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


APPENDIX 3

Memorandum by MG Rover Group Ltd

ELV DIRECTIVE

MAIN ISSUES

  MG Rover Group fully supports the SMMT input evidence to your Committee on this subject, but feels that it is worth highlighting those specific issues that impact on MG Rover—the only British medium volume car manufacturer in the UK. The issues foremost for MG Rover are:

    —  Shared ELV responsibility by those who benefit from a car during its lifetime

    —  No retrospective burden before 2007 and then with a "light touch".

    —  A collective producer approach to compliance.

    —  No competitive disadvantage (between companies or between nations).

    —  Ability to avoid accruals and historic parc liabilities by using payment by current market share.

    —  Consistency with rest of Europe.

  The predominant issue is what will be the producer contribution to cover last owner free hand-over of ELVs to an authorised treatment facility? For this aspect alone, the implementation method, financial ground rules, and timing decided upon will have significant financial implications for vehicle manufacturers.

  This is of particular consequence to MG Rover Group Ltd, which has been downsized and would incur severe costs due to an historical legacy from the manufacturer of vehicles derived from a much larger group and scale of operation. (See attachment—ELV parc analysis).

  The parc analysis shows there will still be a significant cash burden to be accommodated by MG Rover to support the free-take back of legacy ELVs from 2007, let alone any Government proposals to pull forward producer support to 2002.

  If the ELV responsibility is not shared, and the onus placed 100 per cent on the producer, there will be serious effect on the MG Rover Business plan. Very few volume manufacturers are making a profit in the UK at present, and the decision would have to be made whether additional ELV costs would have to be borne by new car buyers, or whether businesses could stand a perpetual lag to profitability achievement. Not only would new car buyers have to bear say £125/vehicle for future ELV processing of their cars, but for a market diminished company like MG Rover, a further £220-250/vehicle would be needed to cover the cost of free take-back of ELVs from the large pre 2002 parc.

  ie if normal pricing actions had to be taken, including VAT and Dealer margins, a total of approximately £500/vehicle would need to be added to the new car price for the UK market.

  Clearly this would not enable MG Rover to maintain sales against competitors that do not have such a large legacy parc in the UK. Any non-recoverable costs prior to 2004 could directly delay MG Rover's return to profitability. Further to this, unless the legislation is suitably designed, major accruals would have to be provisioned for in the accounts for outstanding liabilities on the pre-2002 parc, and this would severely impinge on producer solvency.

  In fact, although not a route we would wish to consider from an MG Rover point of view, any competitive distortions resulting from the implementation of the retrospective aspects of the Directive in the UK could be legally challenged. Such effects would contravene the Directive's own recitals of: (1) "avoid distortions of competition in the Community"; and (7) "normal functioning of market forces should not be hindered".

  The motor industry has previously suggested to Government that a £5/car allocation to ELVs from Vehicle Excise Duty will fund around £80/per ELV towards processing costs, and neatly shares the cost with those who enjoy the benefit of the vehicle during its lifetime.

CONSULTATION PAPER

  Some of the options in the DTI Consultation Paper show promise in eliminating the devastating financial impact of having to make major accounting provisions for the outstanding "old parc". Trying to ignore the financial issues, which we are informed are to be addressed elsewhere in parallel, MG Rover's initial observations on the paper are as follows:

    —  Together with review of other European proposals, Option 2 particularly warrants consideration, but also Option 1 against an SMMT "fund" proposal to avoid accruals.

    —  An accounting provision not a "bond" or cash fund arrangement is preferred for accruals on new cars.

    —  Flat rate levy (if any) per ELV or tonne of material is preferred—no "green factor".

    —  Practicality of timing—suspect insufficient authorised dismantlers to Annex 1 standards will result in capacity shortfall for ELV processing from April 2002.

    —  A robust Certificate of Destruction system will need to be in place as an initiator for any producer payments.

THE NEXT STEPS

  The ELV Directive instructs Member States to take necessary measures to ensure that "producers meet all or a significant part of the cost of free take back", and suggest January 2007 for implementation of this action.

  In order to minimise the critical financial effect on the business development of the new MG Rover Group, it is essential that the burden bequeathed by previous ownership be minimised. Previous outline of this issue has resulted in assurances received from Prime Minister Blair that a "light touch" will be applied to the transcription of this directive into UK law.

  Government can do this by:

    (a)  Not assigning any cost burden to producers before 2007.

    (b)  Sensible interpretation of "significance". Article 4 paragraph 2, "producers meet all or a significant part of the costs". The definition of significant should be recognised as being 20 per cent, and that this will be the maximum Producer contribution from 2007 on pre-2002 registrations.

    (c)  Providing relief to businesses such as MG Rover where the company profile going forward is dramatically different to the past.

    (d)  Looking at the best parts of provisional plans in Germany, Netherlands, and France, etc.

  In spite of its financial concerns, MG Rover is willing and ready to take an active part in the final implementation process for this Directive. Much preparatory work has already been done with MG Rover taking a leading role since 1992 in:

    —  applying design for recycling processes, and dismantling techniques;

    —  developing dismantling standards and a pilot network through the formation of the Consortium for Automotive Recycling (CARE);

    —  strategies within the Automotive Consortium on Recycling and Disposal (ACORD);

    —  initiatives within the British Plastics Federation automotive recycling group;

    —  development of the International Dismantling Information Systems (IDIS).

  MG Rover supports the SMMT initiative in developing a prospectus for the formation of a collective approach by producers. The objective is to achieve an efficient national compliance scheme for both the producers and Government, which encompasses the low volume producers/importers. The consultation paper alludes to the Government option to pull forward the cost free take-back aspect to 2002. If there is 95 per cent Government funding for the direct costs of free take-back for the pre-July 2002 ELVs, MG Rover would be pleased to contribute to the balance of costs and start-up and administration costs of a workable scheme from 2002.

  MG Rover is confident the Committee will give due consideration to the issues raised and be in a position to ensure that MG Rover is not placed at a competitive disadvantage.


 
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