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.
2. THE MOTOR
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
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.
3. SOME EXAMPLES
In recent years the industry has sought to extend
the use of electronic communication in a number of areas. These
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
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.
4. FUTURE DEVELOPMENTS
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.
5. ACTION IN
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 madefrom 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 monthsand 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
Reduced hardware and software costs.
Lower acquisition/maintenance costs.
Simpler roll-out of future technologies.
Increased shareholder value through
Faster, more agile business practices.
Better customer service.
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
industry led solutions, such as eTrust
7. INTEREST RATES
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
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.