In April 2006, Peugeot announced the closure of its plant at Ryton, near Coventry in the UK, with the loss of 2,300 jobs. This was the third motor manufacturing closure in the region in the past three years. Trade unions particularly criticised the lack of consultation, while the government expressed disappointment at the news. Although the automotive industry remains strong in the UK overall, there are fears that more companies will relocate to lower-cost eastern European countries.
On 18 April 2006, PSA Peugeot Citroën announced its intention to cease production at its Ryton manufacturing facility, near Coventry in the West Midlands, in 2007. The company found that a detailed review of its operations during the first quarter of 2006 highlighted relatively high costs at the plant, ‘which mean that the group is unable to justify the investment needed for the production of future vehicles’. Production will be terminated in two phases, with a move from two-shift to single-shift production in July 2006, followed by a complete cessation of operations in mid 2007. Some 2,300 jobs will be affected.
Rationalisation at Ryton
Motor production at the Ryton site dates back to 1946, when it was owned by the Rootes Group. In 1978, the company was acquired by Peugeot, with the first cars produced under the Peugeot marque in 1985. Since then, the plant has been mostly dedicated to single-model production. The Peugeot 309 model was followed by the 405 and 306 models and the best-selling 206 model; the popularity of the latter led to the introduction of a fourth shift in 2002, to enable seven-day production (UK0204102N). By 2003, the workforce had peaked to 3,839 employees with a production volume of 209,607 vehicles. However, the following year, Ryton failed to secure the latest replacement model, the 207, which is to go instead to a newly-built plant in Slovakia in June 2006. As the 206 model was also produced at two sites in France, Ryton scaled down to three-shift production in 2004 and a two-shift arrangement in 2005 (UK0504103N).
The company blamed the closure decision on relatively high production and logistical costs at Ryton, in the context of reduced market demand and intense competition in Europe. Peugeot’s Chief Executive, Jean-Martin Folz, noted that costs at Ryton were higher than those of any other plant in the PSA group. Modernising the factory to enable it to build a new model would have cost €250 million and ‘even after these investments, Ryton would have stayed the most expensive plant in our organisation’, he said.
Since the introduction of the 206 model in 1998, most of Ryton’s production was aimed at export markets. This made it susceptible to exchange rate fluctuations, especially as only 12.5% of components (measured by end-product retail values) were produced in the UK. Other plants within the group operated with greater financial stability and benefited from easier access to suppliers and markets. Another undoubted factor in the closure decision was the opportunity to relocate production at the end of the model cycle to new, lower-cost EU Member States. Peugeot has invested €1.1 billion in its Trnava plant in western Slovakia, which is projected to produce 450,000 cars by 2009.
Trade union reaction
The closure announcement represented another major blow to manufacturing employment in the West Midlands, coming a year after the collapse of MG Rover (UK0505103F) and two years after Ford’s termination of Jaguar production at Browns Lane in Coventry (UK0412106F). These closures followed Ford’s decision in 2000 to end car production at Dagenham and General Motors’ closure of its car production facilities in Luton (UK0012104F). In this context, Derek Simpson, General Secretary of the Amicus union described the news as ‘disastrous’ for British manufacturing.
In particular, the unions expressed anger at the finality of the decision and the way in which it was announced, with officials accusing the company of reneging on a commitment given a year earlier to consult them before any decision was made. Amicus’ National Officer for the automotive industry, Roger Maddison, stated that Ryton had continually contributed to the profitability of the company, and called the decision ‘a case of corporate greed and a betrayal of the workforce’. With the first lay-offs due almost as soon as the mandatory three-month notice period has passed, General Secretary of the Transport and General Workers’ Union (TGWU), Tony Woodley, declared: ‘It is astonishing that this company has given only the bare minimum notice to sack 2,300 people. They may be staying within the basic requirements of the law but their action is callous and is absent of any social responsibility’. Union leaders threatened industrial action, but many workers were reportedly sceptical about the likely effectiveness of this, and worried about the possible implications for redundancy settlements. An informal vote over industrial action was said to be evenly split.
The unions also criticised the government for what they claimed to be inadequate employment protection laws. General Secretary of Amicus, Derek Simpson, noted: ‘it is inconceivable that workers in France would be laid off on this scale. Weak UK labour laws are allowing British workers to be sacrificed at the expense of a flexible labour market…Job protection similar to that enjoyed by workers in France would give British employees the opportunity to compete for investment and work on important issues like productivity and efficiency.’ According to the London law firm Clifford Chance, the cost of shutting a major factory in France could be almost three times as much as in Britain because of French legal requirements for a ‘social plan’. However, PSA Chief Executive, Jean-Martin Folz, insisted that the decision had nothing to do with British or French employment law, but with the costs of running the plant.
