Speech given by SMMT chief executive, Paul Everitt to the Economic Research Council, entitled ‘The UK motor industry, past present and future’ on 14 October 2009.
Good evening ladies and gentleman, it is a very great honour for me to address you today. The Economic Research Council has played an extremely important role in the development of economic policy in the UK, providing a forum for debate and challenge for more than 65 years. In your president, Lord Lamont and his vice-presidents you have some of the most experienced, thoughtful and influential economic thinkers.
The difficultly for me is that the history of the motor industry has tended to be dominated by emotion, rather than rational debate. For me the industry has always been important, I knew it was because it regularly featured on the news, mainly pictures of striking workers and blackened smoke-stacks.
And for many, even today, the collective memory of industrial unrest, poor quality and suspect environmental performance shapes their attitude to an industry that I believe is of strategic national importance – and should inspire pride and confidence.
What is the UK motor industry?
Perhaps I should start by dispelling a few myths. The UK motor industry remains extremely important employing more than 800,000 people across the design, development, manufacture, sales and servicing of all types motor vehicle.
The UK is home to seven volume vehicle manufacturers (Honda, Nissan, Toyota, BMW MINI, VW (Bentley), Ford (engines) and General Motors). In addition we have Jaguar and Land Rover, Aston Martin, Lotus and a host of other specialist producers making trucks, trailers, buses and coaches.
And these companies make iconic products in the UK that sell in every corner of the world – whether it’s Jaguar, a MINI, a Rolls-Royce or a Bentley Continental. Over 75% or around a million vehicles a year, are made in the UK and exported.
You maybe surprised to now that the UK is the second largest producer of premium or luxury cars in the world. It is also a centre of excellence for engine development and manufacture producing more than three million automotive engines each year.
So we do have an industry and it remains strong and resilient, despite the current economic difficulties.
An Industry Transformed
The UK motor industry has been transformed since the mid 1970s – first by the inward investment from the Japanese vehicle manufacturers in the 1980s, which created word class facilities and a step change in quality, reliability and productivity.
And then in the late 1990s and the early part of the 21st century we saw a second wave of investments in engine production by Ford at Dagenham and by BMW at Hams Hall, then the investment in the new Mini and the re-invention of Rolls-Royce and Bentley. At the same time Ford’s ownership of Jaguar and Land Rover saw sustained investment in facilities, design and R&D.
So today we do have a strong industry it is globally competitive, unlike the US and Europe we have seen plant closures and a real commitment to rationalise and reduce over-capacity. We also have a highly motivated, flexible and skilled work-force – real advantages for the UK.
In many EU member states industrial relations remain problematic, strikes and disruptions are part of daily life – whereas in the UK we do have better relationships and a common determination to maximise our competitiveness.
An industry in the UK
What is also obvious is that this industry is not domestically owned. The big decisions are made by global companies headquartered in Germany, Japan, the US, India, Malaysia, the Middle East and now Canada. This can be a concern for some – if we do not own it how can we take pride in it or worse still actively support it.
This unease contrasts starkly with the pride that successive governments have taken in encouraging inward investment and the way that individuals and companies have found the UK to be a welcoming and successful home.
I think we should be proud that the UK is seen as an important location for the global automotive industry – but it should also inspire us to work harder to build and maintain close working relationships with the key decision makers in these global enterprises. And to build a better understanding of the value inward investment has for our economy.
New Automotive Innovation and Growth Team (NAIGT)
Earlier this year Richard Parry-Jones, the Ford Motor Company’s former chief engineer, led a team of senior executives from industry, government and academia to look at current performance and future prospects for the UK motor industry. The New Automotive Innovation and Growth Team report was published in May this year and provides an important guide to how move forward.
The team concluded that some significant changes were required to prevent a continued erosion of industrial capability, particularly in the supply chain. One of the major changes they recommended was the establishment of a long-term strategic partnership between industry and government.
Successive governments have had an ambivalent attitude to the motor industry, responding actively to periodic crisis, but then disengaging when the immediate problems had passed. If every country adopted this type of a laissez-faire approach, we might be OK.
But in a world where others actively compete to build and sustain a motor industry there are real dangers. So a new relationship between industry and government has to be a key part of building a stronger and more sustainable UK motor industry.
