This feature highlights the main industrial relations developments in the UK automotive sector over 2003 and early 2004, including the outcome of the 2003 pay round.
Despite strong output figures, the UK automotive sector faces increased competitive pressures and the prospect of continued restructuring (UK0012104F and UK0205104F). With 60% of the UK’s total automotive production going for export in 2003, the UK’s continued absence from the 'euro-zone' remains a cause for concern, whilst the strength of the pound against the dollar is an added pressure for the UK’s premium manufacturers. Against this background, the 2003 bargaining round proved to be difficult, and was characterised by industrial action in a number of companies.
Strong output reported, particularly by Japanese manufacturers
Total output for the UK automotive industry hit 1,657,558 units in 2003, the highest figure since 1999. Some 44% of the UK’s total output is now accounted for by the Japanese-owned producers. Nissan recorded a 12% increase on 2002, producing 332,000 vehicles. Honda saw a 4.3% rise in output to 185,000 vehicles, whilst Toyota remained static at 211,000 vehicles.
Nissan remained the largest car producer in the UK in 2003 for the fourth consecutive year and was ranked as the most productive car plant in Europe for the seventh year running, producing 99 cars per employee - up 4% on the previous year. Nissan currently builds the recently revised Micra as well as the Primera and Almera models in Sunderland (Wearside). In autumn 2005, the Micra C C cabriolet will be introduced and this will require an investment of GBP 95 million, including a GBP 3.26 million grant from the Department of Trade and Industry, which will help secure 250 jobs.
Speculation over Sunderland’s long-term future was rekindled by comments made by company president Carlos Ghosn at the recent Detroit Motor Show. Mr Ghosn expressed frustration at what he sees as the UK government’s slow movement on the euro, threatening to move production of the Almera to France. He said that production of the Almera replacement would definitely remain on Wearside if the euro was adopted. 'If the UK is in the euro system it is a no-brainer', he told the Financial Times, 'We will stay'. Nissan’s threat to move production of the Almera replacement to France echoes the threat that two years previously required the government to step in with a financial package of some GBP 40 million to keep the Micra at the Sunderland plant.
In May 2003, Toyota announced that it would be introducing a third shift, creating 1,000 jobs at its factory in Burnaston. These new positions are being created because Toyota wants to increase production from 220,000 to 270,000 cars a year in 2004.
Other manufacturers to report production gains included PSA Peugeot-Citroën, whose Ryton plant near Coventry built 207,000 Peugeot 206 hatchbacks and estates in 2003, up 4.8%, and BMW’s plant at Cowley which produced 175,000 Minis. PSA Peugeot-Citroën is continuing to delay a decision over the future of its Ryton factory. PSA chief executive Jean-Martin Folz said that the company would continue producing the top-selling 206 model at Ryton at least until 2007. PSA’s results have been hit hard by the strength of the euro against the pound. Adverse currency movements are reported to have cost the group’s automotive operations EUR 567 million (GBP 380 million) in 2003, of which more than EUR 300 million arose from the strength of the euro against the pound.
Where only five years ago Ford and Vauxhall plants dominated UK production, now only Ellesmere Port, which is one of General Motors’ 'flex plants', remains in operation, producing 124,000 Astras and Vectras in 2003. MG Rover saw output slip 10% to 133,000 vehicles in 2003 as it waits for the much delayed replacement for the Rover 45 following the collapse of the engineering design consultancy tasked with developing the vehicle.
Trade unions welcomed Jaguar’s announcement that it is to assemble its XK replacement model at the Browns Lane plant in Coventry. There had been speculation over the long-term future of the plant. However, this announcement, plus the successful launch of the new all-aluminium XJ in 2003 appears to secure the plant’s long-term future. Duncan Simpson, Amicus national officer for the car industry, said: 'The decision is excellent news. The workforce has been operating under a cloud for too long and we hope this is the start of continued investment and new models to secure the future for the site.'
Halewood’s expansion as a part of the Ford-owned Premier Automotive Group (PAG) will continue with the introduction of the Land Rover Freelander in 2006 alongside Jaguar’s X-Type model range. Whilst there is speculation over job losses in the Midlands as a consequence of this move, much will depend on the success of the new Discovery which will be launched later in 2004 and the introduction of a brand new model line into Solihull in 2005. Recent industrial action by Land Rover’s workers (UK0402101N), however, may have a longer-term impact on decisions related to future investment if flexible working practices do not match those of other plants within PAG. At the end of 2003, Aston Martin opened its state-of-the-art production facility at Gaydon, where production of the new DB9 model is due to commence later in 2004.
2003 bargaining round outcomes
The bargaining round of 2003 was a difficult one. Industrial action was taken at Land Rover, Peugeot and Aston Martin, and was threatened at MG Rover, whilst Honda’s pay claim went to binding arbitration.
The fourth quarter of 2003 saw pay increases triggered, as a part of long-term deals, at six manufacturers. Both Jaguar and General Motors’ subsidiary IBC Vehicles received basic rises of 3.3% from 1 November 2003 under the terms of their 'inflation plus' formulas, whilst pay rises of 2.8% occurred at MG Rover and BMW’s three plants at Hams Hall, Oxford and Swindon. Employees at Vauxhall received a basic rise of 3.6% in the final year of a three-year deal in September 2003.
