During late 2004 and early 2005, the UK’s automotive sector, particularly in the West Midlands, has been overshadowed by the announced closure of Jaguar’s Coventry plant and speculation over the survival of MG Rover as it continues negotiations with the Shanghai Automotive Industry Corporation. Elsewhere Nissan, BMW and Ford have announced substantial investments, whilst the latest collective agreements continue to emphasise labour flexibility and performance-linked reward.
The number of cars produced in the UK for export reached record levels in 2004. However, a fall of 9.1% in the number built for the home market meant that car production was lower than the 2003 total. The Office for National Statistics reported that 1,179,753 cars were made for export in 2004, 3.1% more than in 2003. Production for the domestic market reached 467,020, bringing total production for the full year to 1,646,773 vehicles, 0.7% less than in 2003.
Against this backdrop of a comparatively stable level of output for the UK automotive sector as a whole, the fortunes of Jaguar, a part of the US-based Ford’s Premier Automotive Group (PAG), and MG Rover continue to highlight the immense pressures faced by UK-based producers in a global market. In September 2004, Ford announced that it will cut 1,150 jobs and end car production at Jaguar’s Browns Lane plant in Coventry as it seeks to realign its production capacity with scaled back sales targets (UK0412106F). In November, Jaguar said that it was unlikely to break even before 2007, despite ending car production in Coventry.
MG Rover edges towards Chinese link-up
After many months of negotiation, MG Rover appears to be edging towards a 'make or break' alliance with the Shanghai Automotive Industry Corporation (SAIC), China’s second largest producer of cars. MG Rover first disclosed it was in talks with SAIC in 2004, and in November John Towers, chair of Phoenix Ventures, MG Rover’s parent company, told the Sunday Times that he was confident the deal would go ahead: 'We do not want to do what some other British companies have done and just shift production offshore. One of the fundamentals of the deal is to maintain Longbridge as a significant centre of production.' The revelation by Mr Towers of a 70:30 joint venture between SAIC and MG Rover came as a surprise not only to observers of the UK automotive industry but also to SAIC.
Although details about the scope of the final deal are scarce, it would appear that the joint venture project under discussion is separate from any plans to invest in jointly-developed new models. Such discussions would form part of a separate agreement between the two companies. It is believed that SAIC has already paid around GBP 40 million to MG Rover and Powertrain, the engines and transmissions business, to secure the rights to those companies’ technologies. Mr Towers has confirmed that SAIC will not be buying MG Rover as part of the design and development joint venture. Mr Towers went on to say: 'They will have a majority holding in that business. We are not specifying the level of control because we are still involved in detailed negotiations.'
It has always been recognised that MG Rover’s long-term viability depended on finding a partner to bankroll the development of a new range of models, but negotiations with Proton of Malaysia and China Brilliance failed to produce an agreement. Equally a project with Indian car-maker Tata to import its Indycar and rebadge it as the CityRover has generated poor sales. MG Rover has conceded that its finances are under pressure as global sales of MG and Rover cars fell to 115,000 in 2004, against 144,000 in 2003.
SAIC is keen to expand as a global player rather than being tied to franchise arrangements in China through which its factories largely produce cars for Western companies. It aims to produce 6 million cars by 2020, making it the world’s sixth-largest automotive producer. SAIC’s weakness is its lack of in-house technology and design skills of the kind needed to cultivate brands, and international management experience. Of the 1.5 million cars planned to be produced by 2007 only a handful, about 50,000, will be under SAIC’s marque. MG Rover, in the eyes of the Chinese firm, may provide a short cut to bridging that knowledge and skills gap.
The early announcement of an imminent deal to the UK press, however, was reported to be 'embarrassing' to the state-owned company because the Chinese authorities had still to approve a strategic partnership. On top of this, speculation over the future of the Longbridge plant’s 6,000 employees, if the deal with SAIC does go through, erupted following a Court of Appeal ruling in November 2004 (UK0412106F) overturning the car maker’s job security agreement (UK0012104F).
SAIC has become sufficiently concerned at the unease caused by the ongoing press speculation that in early February 2005 it issued a statement confirming it was 'at an advanced stage of detailed negotiations with MG Rover of a joint venture which will safeguard and secure car manufacturing at Longbridge. Contrary to speculation, these negotiations have the support of the Chinese government'. For the deal to succeed, SAIC needs approval from the Shanghai city government, its owner, and from the National Development and Reform Commission, the top economic policy-making body in Beijing
In addition to the approval of the Chinese authorities, MG Rover also needs the support of its former owner, BMW. MG Rover has an indefinite, royalty-free license from BMW to manufacture under the two brand names. A spokesperson for the German car maker said: 'It is for us as owners of the trademark to ensure that future use of the marques does not go against the prerequisites put in place at the time of the sale of Rover and Land Rover in 2000. The prerequisites mainly relate to the concerns that Ford had.'
Tony Woodley, general secretary of the Transport and General Workers’ Union (TGWU), told BBC radio that the joint venture was 'the last possible lifeline that will keep this still very British giant car company alive and going'. Prime Minister Tony Blair has already written to the Chinese authorities in support of the deal, and Mr Woodley has called on the government to continue its backing. 'What we have got to do is to encourage our government ... to make sure they give the support they are entitled to do under European legislation and to preserve as many of the manufacturing jobs in our country as is humanly possible.' He played down speculation the deal would lead to thousands of job losses at the factory as 'not warranted'.