Ultra-low Carbon Vehicles
The team also concluded that the market for automotive products would continue to grow, mainly in the fast developing countries like China, India, Russia, across Eastern Europe, Asia and South America. Also that demand in all markets would be for progressively low, lower and ultra low carbon vehicles.
The challenge for the UK is to exploit the transition to a low carbon future to strengthen and deepen the industrial value of the motor industry here in the UK. To help support this, industry has developed a technology roadmap, a research agenda and is currently completing an evaluation of the relative strengths of the UK in the technologies likely to be required to deliver ultra-low carbon vehicles.
We hope this will provide guidance that will help direct public and private investment into appropriate research, development and demonstration programmes.
We have already seen government part-funding one of the largest trials of ultra-low carbon vehicles in the world and commit to up to £230 million for consumer incentives. This has attracted the interest of global vehicle manufacturers; the next test is to see whether we can encourage others to invest in the industrial infrastructure needed to fully exploit this future potential.
The most worrying aspect of the work by the NAIGT was the hollowing out of the supply chain. Whilst there are still a significant numbers of jobs in the UK supply chain – these are mostly assembly operations, the high value design, develop and engineering tends to done elsewhere. Mostly in high cost countries like France, Germany and Japan.
I believe we need to launch an active campaign to encourage key global suppliers to invest more intellectual capital in the UK. In the 80s and 90s we won investment from vehicle manufacturers, we now need to do a similar job on the component suppliers.
We do have a strong case. The combination of major global players, a strong cross-party commitment to a low carbon future, active incentives for low carbon vehicles and a reputation for academic excellence and engineering innovation is an attractive proposition. We now need the political and industrial will to convince sceptical investors that it is worth taking another look at the UK.
Surviving the present
I am very optimistic about the future opportunities for the industry in the UK. We entered this recession stronger and more resilient than at any time in the recent past and have responded quickly to the very dramatic fall in demand.
This has been painful, redundancies, pay cuts and short-time working all designed to ensure that companies survived and maintained their core industrial capability.
The credit crisis has served to remind us all that we need to have a more balanced economy, where manufacturing and the design and engineering skills that it requires have a higher priority.
The economic conditions in the years to come should encourage industrial investment and international trade. Inflation and interest rates will continue to be relatively low, consumers are likely to save more and spend less, and exchange rates will favour UK manufactured goods for some considerable time.
For the motor industry to benefit it must first survive the short-term pressures. I think that the recovery remains extremely weak and government should focus on sustaining and strengthening it. There is a need to put in place measures to curb public expenditure and reduce debt, but it is a question of timing and the risks of cutting too soon, are in my view the greater concern.
For the motor industry the core support requested from government was the availability of loans and loan guarantees to help sustain investment during the downturn, a scrappage incentive scheme to stimulate demand and measures to encourage more and better priced consumer finance.
Whilst the Automotive Assistance Programme provides loans and loan guarantees it has not delivered as much or as quickly as industry would like. To date only £10 million of an available £2.3 billion has actually been delivered. Not surprisingly we want to see the much faster delivery and where necessary some greater flexibility to ensure companies in the supply chain get the support they need.
Despite a wide range of schemes to support lending, there has been relatively little improvement in willingness of the banks to lend to industry.
The scrappage scheme launched on 18 May has been extremely successful. The extension announced earlier this month will see demand sustained through to the early part of 2010 and strong registration data through the first half of next year.
There are understandable concerns about the potential impact once the incentive has been removed. I am hopeful that underlying demand will strengthen during the next 6 to 8 months, particularly in the fleet and business markets. This should mean a relatively soft exit from the scrappage scheme.
All of industry’s efforts have been focused on sustaining its industrial capability. The short-term measures have been necessary to ensure that the UK motor industry is able to contribute more to a stronger and better balanced economy.
The transition to a low carbon future is an opportunity for the motor industry and the country. A strategic partnership between industry and government will be necessary to help foster and realise the potential.
There will be a market for ultra low carbon vehicles in the UK, the choice for us is where the vehicles and technology required for them will be designed, developed and manufactured.
The UK has a strong motor industry, we have an important share of global demand, and a new approach and new enthusiasm for the industry is capable of delivering jobs and prosperity for the long-term
I am clearly biased, I am an enthusiastic supporter of the industry and all the people that work in it, but I hope you will recognise the transformation that has taken place, the strength that currently exists and the opportunities that lay ahead.