Select Committee on European Union Written Evidence

Memorandum by the Society of Motor Manufacturers and Traders (SMMT)


The Society of Motor Manufacturers and Traders (SMMT) wishes to encourage the development and expansion of e-commerce. The motor industry has progressively sought to take advantage of new communications technologies to speed the transfer of information between companies and welcomes the inquiry by the House of Lords European Union Sub-Committee B.

  The SMMT represents 880 member companies in the motor vehicle and component manufacturing industry in the UK. The automotive industry in the UK has a turnover of approximately £46 billion, which is equivalent to 5.5 per cent of Gross Domestic Product. Some 800,000 jobs were dependent on the industry in 1999, with 300,000 engaged directly in vehicle and manufacturing activities. In 1999 UK motor industry exports totalled £20 billion, greater than any other manufacturing sector and more than oil and aerospace.

  The motor industry in the UK is an outstanding success, with a consistent increase in car production from 800,000 in 1982 to 1.78 million in 1999. The steady rise in car production has been achieved through improved competitiveness supported by high levels in inward investment. In the last three years some 143 inward investment projects in the components sector have provided more than 36,500 jobs. There are now more major car makers active in the UK than any other country in Europe, components companies with combined sales of £13 billion a year and an internationally competitive design engineering industry.


  The evolution of communication between manufacturers and their supply chain has developed significantly with the increasing utilisation of electronic forms.

  The motor industry has conducted much of its business to business e-commerce in the form of Electronic Data Interchange (EDI) on different and in some cases proprietary networks. Time has been spent developing and refining an EDI system that enables manufacturers to electronically send messages between suppliers and dealers to simplify the flow of materials up and down the supply chain. This has now become an integral part of most of the UK manufacturing industry and has brought stunning efficiencies.

  The speed and efficiency of electronic communication along the supply chain has helped to ensure that materials and components are delivered just in time. This has enabled companies to minimise their stock and inventories, freeing up resources and space for more productive purposes.


  In recent years the industry has sought to extend the use of electronic communication in a number of areas. These have included:

  The Fleet Industry: Approximately half the transactions between manufacturers and volume fleet buyers are now conducted electronically. Furthermore, it is estimated that some 80 per cent of commercial transactions between a dealer servicing a fleet car and the fleet company owning that car are conducted entirely electronically.

  Automated First Registration and Licensing (AFRL): The AFRL system allows vehicle retailers to electronically register vehicles directly with the Driver and Vehicle Licensing Agency (DVLA). Currently more than 50 per cent of all vehicles are registered this way with the expectation that this will increase to 75 per cent, with 4,000 individual dealers online. AFRL replaces the paper-based system that requires dealers to send individual registrations to the regional offices of the DVLA. It means that consumers can get access to the new car more quickly and reduces the time and cost associated with the registration process.

  Selling to Consumers: All manufacturers now have imaginative websites in place delivering information about products and collecting information about consumers. The motor industry is responding to the challenges of this new technology, some are already selling on the Internet. There are also independent players at work in this area particularly developing and putting in place e-commerce sites for new and used cars. It is estimated that 10 per cent of all new cars sold to consumers within two years will be wholly or partly e-commerce transactions.


  The development of Internet based consumer sales has been the focus of much attention, but many anticipate that the biggest market will be for business to business e-commerce. The motor industry has begun to develop its own approach to these opportunities. Toward the end of 1999 both Ford and General Motors announced the launch of Internet based trade exchanges. These would provide virtual marketplaces for their supply bases.

  Early in 2000, following concerns that common suppliers would have to deal with different sets of protocol for each system, Ford and General Motors agreed to one single trade exchange. It has subsequently been announced that DaimlerChrysler will join the exchange with a number of other global manufacturers also considering participating.


  The SMMT is leading the motor industry development of a new electronic communications network set to revolutionise the way information passes between companies in the UK and abroad.

  The European Network Exchange (ENX) is a development of the public Internet and provides a single, easy to use network on which all types of transactions can be made—from initial drawings through quotes, orders and invoices. They key to the success of this approach is that it will generate one industry standard understood by all suppliers.

  Currently, many of the companies involved in the supply chain are required to create individual network links for every company that they do business with. The aim of ENX is to remove the duplication by using the single electronic language of the public Internet. This means that all companies, from SMEs to large vehicle manufacturers, can communicate using the same language and so suppliers that trade with a number of large companies can use ENX to reach all of them rather than using private, expensive, bespoke links for each individual one.