There has been speculation that production of the Rover 75 model could be moved to China, though it is understood that if the deal goes through this model will be made in both countries. Dave Osborne, TGWU national secretary for the automotive industry, said that he had no knowledge of any potential job losses: 'We know the negotiations are ongoing. They are at a critical point, but we have no information at all about the details of any agreement.'
Other developments
February 2005 saw a flurry of investment announcements made by BMW, Nissan and Ford. BMW has announced that it will invest over GBP 100 million (USD 188 million) in its Oxford Mini assembly facility between now and 2007, creating around 200 new production jobs in the process. Since its 2001 launch, the Mini, originally planned at a rate of around 100,000 vehicles per year, reached a record level of 189,492 in 2004, making Oxford the fourth-largest vehicle producer in the UK. The total number of employees has risen to 4,500, including 128 apprentices. BMW claims that the plant operates one of the most flexible working time models in the UK automotive industry - the current three-shift working pattern enables the plant, in response to demand, to run seven days and up to 134 hours per week, using the remaining time for maintenance and cleaning.
The links between the Oxford plant and the BMW group’s plants at Hams Hall near Birmingham (engines) and Swindon (the one-time Pressed Steel/Rover group body plant now supplying pressed steel parts) are also likely be strengthened. It is expected that BMW will use its own in-house-made engines in future Mini models, with the petrol units most likely produced at Hams Hall and the diesels in Europe. Over 70% of the cars built at Oxford are exported.
Nissan announced that its new 'compact-crossover' vehicle will be built at its car plant in Sunderland, UK from 2007. The new car, codenamed P32L, is the first model to be styled at Nissan Design Europe in London and it has been engineered at Nissan Technical Centre Europe in Bedfordshire. The P32L is the second new model to be announced by Nissan in just six months, following confirmation that a production model based on the Tone show car will go into production at Sunderland in January 2006.
This new model further safeguards around 1,000 jobs at Sunderland and will create an additional 200 jobs. This announcement represents an investment of around GBP 223 million, including GBP 5 million of 'regional selective assistance' awarded by the Department of Trade and Industry (DTI). The initial production volume of this new model will be around 130,000 units per year. This would increase the plant’s total annual volume to around 400,000 units - strengthening Sunderland’s position as the UK’s largest car plant.
Ford is to invest GBP 169 million in its manufacturing facility at Dagenham to boost diesel engine output, in a move that could create up to 460 new jobs. The investment is being backed by a GBP 4.5 million grant from the DTI and means that Dagenham will be capable of producing about a million diesel engines a year by 2007. The London Development Agency and Learning and Skills Council will contribute another GBP 13 million towards training costs.
Recent collective agreements
The luxury manufacturer Rolls-Royce has concluded its first agreement with trade unions on pay and conditions at its plant in Goodwood, West Sussex. Under the terms of the deal, the 317 non-management employees will receive a pay rise of 4.3%, effective from 1 January 2005, whilst around 95 employees will benefit from an additional increase of GBP 1,500 a year to correct grading anomalies. Adjustments were also made to holiday entitlements, flexible working time arrangements and a review of the attendance policy.
Honda has signed an agreement with the Amicus trade union putting a curb on overtime working. The new procedure will restrict compulsory production overtime to one hour, Monday to Wednesday, and to half-an-hour on the late shift on Thursdays, for employees on the double-day shift system. There will be no compulsory overtime worked on Fridays. The new procedures also allow for Amicus shop stewards to be consulted on daily requirements.
In the first year of a two-year deal for hourly-paid employees, Jaguar implemented a 3.5% basic pay rise with effect from 1 November 2004. The main elements of the deal focused on pension arrangements and provisions for staff mobility across PAG sites in the West Midlands. Employees can now be required to transfer work location across Jaguar, Land Rover and Aston Martin sites that are within a reasonable daily travelling distance from home. Any extension of working at another site over four weeks will require consultation with the relevant trade union. A 'pay for performance' scheme has also been agreed for Jaguar’s highest grade white-collar staff. Under the two-year agreement, these staff will receive a general increase of 2.5% but will be eligible for an additional merit-based increase of 2% in April 2005.
Nissan and BMW have also agreed new two-year deals. Under the terms of these settlements, BMW and Nissan workers received basic increases of 3.8% and 4% respectively. Under the terms of BMW’s deal, the company-wide bonus scheme is to be improved. Land Rover has entered into the second year of its current pay deal, with basic rates increasing by 3.1% with effect from 1 November 2004. The final salary pension scheme was retained, whilst amendments were made to flexible working time arrangements and holiday entitlements, and maternity pay was increased to 52 weeks at full pay from 40.
Commentary
MG Rover has kept production going for the last five years in the 130,000 to 175,000 range and, in so doing, it has allowed many West Midlands-based suppliers the crucial time needed to find other customers in the car industry or in other engineering markets. The local development agency Advantage West Midlands (AWM) has helped in this process. Whilst supporting and encouraging the local car cluster, AWM has also encouraged a diversification strategy for local firms, away from dependence on one assembler and away from the car industry more generally. MG Rover appears to be at a watershed, but the labour market flexibility that makes Britain an attractive destination for investment, coupled with the low level of UK ownership among the volume car makers, continues to leave the local economy vulnerable to global production cuts. (Joy Batchelor, International Automotive Research Centre, University of Warwick)