Risk and Reward: sustaining a higher value-added economy - Business and Enterprise Committee Contents


Memorandum submitted by Ford Motor Company (FMC)

  1.  Ford Motor Company ("FMC") welcomes the opportunity to submit written evidence to the House of Commons Business, Enterprise and Regulation Select Committee's inquiry, Towards a Higher Value Added Economy. We have also been grateful for the Committee's guidance as to the areas in which information is sought and have structured our submission accordingly.

COMPANY GLOBAL OVERVIEW

  2.  FMC, headquartered in Dearborn, Michigan in the United States of America, is one of the world's largest vehicle manufacturers, with approximately 283,000 employees in 200 markets on six continents. Its automotive brands include Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. Combined global sales were 6,600,000 in 2006. Net income globally last year was a loss of $12.5 billion, and turnover was $160 billion. For the first nine months of 2007, Ford Motor Company's pre-tax results from continuing operations improved by $2 billion from last year, and net income improved by $7.1 billion over the same period. FMC's automotive-related activities include Ford Credit, Quality Care and Motorcraft. FMC observed its 100th anniversary on 16 June 2003.

FORD MOTOR COMPANY IN BRITAIN

  3.  FMC group companies in Britain employ around 30,000 people—approximately one third of all Ford Motor Company employees in Europe. 15,500 of these people are employees of Jaguar and Land Rover. FMC accounts for some 80% of UK automotive R&D, employing 9,500 people at technical centres located in Dunton, Essex and Whitley and Gaydon in the West Midlands.

4.  Three Ford Motor Company brands build vehicles in the country—Ford "Blue Oval", Jaguar and Land Rover.

  5.  The Bridgend and Dagenham Engine Plants also build petrol and diesel engines respectively for Ford, Jaguar, Land Rover, Volvo and Mazda products. In addition, Mazda and Volvo have sales organisations in Britain, and Ford Financial Europe—Ford's financial services organisation—is headquartered in the country.

  6.  FMC group companies operate over 30 facilities in England, Wales and Scotland. A third of Ford's European spending, and over two-thirds of Jaguar and Land Rover's total spending, is in Britain. In total, Ford Motor Company spends around £4.5 billion in the UK each year. Jaguar and Land Rover are among the country's largest exporters to the United States market.

Ford of Britain Manufacturing Operations

  7.  Ford of Britain operates three manufacturing centres in Britain: the Ford Swaythling plant near Southampton which manufactures Ford Transit variants; the Dagenham Engine Plant in East London which is Ford's global centre of excellence for the engineering and manufacture of diesel engines; and the Bridgend Engine Plant in South Wales which builds petrol engines. Ford employs 8,500 people in UK manufacturing.

Jaguar Land Rover Manufacturing in Britain

8.  2,200 people are employed at Jaguar's Castle Bromwich plant, where XK, XJ and XF vehicle production takes place. Jaguar's X-TYPE saloon and Land Rover Freelander are produced at Halewood on Merseyside where a further 2,100 people are employed.

9.  Some 5,700 people are employed at Land Rover's Solihull plant where four current models—Defender, Discovery, Range Rover and Range Rover Sport—are produced.

  10.  A further 2,900 employees are located at Jaguar Land Rover's design and engineering centre at Gaydon, Warwickshire and 2,000 at Jaguar's Whitley Design Centre in Coventry.

RESEARCH AND DEVELOPMENT

  11.  Research and development forms an important part of FMC's activity in the UK and accounts for 80% of automotive industry R&D in Britain. FMC employs around 9,500 people at its three main technical centres in the country: the Ford of Britain technical centre at Dunton, Essex, and the Gaydon and Whitley complexes responsible for Jaguar and Land Rover engineering development. R&D is also conducted into diesel engine engineering at the Ford Dagenham Diesel Centre and among the technical teams working in FMC manufacturing facilities. Spending on R&D in the UK for Ford Motor Company brands is around £800 million annually.

12.  Ford adopts a multi-technology strategy approach to environmental R&D since there is no single technology that alone will reduce CO2 emissions from road vehicles to sustainable levels. By applying a range of technologies across our product portfolio we will be offering customers more than 100 models and derivatives with improved tailpipe emissions and fuel economy performance over the next few years.

  13.  Last year, FMC announced a £1 billion investment in green technologies to be delivered principally by our UK technical centres. That investment is focusing on:

    —  lightweight vehicles;

    —  new advanced diesel and petrol engines;

    —  hybrid vehicles;

    —  bio-fuels;

    —  advanced transmissions; and

    —  a range of other driving efficiency improvements.

