TUESDAY 23 MAY 2006

AMICUS

  Chairman: Gentlemen, welcome to this first evidence session of the Committee's inquiry into the UK Automotive Industry, born out of its original inquiry into the Rover Group. Before I ask you to do anything I think some Members of my Committee want to make a declaration of interest.

  Roger Berry: I am a member of Amicus.

  Mr Wright: I am a member of Amicus.

  Mr Hoyle: I am also a member of Amicus.

  Mrs Curtis-Thomas: And so am I.

  Q1  Chairman: More than I thought! I am not a member of any trade union—that will not be a surprise to you, but do not read anything into that! Gentlemen, can I begin by asking you to introduce yourselves, for the record?

  Mr Simpson: I am Derek Simpson, General Secretary of Amicus, and I have a couple of membership forms for anybody who feels so inclined!

  Mr Parker: My name is Tim Parker; I am Regional Officer in the West Midlands with responsibility for a major slice of the car industry, including what used to be MG Rover.

  Q2  Chairman: We are looking now rather more at what we can learn from the Rover experience as a result of the very unhappy developments that have taken place, for example at Coventry. Before we go into the questioning of that area is there anything you would like to tell us about the history of the MG Rover Group to put on the record as a background to that, or do you want to move straight into the questioning?

  Mr Simpson: I think the history is perhaps a separate exercise. From our point of view it is what happens in the current situation and the forthcoming situation, and in the wider context than Rover: what is also happening in the rest of the car industry, some four examples of which we have been dealing with in the last week or two. I think in terms of the time—I understand that obviously we have a time constraint—it may be more productive and beneficial to explore what our views are of that situation rather than the historic one.

  Chairman: The Committee is entirely happy with that but we thought we should give you the chance first, and indeed your written evidence reflects that priority as well. Brian Binley.

  Q3  Mr Binley: I am delighted that you have talked about the future and the need for investment, the retention of jobs, the retention of plant and that sort of area of activity. The latest set of statistics for car production in the UK, produced in March, showed that production rose on a year-on-year basis, although in the first quarter of 2006 it was 5.5% lower, so we did have a fall in the first quarter of this, but generally the figures were up. Commercial vehicle output was up for both the month and the first quarter. Can I ask you what is Amicus' view of the overall health of the UK car and commercial vehicle industries?

  Mr Simpson: I think there is some conflict in the statistics because our statistics show that car production is down by some 3.6% overall in the last three years. There is some cushioning of the actual fall in what I call the classic British car industry because it is clear that the Japanese car companies of Nissan, Honda and Toyota have buoyed up actual car production, and they have done that by investment and bringing in new models, which stands in stark contrast to what has happened in the more traditional British car industry, where we have seen decline, lack of investment and very much the lack of new models. We have some further evidence, which I understand would be welcome, and we will submit some statistics that back that up. It is clear that what is happening is that there is a transition from West to East in terms of where there is real car manufacturing growth. Slovakia, Poland and Hungary appear to be, percentage wise, significantly on the increase, whilst generally in Spain, France and the UK the production levels are generally downward, and I think that is not so much a product of the Rover situation, which I think has its distinct business failures in there; I tend to think that Rover is a bit of an exception to that rule, it was a business collapse rather than a car company taking other strategic decisions. But what we do about both business collapses and strategic decisions would be the similar sort of measures.

  Q4  Mr Binley: Can I pursue that a little, Mr Simpson? Let us take Peugeot, and I recognise that you are in a delicate situation in that respect and if you tell me to get lost I will understand that, but do you feel that there are any factors with regard to the decision about Peugeot that were over and above questions of finance investment, production figures and so forth?

  Mr Simpson: I think that there are a number of factors but I do think that they are related, and it really does come back down to financial considerations. I actually think that car companies plan significantly well upfront when it comes to investment and the development of skills and the equipment when it comes to developing new models. But I also think that car companies recognise that there is a natural trend, as there is in all industries where technology is used—and cars are coming out highly technological—to see actual employment numbers fall; in other words, to have more cars produced by fewer people. That is understandable, so part of the planning of a company is also planning for how it reduces its workforce as well as increases its production, and I think that those factors may not necessarily be directly related to finance but ultimately lead to that end. What concerns me—and I have made this clear, and Peugeot is a perfect example—is that it is almost patently obvious that Peugeot is a company that is in profit, and in fact made £12m profit on the Ryton site, and it has taken advantage of cheaper labour rates in Slovakia. It originally planned to build between 300,000 or 400,000 vehicles but still intended at one stage quite recently to build 150,000 vehicles at Ryton. Because of the advantages of the Slovakian position it has latter day switched the 150,000 to Slovakia as well, which is why it has announced the closure of Ryton. It is clearly connected not just with cheap labour rates but there is also the question of how it disposes of labour. The facts are that it is significantly cheaper to shed labour in the UK than anywhere else, in Europe certainly. It is quicker to do so; closures can be accomplished much quicker. Quite frankly, one of our concerns is that it does not seem—

  Q5  Chairman: You are being a very helpful witness and very obliging and you are anticipating all kinds of questions that my colleagues will ask later, so you are covering the whole brief!