Pay talks within PAG ran into trouble over issues related to parity of pay rates between Jaguar and Land Rover and flexible working arrangements at Aston Martin. Following a second 24-hour strike at Land Rover, employees finally voted in February 2004 to accept the company’s 2003 pay offer (UK0403102N). Aston Martin agreed to a two-year pay and conditions deal, the first to be reached following a recognition agreement with the Transport and General Workers’ Union (TGWU) (UK0205104F). This followed two stoppages in production at Newport Pagnell and Bloxham during the summer, after workers opposed proposals for flexible working patterns. Under the first year of the agreement, 850 employees received basic salary rises of 4%, backdated to January 2003 and the second year of the deal involved a pay rise of 3% or an increase equal to inflation in November 2003 plus 0.5%, payable in January 2004. From October 2003 a 'volume protection' arrangement was introduced whereby unplanned production losses can be recovered through the working of up to six hours contractual overtime in any week. A working party has been set up to develop proposals on working time flexibility, including a reduction in the working week of up to 1.5 hours.
Honda, which now recognises the union Amicus following a claim under the statutory trade union recognition procedure (UK0201171F), agreed to a basic pay rise of 3.2% to be paid in April 2003, following binding arbitration via the Advisory, Conciliation and Arbitration Service (Acas). Honda operates a merit-based progression scheme for shopfloor employees, under which the unions argued that the majority of staff would only have been eligible for a 2.7% increase, an offer below the rate of inflation. The arbitrator found in favour of the union’s claim. Honda also announced measures to overcome a GBP 40 million deficit in its final salary pension scheme (UK0301109F), including an increase in the retirement age from 60 to 62, an increase in employee and employer contributions and the closure of the scheme to new employees. Nissan’s final salary scheme also had a shortfall of GBP 121 million which required a cash injection of GBP 50 million. From September 2003 Nissan closed the scheme to new members.
Workers at Peugeot’s plant at Ryton accepted a deal to reduce working hours in a move designed to save the fourth production shift which was introduced in 2002 (UK0204102N). The basic working week, which is currently 36.75 hours, would be reduced by around an hour for most employees resulting in a pay cut of 2.6%. However, the 800 or so employees on the fourth shift had hours cut by around eight hours resulting in a pay cut of 20%.
Employees at MG Rover finally accepted a two-year pay deal after differences in sick pay provisions between MG Rover and Powertrain were addressed. Following a threat of industrial action, the company reinstituted 100% sick pay, providing absence levels remain at or below 2.75% over a three-month rolling period. Powertrain negotiated a two-year pay deal for its 1,150 manual and white-collar employees. This saw a 2.8% increase in basic pay in November 2003, whilst the second year increase will be based upon a formula of the September 2004 retail prices index (RPI) plus 0.2% with a minimum rise of 2.5% and a maximum of 3%.
New statutory maternity and paternity leave arrangements, which took effect from April 2003, prompted improvements to parental leave arrangements at Ford, Jaguar, Aston Martin, Peugeot, Toyota, BMW Hams Hall, MG Rover and Honda.
Restructuring disputes
In early 2004, Ford’s plan to close the Aveley pilot component plant, which employs 500 people, may result in strike action after a consultative ballot resulted in 76% in favour of taking industrial action. The dispute centres upon the unions’ claim that Ford is in breach of an agreement signed in 2001 as Ford’s Dagenham plant closed, which guaranteed no further Ford plant closures. Ford have since shut a further two facilities at Croydon and Boreham and announced the closure of Aveley. Duncan Simpson of Amicus has warned that if the majority of union members vote in support of industrial action, unions will move to ballot members across the whole of the Ford group in the UK, including, Jaguar, Land Rover and Aston Martin.
In January 2004, The Times reported that Birmingham County Court had ruled that MG Rover must uphold its employment security agreement. The TGWU had challenged MG Rover’s ability to threaten redundancy in the case of one employee and this ruling may now give 10 employees who were made redundant in 2000 (as a consequence of the break-up of Rover Group) the opportunity to sue for breach of contract.
Commentary
Overcapacity within Europe in recent years has seen Ford restructure its manufacturing operations, resulting in plant closures, the cessation of Ford-branded production in the UK, and the introduction of 'flex plant' operations in Europe (UK0205104F). In 2003, for the first time since 2000, Ford reported a full-year profit of USD 495 million, which compares with a net loss of USD 980 million in 2002. However, Ford’s ambitious turnaround efforts in the USA have not been matched by its European operations. Ford of Europe’s automotive operations reported a pre-tax loss of USD 1.1 billion for 2003, compared with a loss of USD 549 million a year previously. In October 2003, the European management of Ford announced a further 3,000 jobs were to be cut at its plant in Genk, Belgium (BE0311305F). PAG (which comprises Jaguar, Land Rover, Aston Martin and Volvo) reported a pre-tax profit of USD 164 million for 2003, compared with a loss of USD 740 million in 2002.
Ford and its subsidiary brands within the UK currently employ over 30,000 people, thereby making it the UK’s largest automotive operation primarily focused upon the design and manufacture of premium vehicles. PAG was created in 2000 following the acquisition of Land Rover from BMW. In the light of the continuing poor performance of Ford’s operations in Europe, there is increasing pressure to realise and exploit synergies beyond the boundaries of manufacturing. January 2003 saw a phase of internal consolidation within PAG as Jaguar and Land Rover were merged into one corporate entity. This resulted in the creation of common functional organisations covering engineering, manufacturing, purchasing etc. One of the first effects of this consolidation was the announcement to move production of the Freelander to Halewood in 2006.
Despite record sales figures being recorded by Ford’s premium brands, their continuing efforts to return to profitability will not be aided by the adverse currency movements of the pound against the dollar. This coupled with the continuing poor performance for Ford of Europe will continue to cast a shadow over the UK’s premium sector. (Joy Batchelor, International Automotive Research Centre, Warwick Manufacturing Group)