  14.  We believe that the hydrogen economy is a much longer proposition, and we are ensuring we have the technologies available when hydrogen technology becomes feasible to implement. Ford is a leader in the design and development of hydrogen fuelled fuel cell technology and is also researching and testing the use of hydrogen in internal combustion engines. Besides the fuel infrastructure, sustainable production of hydrogen and affordability remain the most significant challenges.

  15.  This investment is already producing results. At the recent Frankfurt Motor Show, Ford announced the launch of its ECONETIC range of low CO2 vehicles and the first product will be a Ford Focus at 116g/km CO2 available before the end of 2007. Low CO2 products across the Ford range will be available during 2008 including a Fiesta below 100 g/km CO2. At the show, Land Rover also announced that the Freelander will be available with Intelligent Stop Start technology early in 2009 saving up to 15% CO2 emissions. This technology, along with others, will be deployed across the Jaguar Land Rover product range in the coming years.

  16.  FMC welcomes recent Government statements on the importance of research and development to the UK economy, including the recent announcement of funds to support low carbon vehicle development through the Innovation Platform. We also welcome the recently announced Low Carbon Public Procurement Programme which will assist the acceleration of "near-to-market" low carbon vehicles.

  17.  FMC believes that environmental technology development does provide an economic opportunity for the UK, but contends that the UK cost equation and decline in supply base presents significant challenges to investment, particularly given the fierce global competition for R&D resources and the growth in technical capability of India and China. Funds to support R&D activity are very limited and the UK does not seem to be regarded as an attractive location for R&D investment by vehicle manufacturers other than Ford. FMC submits that a debate is urgently required to address ways in which UK automotive R&D can be stimulated.

IMPACT OF CLIMATE CHANGE AGENDA ON VEHICLE MANUFACTURERS

  18.  Ford acknowledges climate change as one of the biggest issues facing society and reducing CO2 is at the very top of the agenda for FMC globally—our single biggest challenge going forward. Our £1 billion investment in green technologies announced last year is one illustration of this commitment.

19.  The need to address climate change is, rightly, at the heart of EU and UK Government policy and, for the automotive sector, the main implications are for European legislation on CO2 emissions and national vehicle taxation measures.

EU CO2 Legislation

  20.  Average CO2 emissions from new cars in the EU have reduced by 25g/km over the past 10 years. And today, one third of all European cars sold are below 140g/km while more than a million cars are put on the market every year emitting 120g/km or less. These are significant achievements delivered in the face of often conflicting regulations.

21.  We will play our part in achieving the required mandatory objective for vehicle CO2 emissions that will eventually be set by the European Union. Despite this progress we recognise that we need to chart a course towards even lower CO2 emissions and that will only be delivered through a combination of demand and supply side measures. This involves a role for the regulators but regulation can only work if it's sensibly framed and introduced as part of a wider integrated approach. So in addition to supply side legislative CO2 targets we also need the right legislative framework from Governments to allow competing environmental technologies to flourish without distorting the marketplace. And we need proper engagement of consumers through intelligent fiscal measures and consumer information. And finally, to achieve the maximum CO2 reductions we need a full contribution from biofuels and other measures such as eco-driving.

  22.  However, the Commission's proposal that a target of 130g/km by 2012 be achieved through vehicle technology only is a very significant challenge for the industry. An additional challenge will be to define equitably how to achieve this average result over a wide range of vehicle classes, and Ford is working constructively to achieve a fair distribution of the finally-agreed burden across the industry through its role as a member of the ACEA.

  23.  We are concerned about the specific impact of the legislation on Jaguar and Land Rover. The legislation will impose challenging targets for the entire industry but it is likely that vehicle manufacturer groups will be able to offset their smaller, higher volume vehicles against the lower volume, higher CO2 emitting vehicles.

  24.  But when Jaguar Land Rover becomes a separate company there will be no possibility to offset emissions in this way and compliance with the legislation will not be possible without disproportionate cost and damage to the business. This is despite the fact that Jaguar Land Rover has a plan to reduce CO2 by more than the expected industry average reduction of 18%.

  25.  We have therefore asked the European Commission to build in a provision for "niche" producers into the legislation. It would mean that companies like Jaguar and Land Rover—which do not produce a full range of vehicles and whose sales volumes in Europe are relatively low—would have a separate target still expected to be in excess of the average overall reduction for the industry. We would expect this target to be very challenging and to require an aggressive programme of CO2 reduction.

