Automotive: Big Wheels Keep Turning
Above: Nissan’s new extra-large press starts production Credit: Nissan
UK automotive manufacturing hit a bump in the road in 2017 but it is hoped the momentum of the industry won’t lead to a breakdown in progress. A successful focus on opportunities with future technology is crucial to the sector’s fortunes.
“Leaving the EU with no deal would be the worst outcome for our sector. We urge government to deliver on its commitments and safeguard the competitiveness of the industry,” says Hawes.
He and other industry executives have emphasised to the Prime Minister the importance of speedy, seamless access to international suppliers and talent; one in 10 people working in UK automotive manufacturing is from elsewhere in the EU. UK automotive must comply with European regulations; the industry wants to guarantee a seat at the table when they’re formulated. PM May, in turn, “reiterated the government’s aim for an ambitious economic partnership with the EU, as well as an implementation period that ensures businesses only have to adapt to one set of changes”. Government and the industry have agreed on continued engagement.
Growth: a blip?
Car production in the UK rose from 2009 to reach its highest level in 17 years, in 2016. In the first three quarters of 2017, it was down 2.2%, to 1,259,509 vehicles. September 2017 was the fifth consecutive month of decline. Home demand was down 7.2% in the month alone, and 4.5% year to date (YTD). Although exports were also down in September – by 0.7% – the fall in UK registrations means the proportion of UK-built vehicles going for export increased, to 79.5%.
Ambitious targets were set as the country recovered from the recession. The SMMT wanted to see the country’s all-time record for car production of 1.9 million, set in 1972, broken by 2020. This ambition may not be achieved in the immediate future.
The biggest question mark hangs over Vauxhall’s Ellesmere Port facility. Its last significant investment – £140 million – was in 2014 for the new Astra; it is the sole production site in the world for the Sports Tourer estate variant but just a small proportion of output is of the five-door hatchback – most UK Astra hatchbacks are imported from Poland. General Motors sold the Vauxhall and Opel brands this year, to PSA Groupe, whose CEO Carlos Tavares has already let it be known that production costs at Ellesmere Port are higher than those in other facilities. A quarter of the workforce (400 jobs) will go in early 2018; the plant will move from two shifts to one in an attempt to improve competitiveness. Ellesmere Port is safe until 2021; the challenge is to win the contract to build the Astra replacement – lead times in the automotive industry require a decision two to three years ahead of production commencing.
On the upside…
BMW has committed to manufacturing the 2019 Mini Electric at Plant Oxford. Toyota is investing £140 million in its Burnaston, Derbyshire facility, refitting it to produce vehicles deploying the latest Toyota New Generation Architecture – and by green-lighting its installation at Burnaston, the Japanese firm has committed to Britain but it, too, is concerned about Brexit. Toyota UK exports up to 85% of production to Europe and any kinds of import or trade taxes would “create a big negative impact in terms of competitiveness”. The ideal outcome? Simply: continued, predictable, uncomplicated tariff and barrier-free market access between the UK and Europe, says Dr Johan van Zyl, president and CEO of Toyota Motor Europe.
Engines and vans: a mixed picture
UK engine production is up 5% year to date, to over two million: a new record. 55% were exported. Major facilities include Ford’s Dagenham diesel engine centre; Jaguar Land Rover’s £1 billion Ingenium facility in Wolverhampton; and Toyota’s Deeside plant – one of few Toyota hybrid engine facilities outside Japan, it boasts a TAKT time of just 44 seconds; the fastest of any Toyota plant in the world.
“UK engine manufacturing has repeatedly demonstrated the benefits of long-term investment into R&D and plants,” said Hawes. Meanwhile, with one eye on impending bans on conventional diesel and petrol cars, Chinese investment fund GSR Capital this year agreed a deal allegedly worth over £750 million to buy Nissan’s Sunderland electric car battery plant, and a sister location in the US. It is one of just a handful of European battery manufacturing facilities. The takeover will lead to further development, including boosting battery sales to other vehicle manufacturers.
The UK market for vans, often considered a barometer of business confidence, is significantly down in 2017, falling 11.7% YTD and 26% in September alone. Vauxhall, the UK’s leading commercial vehicle manufacturer, employs around 1,500 people. In 2014 it secured a £185 million, 10-year deal to produce the new Vivaro van, and produced 73,615 vehicles in 2016. The next-largest is Leyland Trucks’ Leyland facility, which built 14,729 vehicles. Luton’s fate is in PSA’s hands.
Making it more British
The UK has over 2,500 automotive suppliers but they are generally lower-tier companies. Eighteen of the 20 major Tier 1 suppliers have facilities here, while being headquartered overseas. Often, each individual investment must be fought for; it was only recently that one vehicle manufacturer was able to source plastic fuel tanks from the UK. “Before then, we were paying, literally, to transport air across Europe.”
Research by the UK Automotive Council in summer 2017 found around 44% of components in British-built cars are sourced domestically. This is up from 36% in 2011 but still of the target of 50% by 2020. France and Germany source up to 60% locally; the global nature of the supplier base means this may be the highest realistic level. The SMMT estimates there is £4 billion of unfulfilled opportunities for domestic Tier 1 suppliers, in addition to the £4.3 billion annual added value already generated.
Where Britain unquestionably holds global leadership is with specialist cars – low volume, high value automotive manufacturing: think Aston Martin, McLaren Automotive, Lotus Cars and, of course, Morgan. It’s the world’s largest and is on track to reach 52,000 vehicles by 2020, up 60% from today’s 32,000, and 2016’s turnover of £3.6billion was up 52% on 2012. Most of the 11,250 sector employees are highly skilled specialists. The vehicles contain a much higher content of UK components, too: 65% is sourced from local Tier 1 companies.
Lotus goes one better; CEO Jean-Marc Gales believes that, at 70%, its cars have one of the highest localization rates of any British car: and it exports 85% of production. Britain has motor racing to thank for its specialist sector leadership, he believes.
“The UK doesn’t have many Tier 1 suppliers but, thanks to motorsport, specialist suppliers are thriving,” he says. The trick is scaling up to larger volumes – something the firm will, since it was recently purchased by Chinese giant Geely, soon have to consider. Its first SUV is due in the next few years and Gales would like to assemble it in the UK.
This would be a stepchange for Lotus, which currently produces high- performance sports cars by hand; a skilled workforce of 800 puts a total of three weeks’ production time into each one. It even has its own autoclave, where it produces carbon fibre seats – and would like to make even more: “buying carbon fibre from suppliers is expensive…”
A smarter future
Digitisation is changing manufacturing. By 2035, the potential cumulative benefit could total £74 billion, with cars coming to market 30% faster, offering greater personalisation and quality to customers. The trick will be for industry and government to successfully negotiate the barriers to its implementation in the UK.
“Made Smarter”, a recent independent review, claims that UK manufacturing could create hundreds of thousands of jobs if it successfully exploits opportunities in advanced digital technology. But Britain will only do so if it demonstrates “greater ambition,” is the belief of Siemens UK head, Juergen Maier, chair of the report. Around one million existing workers need to be upskilled, because robotics and artificial intelligence will lead to job losses. The skills shortage remains acute, although some companies have been taking action.
The industry now holds its breath, hopeful that the slowdown in 2017 is just a blip. The British automotive industry has been revived over the past decade; industry and government are determined to prepare for the digital manufacturing future, led by the agship National Automotive Innovation Centre at the University of Warwick. But the wrong deal on Brexit risks leading the global giants, who have played such a pivotal role, to look elsewhere. What happens next is the £77 billion question.