  Once the connection is in place, deals can be set up in hours rather than months—and at little cost to either party. The network is fast, easy to access and, at the same time, highly secure with a guaranteed high quality service (arrangements with major certified Internet companies will ensure that quality, reliability and security are paramount). ENX is a cost-effective business solution that meets the requirements of all companies operating in the automotive sector. This is because ENX is a scalable solution that can be adapted to be used in a company of any size and function. For example, smaller companies can use smaller, cheaper lines with smaller security devices if they do not require the functionality that some of the larger companies need to operate.

Key Benefits of ENX


    —  Consolidated network links.

    —  Reduced operating costs.

    —  Reduced hardware and software costs.

    —  Fewer staff.

    —  Lower acquisition/maintenance costs.


    —  Pervasive supply chain communications.

    —  Rapid application deployment.

    —  Simpler roll-out of future technologies.


    —  Service quality levels.

    —  Technology "commonisation".

    —  Standards-based technology.


    —  Increased shareholder value through streamlined operations.

    —  Faster, more agile business practices.

    —  Better customer service.

    —  Continued growth.

  ENX has been developed from ANX (Automotive Network EXchange) a system that is primarily used in the USA which is targeted specifically at the North American market. The USA scheme is currently running with approximately 200 automotive companies already reaping the benefits. The ANX model is being adapted to suit the European market. However, unlike in the USA, Europe contains a number of countries which all have certain barriers such as language, trading practices and varying requirements for security and digital certificate interoperability. Therefore, creating a single system for Europe is slightly more complex due to these varying requirements. It was decided that ENX in Europe should be developed firstly on a national level, to "localise" the project, and then aim to merge at a later date.


  The speed with which e-commerce is growing and the efforts being made to regulate this new technology have raised a number of serious concerns amongst our members. It appears that in seeking to provide a framework for e-commerce the European Commission and UK Government are in danger of restricting its development. This seems very much at odds with the Government's desire to promote e-commerce in the UK.

  The biggest difficulty that is faced by industry is national governments' and EU institutions' desire to impose regulations upon e-commerce. This is very difficult because:

    —  e-commerce and the technology that lies behind it are still fairly new and are developing at a pace that is too rapid for the slow legislative process.

    —  e-commerce by its very nature creates and exploits a global reach. The traditional legislative process cannot provide for the impact of borderless trading.

    —  The Brussels and Rome Conventions will, instead of encouraging e-commerce within the European single market, will inhibit e-commerce and cause fragmentation in an all already troubled single market. This is clearly in conflict with the e-commerce Directive, which is intended to urge industry to take advantage of the e-commerce opportunities.

  Successful commerce (traditional and new methods) has to rely upon legal certainty, confidence and competitiveness within the relevant market. This requires:

    —  a workable substitute for regulations;

    —  an examination of e-commerce and its global implications;

    —  the use of regulations in the future should not be completely ruled out, however it should be considered as a last resort and depending upon the outcome of relevant research;

    —  looking to other continents such as North America;

    —  cost implications for businesses wishing to enter the e-commerce market;

    —  effective and economical cross border resolutions;

    —  industry led solutions, such as eTrust Mark UK.


  The competitiveness of UK based automotive component suppliers has been undermined by the continued rise in the value of Sterling. The industry has been under pressure for some time, but it is only as supply contracts are renewed that the full impact becomes clear.

  The Bank of England's Inflation report, published in February 2000, indicated very clearly the competitive pressure on manufacturing. Despite estimates that the annual rate of inflation for input prices reached 12 per cent in December 1999 there have not been significant increases in factory gate prices.

  Manufacturers have had to reduce their margins to remain competitive. This was confirmed by the latest CBI monthly industrial trends survey, which indicated that most manufacturers expected to reduce their prices in the coming months.

  Recent increases in interest rates have served to continue the upward pressure on Sterling, undermining the competitiveness of UK based production. The Bank of England has acknowledged that its forecasts of inflation are dependent on key judgements made about price competition and productivity.

  The rapid deployment of new technology, e-commerce and the entry into force of the Competition Act will all work to reduce costs and intensify price competition. These factors will allow the economy to expand without threatening the Government's inflation target. More effort must be made to understand the impact of globalisation and new technology on the UK economy in order to prevent unnecessary increases in interest rates and the damaging consequences for UK producers.


  The development of Internet trading for businesses and the consumer will have a significant impact on the way that companies operate. The pace of change is increasing and there are dangers that companies, particularly SMEs in traditional manufacturing sectors, will find it difficult to adapt and compete.

  The UK government and European institutions should regulate carefully and lightly. Industry can deliver voluntary arrangements and these can provide the necessary assurance for consumers at significantly lower costs. The full benefits of a vibrant and dynamic e-commerce market will not be achieved if regulation eliminates smaller and more innovative companies.

April 2000

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