  Mr Simpson: I can repeat the answers!

  Q6  Chairman: So if we try and keep the questions and answers a little bit shorter and then we can cover the ground.

  Mr Simpson: I think there is a wide range of factors but it does really come down to finance in the end.

  Q7  Mr Binley: My colleagues will go on to those questions. So there are no sorts of national concerns here that you see, but that money rules all, is that what you are telling me?

  Mr Simpson: I might be reading this wrong but I would suspect that in some cases certainly there is some national consideration from certain ... I think Peugeot, for example, reflects that the French are very protective of French industry generally. I know that they have designated several industries as strategic industries, and I am not sure whether the car industry is one of those, but certainly it is an attitude that the French have that many of our people in Peugeot in Ryton are saying that what is happening here could not happen in France.

  Q8  Mr Binley: I am going to miss out a question and go to my final question. Some automotive companies seem to be coping better than others with competition, both in the UK and worldwide. In your view what are the main reasons why some companies are expanding production in the UK and others are cutting production?

  Mr Simpson: I think it is investment, quite frankly. All the companies that have closed or are struggling are invariably companies in which they have been investment starved compared to when they are in groups: investment in other parts of the world, particularly in the cheaper labour markets. But some companies like Nissan, Honda and Toyota have clearly invested not just in modern plant but in new models and that is where the growth has been, and I think that is the distinction. Obviously you have to have a training programme and a skills programme in place to ensure that you have the necessary labour and, up to a point, you have to have a particular set of conditions that allow the flexibilities to take place to take advantage of the new technology and the new methods, all of which, of course, have been successfully negotiated in these plants. But somehow or other, as I say, what I would call the traditional car companies are in some difficulty. I would acknowledge that at one stage General Motors and Ford appeared to have worldwide problems with their finances and they are struggling in all sorts of ways to try and balance the books in what they claim to be a very competitive market. The UK is going to bear more than its fair share of the consequences of that, for the aforesaid reason that it is so much easier to do reductions in the UK.

  Q9  Roger Berry: I take your point that some companies are investing in the new models in the UK and some are not, but the real question is why? Why is it that for some companies it is the best thing to do to invest in new models in the UK, which we obviously all welcome, but for other companies it is not? I think this was behind my colleague's question: why is it that some companies say, "Yes, we will invest in new plant, new models in the UK," and other companies are not doing it? What is the fundamental reason behind that?

  Mr Simpson: I think it might be an oversimplification, but to try and get to the point of that question it may serve to shed some light on it. It is clear that the Japanese car companies wanted a foothold in Europe and the flexible labour laws in the UK did what the senior politicians suggest it did, it extracted that investment into the UK to take advantage of our employment laws. It might have also been that the Germans, French and Italians were a little more cute and were not too keen to support a Japanese expansion into Europe. Clearly the Japanese have used the plants as a gateway into Europe, and less therefore is the relevance of moving from West to East which the rest of the car companies have done because they are already in Europe, and what they seek to do, having already got their established market in Europe, is to produce in Eastern Europe and still import into Western Europe, and therein lies the problem and perhaps the difference. The Japanese were building a European market, the traditional car companies already had one, and are seeking to maximise the profits in there by producing cheaper and selling into that market. The big question mark that should hang over the future is at what point do the Japanese take the same position that General Motors or Ford have taken, that having an established UK-Western European market they can then still move East and take advantage of the cheap labour. In other words, I predict that the Japanese car companies at some point will follow the others.

  Q10  Mr Hoyle: That leads me into part of a question that has been touched on. If we take Peugeot at Ryton, and obviously we have TVR at Blackpool, the view is that these are old plants and that is part of the reason that those two have closed. Do you disagree with that point? Or is it something more, that there are planning constraints that stop the changing of these plants? Or is there another reason apart from the fact that you have already told us that it is much cheaper to get rid of jobs in the UK than it is abroad and therefore that is the reason for closure? I just wondered what your view is?

