Thank you for providing us with the opportunity to comment on the inquiry by your Committee into the Automotive Sector and, in particular, on the reasons for success and failure in the UK automotive sector.

  The Institution of Mechanical Engineers is well placed to comment, with some 16,000 of its members directly involved in the sector and many others with close connections.

  Having discussed the issues with suppliers in the auto industry and companies currently undergoing the Manufacturing Excellence assessment process, the Institution offers the following comments, which are particularly relevant to the last point raised by the Committee:

—    The statement is reactive when what is required is a proactive approach, ie to take action before plants close.

  It is acknowledged that government probably has little advance warning that plants are threatened with closure, and have typically had to respond to situations. However, the Inquiry should look at the generic causes rather than be plant specific. There are some known recognised national issues:

(i)  Globally uncompetitive skills at all levels.

(ii)  Insufficient engineering research and development by UK suppliers, particularly with regard to innovation.

(iii)  Organised labour attitudes (although this is improving rapidly).

(iv)  There is a pervading perception of supplier quality shortfall (once again this is an area that is improving).

  Whilst the Government does address some of these issues, it seems to do so on a short-term palliative basis, when what is needed is long-term structured support. One example is the Automotive Academy whose future remit is seriously being considered just when it is beginning to deliver on its aims.

—    Companies in supply chains that have fared best against a backdrop of closures have been those that have diversified their products in good time. They do not necessarily need to diversify out of the automotive sector but have used better technology to drive down costs, improve quality and functionality.

  Dependency on a single manufacturing sector is very risky and, although most companies have some sort of exit strategy, they should be encouraged by government to innovate their products and processes and diversify. Supplying to the automotive sector is no more risky than many others, as long as companies develop a long-term and global strategy.

—    The Government already encourage companies to innovate to some extent with R&D tax credits but, once again, these are retrospective. What is required is help (preferably financial) aimed at business development and assistance to move into new markets. The Government may have some difficulty in launching any "pump priming" scheme because such schemes are increasingly not allowed under international competition rules.

  There are two things that Government can do, however, to help the UK automotive sector. Firstly, help police the even-handed application of the rules for international competition and, secondly, provide substantial long-term financial support for training in productivity, quality, investment management and innovation through such bodies as the Automotive Academy and Sector Skills Councils.

12 June 2006