  26.  Ford has sought support for such a provision from the UK Government, the European Commission and Members of the European Parliament.

  27.  We do not believe that the intent of this legislation is to put premium manufacturers out of business, but without such a provision Jaguar and Land Rover would be left at risk.

Vehicle Taxation

  28.  Like many EU Member States, the UK Government is using fiscal measures to influence consumer demand for vehicles. Ford recognises the role that green taxes can play in influencing consumer behaviour but believes the Government should guard against proposals which distort the market and threaten UK premium manufacturing. Tax proposals should also be "technology neutral" and should allow competing environmental technologies to flourish. There is a need for a tax structure that helps reduce CO2 over time and across the range of vehicle sectors so that the overall fleet CO2 reduction can be maximised. Disproportionate measures aimed at targeting specific car sectors will not achieve sustainable reductions.

29.  In this context, FMC was concerned at recent media speculation that the Government was considering punitive tax levels for vehicles in Band G (ie over 225g/km CO2). It seems that a new purchase tax combined with higher levels of Vehicle Excise Duty are under consideration.

  30.  The potential impact on Jaguar and Land Rover is significant because 63% of Land Rover and 31% of Jaguar UK sales are currently in Band G and the UK is Jaguar's largest and Land Rover's second largest market.

  31.  We urge the Government to develop proposals which allow the appropriate signals to be sent to the consumer while avoiding market distortion and disproportionate impact on UK premium automotive manufacturing.

  32.  FMC is also concerned at increasingly wide variations in taxation schemes across EU Member States. We are seeing different taxation break points, different tax bandings, varying amounts of tax payable for the same vehicle in different countries and different exemptions. In short, a confused and inconsistent picture which makes product planning, engineering and homologation for vehicle manufacturers in the EU increasingly problematic. Even within the UK, we are beginning to see a significant variation at local level in terms of parking schemes and congestion charge proposals.

  33.  We call upon the Government to hold discussions with other EU Members to secure a greater level of consistency in vehicle taxation and to act in the UK to avoid the emergence of numerous and widely varying local approaches.

Public Procurement

  34.  FMC currently supplies vehicles across the public sector, including to Government Ministers and officials, the police and emergency services. We value this business both on its own terms and for the symbolic support of Government it implies. We fully accept that Ministerial vehicles should be both competitive on cost and environmental performance and Jaguar, for example, meets both criteria through its X Type diesel and XJ diesel vehicles. However, little account currently seems to be taken of the level of British content in either the design or production of a vehicle or indeed the life cycle CO2 emissions generated by vehicles manufactured abroad and transported to the UK. We believe that these criteria should apply for vehicles purchased using British taxpayers' money.

Potential sale of Jaguar and Land Rover

35.  On 26 July 2007, FMC confirmed that it was talking in more detail to a smaller number of interested parties about the possibility of a sale of the combined Jaguar Land Rover business. Ford Motor Company has stated for well over a year that it has been assessing a number of strategic options for all of its operations—as would be expected of any responsible business. This step on Jaguar and Land Rover is directly in line with this review and is consistent with Ford's transformation plan. The plan will lead Ford to automotive leadership and create profitable growth for all in the future. Its elements include:

    —  aggressively restructuring to operate profitably at the current lower demand and changing model mix.

    —  accelerating the development of the new products that customers want and prefer—with advancements in safety, quality, environmental innovation and design.

    —  financing our plan; and

    —  working together, especially in terms of developing a more unified global brand identity for Ford "Blue Oval".

  36.  Any decisions we make will be in the best interests of Ford Motor Company and Jaguar Land Rover. The objective of any sale would be to provide Jaguar Land Rover with the ownership, technology and investment structure it needs to allow it to reach its full potential, while enabling Ford to concentrate on its core business strategy.

  37.  As the largest employer in the UK auto industry, Ford fully understands its responsibilities not only to its employees but also to its local communities. Ford recognizes the significant connections between Ford Motor Company and Jaguar Land Rover in terms of component supply, engineering and manufacturing and any potential sale would need to take full account of this.

  38.  The Company has now completed an extensive phase of due diligence with interested parties leading to firm bids received at the end of October. Bids have been assessed on a number of criteria, including financial terms, business strategy and stakeholder concerns, particularly those identified by unions, Government and local MPs on issues such as employment contracts and pensions. A further factor is the ability to have a strong relationship with Ford including long term arrangements concerning technology, component sharing, engine supply etc. Finally, there needs to be certainty of achieving closure for any deal.

