their competitiveness, which will, in turn, trickle down to their suppliers.

  4.8  There has been much discussion amongst vehicle manufacturers and Government about the prospect of schemes to avoid a liability on the balance sheet. Clearly this would be more attractive to certain companies, notably brands with a declining market share, a large vehicle parc and uncertain finances. For others, however, such as Toyota, the liability can be provided for and the more pressing issue is minimising the impact of ELV compliance on cash flow.

  4.9  Given manufacturers' differing financial and market positions, Toyota strongly believes that it should be up to individual vehicle manufacturers to determine the methods by which these financial obligations are met, subject to normal accounting practices and any beneficial tax implications.

  4.10  There should therefore be one guiding principle affecting the apportionment of costs; all vehicle manufacturers—or importers—should be responsible solely for their own ELVs entering the contracted collection network. Any costs incurred would therefore be attributable to that marque alone, based on the actual number of its ELVs.

  4.11  The development of Toyota in the UK was for many years inhibited by import restrictions on non-EU vehicles. This barrier to growth was overcome only as a result of a £1.6bn investment in production facilities at Burnaston and Deeside. It would be unreasonable if those manufacturers who have profited in the past from higher sales now benefit from a system which apportions the cost of treating ELVs by current market share. It is also true to say that any system based on current market share would effectively penalise those manufacturers who are presently expanding and investing most in the UK at the current time.

  4.12  Toyota would therefore reject any proposal that makes the company liable for the cost of processing ELVs of other brands, irrespective of the current market position of these brands. This includes orphan brands and low volume niche brands now and in the future.

5.  REVIEW OF OPTIONS AS DETAILED IN DTI CONSULTATION PAPER

  5.1  Despite the previously mentioned limitations of the DTI consultation paper on ELV, determining the most appropriate option from those described in the DTI consultation paper was straightforward for Toyota. Of the three presented only Option one would provide the level of flexibility in meeting recovery/recycling targets, control over costs and the contracted network that Toyota requires. As such Toyota would welcome the opportunity to explore this further and look to adapting this option, possibly by taking elements of other European systems and grafting them on to it. The industry is currently looking at a further option (Option four) along the lines of the French system to identify how this could be incorporated into a UK system.

  5.2  However, this support from Toyota would still have to be qualified. Toyota would resist incurring responsibility for orphan brands or small volume manufacturers and would accept responsibility only for zero or negative value ELVs entering the relevant Toyota collection network as per Article five of the EC Directive 2000/53/EC on end-of-life vehicles.

  5.3  Option two—and therefore a significant short-term element of option three—is based on a Vehicle Recovery Note (VRN) system. Toyota believes there are significant defects in any such scheme that would make compliance impossible. These defects are:

    —  it is not known at what price the VRN will be set

    —  there is no indication as to how the price will be controlled, if at all

    —  if the price is left to so called "market conditions" it is likely to fluctuate rapidly

    —  budgeting against this price volatility will be difficult

    —  capacity shortfalls will be a major concern for marques with a small market share

    —  there is no indication as to how positive value ELVs would be removed from the obligations

    —  no motivation for efficiencies to ensure costs are minimised

  5.4  Noting the concerns listed above, for the concept of VRNs to be at all workable there must be an element of shared responsibility—in a similar manner to how Packaging Recovery Notes work in the UK under Producer Responsibility Obligations (Packaging Waste) Regulations—with the involved economic players each taking a share of the obligations and costs.

  5.5  As mentioned above the automotive industry is currently looking at alternative proposals (Option four) for a system to enable the UK to comply with its obligations under the ELV Directive. It is hoped that this can be presented in the near future. However, it should be borne in mind that the proposal might not necessarily have the unanimous support of the industry. Given that ELV is a critical issue for all manufacturers and distributors in the UK it is not surprising that its implementation is being considered primarily from a commercial viewpoint. It is also worth noting here that the industry needs time to consider these proposals as the Government has had some 18 months to deliver the consultation paper and the industry has only three months to respond making the possibility of a consensus opinion very unlikely.

6.  ESTABLISHING AN EFFECTIVE ELV INFRASTRUCTURE

  6.1  The Directive sets out the procedure by which ELVs will be identified, authorised, treated and accounted for. Member States must ensure that under their schemes all vehicles are received by authorised treatment centres where they are to be de-registered, a receipt provided and then the vehicle will be destroyed following which a COD will be issued.

  6.2  It is important, however, that the ELV regime be used solely to pay for the treatment of ELVs. Whilst Toyota is prepared to work with the treatment industries to ensure an adequate national network of (ATF) for our vehicles is established—which ever option for legislation is pursued, responsibility must not lie with us as manufacturers alone.

  6.3  The Government must ensure certain legal obligations and systems are in place if the Directive is to function effectively. These include:

    —  Unambiguous guidance on what "essential components" an ELV must contain—whilst the last owner must be able to submit his ELV free of charge, the Directive specifically states that the receipt is not fully free of charge if the ELV does not contain the essential components, in particular the engine or coachwork, or contains waste which has been added to the vehicle.

    —  Appropriate registration/deregistration systems—The current high number of abandoned cars appears to indicate that the current system is ineffective and greater incentives are required such as continuous vehicle taxation and a more effective vehicle registration/deregistration system (ideally electronic links to DVLA). The system must ensure that it is impossible to re-register a car once a COD has been issued. The vehicle must be destroyed once a COD has been issued.

    —  Obligations for vehicle owners—Whilst it is accepted that the last owner of an ELV should be able to dispose of it without cost, the last owner must bear the responsibility of delivering their ELV to the ATF so that it can be disposed of safely.

    —  Differentiation of positive and negative value vehicles—The system must also allow for positive and zero or negative value vehicles to be identified with vehicle manufacturers responsible for the latter and other economic operators accepting full responsibility for ELVs with positive market value. Full responsibility includes treatment, issuing of CODs/export certificates and reporting on achievement of recycling and recovery targets where appropriate.

    —  Consistency with Special Waste Regulations—Because ELVs currently contain hazardous materials, their movement will be subject to specific restrictions including notification to the Environment Agency and a £15 charge on every movement (as required under the Special Waste Regulations currently under review). Given the small margins in the dismantling and salvage industries, this could make the process uneconomic and inhibit the establishment of an effective collection network. A pragmatic solution is required so that the actual categorisation of ELVs is made at the appropriate time to avoid unmanageable situations i.e MOT failures being classified immediately as ELVs.

    —  Improved enforcement and monitoring—The role of the Environment Agency will be critical in ensuring standards are maintained and appropriate action taken to ensure operators who fail to achieve the necessary standards gain no competitive advantage. This will require more sophisticated data collection and compliance mechanisms which should be introduced whilst driving treatment costs downwards over time.

  6.4  In addition, if the fundamental objectives of the Directive are to be met with recyclability increased and waste minimised, the Government should press the EU for the following:

    —  EU-wide standard on material coding and identification (Toyota already marks all plastic components for ease of recycling).

    —  Suitable publicised de-pollution techniques and best practice guidance made available to increase and incentivise recycling and recovery of oils and other materials.

    —  A common EU system of vehicle environmental labelling ideally combined with existing Passenger Fuel Consumption & CO2 data already required by UK legislation.

    —  Consistency with other legislation—the Government must ensure that industry efforts to improve the design of vehicles so that recycling can be enhanced are not inhibited by other—equally laudable—objectives such as pedestrian protection, efficiency and emissions.

Toyota (GB) PLC

21 September 2001


 
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