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Last Updated: Thursday, 20 April 2006, 09:36 GMT 10:36 UK
Britain's car industry faces uncertain future
By Kevin Morley
Automotive industry analyst

Peugeot worker
The Ryton plant never stood a chance

The reaction to the closure of the Peugeot plant at Ryton, with the subsequent loss of 2,300 jobs, has been somewhat exaggerated.

Ministers were said to "be aghast" and the government was left "reeling" at the decision, which has been expected for the past 2 years.

They are being disingenuous at best.

When the competition to build the replacement for the Ryton-built Peugeot 206 was announced, the British government pitched in with a 14 million grant, which was rejected by Peugeot.

The reasons are obvious.

The Ryton plant is more than 40 years old, and it is now increasingly the practice to build a new factory when launching a new product line.

The motor industry in this country is probably stronger than it has been for decades
Ian Robertson
Chief executive
Rolls-Royce Motor Cars

It is simply a question of economics, and an old Ryton was never going to be serious competition to a brand new plant in Slovakia.

There are exceptions to this rule, and the Mini Plant in Cowley is one of them - an old factory converted to "newness" by heavy investment.

The Toyota, Honda and Nissan plants in this country have all been built using flexible techniques, which ensure longevity, and this has been confirmed by the introduction of new products lines in all of them.

Foreign owners

One accusation of the unions holds true; we no longer have our own indigenous Motor Industry, and we are the only member of the economic elite to hold that dubious distinction.

Peugeot workers
Labour costs make up just 15% of the cost of making cars

Yes, the UK has Morgan and Bristol and other small sports car manufacturers.

But even tiny TVR has been bought by a Russian.

So is this important?

Yes it is, because the prestige of a country in the manufacturing stakes is vital to attract inward investment, and we have lost that prestige.

If you cannot make cars, then you do not do manufacturing, and yet we have the finest automotive engineers in the world here in Britain.

Why else would all the Formula One teams be either based here, or have significant engineering resource here?

Yes, even Ferrari and Renault.

It is all about image, and we no longer carry the mantle of being a player in the world of manufacturing, simply because we lack a major motor manufacturer of our own.

France has two, Germany has three (four if Porsche is included) and Japan has four, and the USA has the two biggest.

Britain has none.

Lower costs

That is not to say that the UK does not manufacture cars.

Cost comparison between Germany and eastern Europe automotive component industry:
Western Germany: 25.8 euros per hour (2005)
Eastern Germany: 16.5
Poland: 5.4
Hungary: 4.7
Czech Republic: 4.2
Slovak Republic: 3.3
*Source: Centre for Automotive Research (Germany)

Recently, the UK has been building more cars than ever in its history - 1.8 million last year, with 74% being exported; but this situation cannot last forever.

With no emotional ties keeping the Japanese and American and German car manufacturers here, only economic ties make them stay, and the economic situation is changing rapidly.

It is not just that the direct labour costs are so much lower in Eastern Europe, with the UK and Germany averaging 28 euros per hour whilst Slovakia averages 3 euros per hour.

It is the knock-on effect of these costs.

It is argued that as only 15% of the cost of producing a car is down to labour costs, what is all the fuss about?

It is simply that these low costs feed down into the component chain, and the fixed cost of actually building the plant in the first place.

No loyalty

Toyota and Nissan may have plants all over the world, but the last place they would clear out of would be Japan.

Can we say the same for all the non-indigenous plants we have currently situated in this country?

They might be the first to go.

Selected countries, ordered according to 2005 figures
2003 2004 2005 Change 2004/ 05
Germany 5,506,629 5,569,954 5,757,710 3.40%
France 3,620,053 3,665,990 3,549,003 -3.20%
Spain 3,029,826 3,011,776 2,752,500 -8.60%
UK 1,846,429 1,851,589 1,803,049 -2.60%
Italy 1,321,631 1,142,105 1,038,352 -9.10%
Czech Republic 441,717 448,106 604,930 35.00%
Poland n/a 522,900 540,200 3.30%
Slovak Republic 281,165 223,542 218,173 -2.40%
Netherlands 192,634 247,503 180,568 -27.00%
Hungary 126,296 122,661 138,918 13.30%
Finland 19,658 10,510 21,644 105.90%
Source: European Automobile Manufacturers' Association

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