  39.  Based on these assessments and further discussions with bidders we have selected a smaller number of bidders to proceed to more detailed discussions. There are still many detailed issues to work through, but we are confident that any one of the bidders would be a strong owner for the business going forward.

  40.  The process is being conducted according to strict confidentiality rules and FMC has not made any statements as to the names or numbers of parties with whom we are working. We anticipate that discussions with interested parties will culminate in an agreement no later than early next year.

  41.  Throughout this process we have maintained very close ongoing communications with our union colleagues, Government Ministers and officials, Members of Parliament with a strong Jaguar and Land Rover interest and other stakeholders.

  42.  We are committed to maintaining close contact with union colleagues and other stakeholders as the process continues. We do not disclose the content of any discussions with unions, Government or Members of Parliament.

Skills

  43.  In previous submissions to the Committee, FMC has drawn attention to concerns over our ability to recruit sufficient numbers of skilled people to support our engineering activities in the UK.

44.  In our submission of June 2006 to the Committee's Inquiry into the UK Automotive Industry, we stated:

    "Ford believes we must do more in the UK to raise teaching standards in mathematics and science, and improve the image of technology and engineering. Industry and government need to work more closely than before in order to achieve this goal.

    One difficulty companies like Ford face is accessing funding for basic skills and retraining activity. The existing training delivery structure is unnecessarily complex and there is a need to simplify and secure greater ease of access to training funds."

  45.  While we welcome the Government's recognition of these problems and some initiatives to address them, these remain significant issues facing our business in the UK.

  46.  We welcomed the recent Leitch Review of Skills and particularly the recommendation that the UK skills system be demand-led with qualifications that deliver the skills that employers and individuals need. We recognise that the implementation of this recommendation poses significant challenges but call upon all stakeholders to redouble their efforts in this area.

  47.  Ford has historically been a strong supporter of the Automotive Academy and is pleased to see it form the blueprint for the National Skills Academy for Manufacturing. NSAM aligns with Ford's philosophy of employer-led training and skills delivery and Ford hosts the NSAM London spoke at the Centre for Engineering and Manufacturing Excellence in Dagenham. FMC is also represented on the Board of SEMTA, the host sector skills council for NSAM. FMC will look to the new Commission for Employment and Skills to provide strong and effective leadership in this area and would want to assist in any way it could.

Currency Issues

  48.  The weakness of the US dollar and present strength of sterling continues to have a significant adverse impact on North American revenues for Jaguar and Land Rover (and other dollar based export markets) as these markets represent roughly a quarter of Jaguar Land Rover's revenue base. Despite significant weakness of the US Dollar there has not been any trend to higher competitive pricing in the US market over this period, therefore the ability of Jaguar Land Rover to offset these structural currency impacts is limited to internal cost improvements and its ability to redirect volume/increase our sales in other non-dollar markets, particularly in growth markets such as Russia and China. Over the short-term clearly we have also used currency hedging to smooth currency, which has mitigated some of the direct bottom line effect over the last few years, but is not a long term solution.

49.  The weak dollar has had a relatively small direct effect on the Ford brand business in the UK as most of Ford's business is transacted within the European Union with the exception of some lower volume export sales to dollar markets in the Middle and Far East. Clearly of concern to us however is the strength of both the Euro and Sterling against other global currencies such as the Japanese Yen, Korean Won and Chinese Yuan, which clearly gives a significant cost advantage to competitive brands importing into the European market from non-EU manufacturing facilities.

  50.  We continue to believe however that participation in the North American premium market, the largest worldwide, is critical to the future of the JLR and therefore continue to develop appropriate products and distribution for that market and manage our cost structure as best as we can until a return to more favourable currency conditions comes about.

Land Rover Manufacturing

  51.  Over the past three years Solihull has faced the challenge of raising its quality levels to match those set internationally by Jaguar and to become truly world class and is on target to achieve its goals. Substantial progress has been made and the plant recently recorded a significant improvement when audited as part of a statutory Ford Production Systems Integrated System Review—an important milestone in its efforts to reach those goals. However, there remains a need for further improvement.

52.  Solihull continues to produce all Land Rover's top-selling models except for Freelander 2—the Defender, Discovery 3, Range Rover Sport and Range Rover—and is the source of over 60% of total global production and sales. It continues to contribute significantly to the £4 billion worth of Land Rover exports each year.