Government response
The government also expressed disappointment at Peugeot’s announcement but defended its labour market record. Asked about the Ryton closure during the Prime Minister’s question time in parliament, Tony Blair expressed regret over the move but admitted that such job cuts were inevitable because of global pressures, and noted that other car firms based in the UK, including Land Rover, BMW and Japanese companies such as Toyota, were increasing productivity. ‘It is inevitable that from time to time there will be these losses. It is extremely important to recognise that, overall, the industry is strong’, Mr Blair emphasised. He added that 200,000 people remained employed by car firms in the UK, in an industry worth GBP 10 billion (€14.7 billion) a year.
Secretary of State for Trade and Industry, Alan Johnson, announced that he was ‘extremely disappointed that Peugeot has decided to end manufacturing at Ryton, particularly given the substantial quality and productivity improvements the workforce has delivered in recent years’. He believed that the government, which had offered the company more than GBP 14 million (€20.6 million) in 2004 towards the cost of modernising the plant, would bring together the regional development and training agencies to help workers retrain and find new jobs. Mr Johnson also denied that it was quicker to cut jobs in Britain than elsewhere and said ‘we have introduced protection that we did not have before...it’s getting the balance right between protecting workers and creating a situation where it’s so difficult to shed jobs that companies don’t invest in the first place’.
Prospects for motor manufacturing
While the latest plant closure will have a negative impact on manufacturing employment, particularly in the old West Midlands heartlands, the overall current performance of the automotive industry is robust. Profitable companies include: Toyota, Nissan and Honda, which collectively produced 767,000 cars last year; BMW, whose Mini plant produced over 200,000 cars, and which is investing GBP 100 million (€147 million) to add another 50,000 vehicles to capacity; and the luxury marques Aston Martin and Bentley, now producing around 10 times the volume of a decade ago, at 5,000 and 8,000 units respectively. In addition, Land Rover built a record 176,000 vehicles last year, while Vauxhall delivered record output at its Ellesmere Port plant in northwest England, and at Luton where it produces vans. Vauxhall and Ford have also invested heavily in their engine plants at Ellesmere Port and at Dagenham and Bridgend, although Ford continues to make annual losses of hundreds of millions of pounds in its Jaguar operations.
Nevertheless, a real threat to employment, even in currently successful companies, is the likely outcome of volume relocation to lower-cost countries, which are also expected to become increasingly significant markets in their own right. In the UK, companies such as Vauxhall and Nissan have frequently expressed dismay at the UK’s position on the euro, with implications for continued levels of investment (UK0403106F). General Motors, which owns Vauxhall, has a plant in Poland, and Carl-Peter Forster, Head of GM Europe, has mentioned that ‘we might be forced to close plants in western Europe in future’.
Such a development would form part of a wider trend of relocation eastwards. Ford has expanded operations in Russia and Turkey, while simultaneously downscaling from 11 to six plants in western Europe, shedding 20% of its staff. Toyota has also recently expanded in Turkey and Russia, and Volkswagen has shifted Audi production from Germany to Slovakia. Massive investment in greenfield operations means that such countries can compete on productivity as well as costs. Slovakia, in particular, which has an established metalworking tradition based on the arms sector, has experienced strong growth; its government has vigorously pursued inward investment based on lower corporation tax and direct state incentives, as well as offering lower labour costs, weaker unions and proximity to emerging markets. The automotive sector in Slovakia now accounts for a quarter of all its industrial production. General Motors’ Vice-Chair, Bob Lutz, posed the implications starkly when he recently commented that:
Everybody’s talking footprint migration from high-cost countries in western Europe and North America... Everybody is talking to the unions and trying to shift at least part of the production to eastern countries. You don’t have a prayer of breaking even on a new car unless it’s built in the east… It may just be possible to achieve this downward adjustment without major labour strife but it will be painful and you can understand why the unions don’t quite understand after 50 years of unbroken progress on pay, hours, pensions and health care. But we have reached the inflection point.
In these circumstances, the medium to longer-term prospect for high-volume automotive production is, to say the least, uncertain, not only in the UK but also in the other major economies of western Europe.
James Arrowsmith, Industrial Relations Research Unit, Warwick Business School