  53.  Production of Freelander was successfully transferred from Solihull to Halewood with the introduction of a second-generation version, the Freelander 2, in the summer of 2006. It has served to enhance the reputation of the plant, rated as one of Ford's best facilities on a global basis, with the new car winning an international reputation for quality as well as capability and helping Land Rover to what will be a third successive year of record sales in 2007.

  54.  Freelander 2/LR2 is playing a significant role in broadening Land Rover's customer appeal in traditional and emerging markets. Its impact has recently been further enhanced by the introduction of an automatic diesel version, announcement of a new luxurious range-topping model and plans to achieve even greater economy by the introduction of a stop-start system as standard on many models from early 2009.

Land Rover Carbon Offset

  55.  Land Rover launched a Carbon Dioxide Offset Programme in September 2006 to balance emissions from its manufacturing operations and the first 45,000 miles of UK customer use. The offset provider is Climate Care, a company chosen after a lengthy period of due diligence.

56.  The programme is overseen by an independent board of governance, formed from leading experts on climate change and environmental issues.

  57.  The offset projects currently in place are fully verified and validated by an independent third party against the recognized international Kyoto standards, or equivalent, such as the Voluntary Gold Standard. The projects involve alternative or renewable energy sources such as wind or hydro, energy efficiency and technology change. The projects do not involve tree planting.

  58.  Land Rover customers pay from £85 to £165 depending on model and will be able to track exactly where their money was spent.

  59.  Land Rover takes its responsibility to the environment very seriously and the CO2 Offset Programme is just one part of an integrated approach to tackling climate change. We have already reduced vehicle emissions with the use of new, efficient and clean diesel engines. We have a multi-million pound investment programme to bring forward new technologies to make further, significant improvements. We are developing a hybrid and lightweight models. However, cycle plans in the automotive industry are measured in years and the CO2 Offset Programme enables us to make a real and measurable difference now.

  60.  The first projects include providing hydro-electric power to a remote area of Tajikistan and funding a wind farm in China. We are also helping to supply 20,000 efficient cooking stoves a year in Uganda. These projects are part of a developing portfolio, and will additionally bring social and environmental benefits to thousands of people.

Environmental Manufacturing Performance

  61.  All FMC manufacturing plants are ISO 14001 accredited and work to environmental target reductions that include water use, energy use, VOC emissions and waste. Since 2000 FMC has reduced its global operational energy use by 27%. Our manufacturing energy efficiency target is 1-2% year on year. UK operations achieved a 5% absolute reduction over the 2002-06 timeframe through the UK Emissions Trading Scheme.

62.  Passenger cars typically emit 85% of their life-cycle CO2 during the in-use phase. Manufacturing, distribution and sales accounts for 10% of life-cycle CO2 and end-of-life processing the remaining 5%. The End of Life Directive determines the recycling targets for passenger cars which are currently set at 85%, rising to 95% by 2015.

  63.  Ford has established London's first large-scale wind farm at Dagenham, transforming the Thames Gateway skyline in the process. The two 1.8MW turbines provide all the electricity needs of its new diesel assembly hall and annually displace 5,762 tonnes of CO2, 67 tonnes of Sulphur Dioxide and 20 tonnes of Nitrogen Oxide. A third wind turbine is being planned. Bridgend Engine Plant had the UK's largest solar array at launch. Mounted on the roof they provide enough electricity to light the plant.

Ford's UK Strategy

  64.  Ford of Britain's manufacturing presence in the UK is concentrated on engine and transmission (through Ford Getrag) production, supported with powertrain engineering at the Dunton Technical Centre. The UK also produces the Ford Transit, again with development support from Dunton. Ford aims to produce over 2 million engines annually by 2009, providing one quarter of Ford's total engine requirement and some 80% of Ford of Europe's engine needs. Dagenham already supplies more than 50% of Ford's global diesel engine demand.

65.  Assuming a satisfactory outcome to the current Jaguar Land Rover sale process, Ford will retain a strong presence in the UK, remaining UK market leader, a substantial investor in R&D and a significant employer. Jaguar Land Rover and Ford will be the UK's two largest automotive employers and Ford will continue the supply of engines and technology support to Jaguar Land Rover and Aston Martin. Ford's UK activities will also continue to make a significant contribution to the company's global presence.

December 2007





 
previous page contents next page

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

© Parliamentary copyright 2009
Prepared 25 September 2009