  Mr Simpson: We have no evidence that planning permissions or planning criteria are playing much of a part in this, and if it is, it is outside our scope. I have no evidence to suggest that it is not a consideration but I cannot suggest that it is anything like a main consideration; it is not on our radar. Other factors are far more relevant and obvious to us. As regards the state of the plant, it is clearly beneficial if a company establishes a brand new site on a greenfield site and clearly Toyota, Honda and Nissan have done that, and where you lay down a purpose-built new plant it is clearly easier to set up with the modern methods than grappling with an old site. However, I do not think that that is a significant difference; it is clear that the traditional car companies, like Peugeot, have simply not invested in the plant and the equipment. They are still profitable but they clearly seek higher profits somewhere else. If you are going to build a new plant in Slovakia why could you not build a new plant in the UK? The two things go hand in glove.

  Q11  Mr Hoyle: The other theory is that if you close the plant the land value is so great that you can actually build your next plant for nothing and still have profit in your back pocket. Is that fair to say as well?

  Mr Simpson: I think it is fair to say not just of the car companies but also of a number of companies. I think British Coal, or whatever they are called now, have perhaps the prime example where the real estate is worth more than the business, and speculation on the price of land is a thought in many sectors where many of our members report to us that they fear that the company can see more profit in closure and selling off land for all sorts of purposes than continuing to struggle in what is a declining sector of the economy, i.e. manufacturing.

  Q12  Mr Hoyle: There is also a view—and we took evidence in the last Parliament that the view was quite clear—that there was overproduction worldwide and that is part of the reason why we have seen a reduction in capacity. We also have an increase in a market that has come about in China and India, but obviously they also have their own car plants now. What is your view about multinational companies and how can they compete with competition issues and is there any green light for the future of UK car manufacturing as the new plants—and this is what I am told—even all the Japanese new plants are only one model away from closure? Do you accept that?

  Mr Simpson: I think I earlier predicted that in this industry it all depends on the next model and inevitably you might argue that every car plant is one model away from closure.

  Q13  Mr Hoyle: True.

  Mr Simpson: I have predicted that the Japanese at some point will probably follow the traditional car companies in the same tactic. On the question of overproduction, overcapacity worldwide, I take the view that that is not really the case. What the problem is worldwide is that many people who want cars do not live in economies that provide wages that let them afford cars. There is a tremendous market and demand for cars but the ability to buy them and run them is limited by the terms and conditions, and what is very frustrating about this is that I would be delighted to see the conditions in Slovakia or China or elsewhere reach something like Western European standards because that would be a tremendous opportunity for production to be expanded to meet that demand, because the demand would be able to be sustained by better conditions. I have been to China quite recently and the image traditionally of China is that there are absolutely thousands and millions of people pedalling on bikes down the high street going about whatever business they are doing. I have to tell you that the traffic jams in Shanghai and the traffic jams in Beijing make even London's traffic jams pale into insignificance. There are still bikes but there are many, many thousands of vehicles. The position is quite different in the last ten years. I have not been to China ten years ago but I have spoken to people and they make the same comment, that the bikes are disappearing and being replaced by vehicles. In fact actually whilst I was there our own Lord Mayor apparently had gone across to advise them on congestion charging, or some advice he was going to give them on how to deal with traffic jams and the pollution that comes from so many vehicles. It is difficult to see in the context of that any argument that there is a lack of demand, and I do not think the picture is appreciably different anywhere in the world, quite frankly. The difficulty is that car companies are not interested in meeting demand, they are interested in making profits, which I understand, and the reality of it is that because they cannot sell cars at the prices that allow them to make profit in China, Slovakia and other places, they do not mind manufacturing there and trying to sell them to us, because at the moment we can afford them. But the flaw in that argument is that if as a result of the impact of losing well paid manufacturing jobs we have a reduced capacity to buy cars somehow or other there is a cycle of events here where it will be difficult sometimes for people who might have historically bought cars to maintain them. One hopes that somewhere in the middle the growth of income in what is now the cheap labour areas will bring some sort of a balance. We talk about a level playing field in employment law for the UK but we also think about—

  Chairman: We are going into wider areas again, which we will come back to, I promise, and you will have your chance to make those points.

  Q14  Mr Hoyle: If we take at the moment the announcement—and you were there last week—of Ellesmere Port. What role do you think the trade unions should play and, more importantly, what role do you think the DTI should play in the support of, shall we say, Vauxhall workers who are losing their jobs at Ellesmere Port? I do believe it is quite critical. I believe the unions have a role but I do believe the DTI has a role, and what role do you think they should play?

  Mr Simpson: First of all I have to say that I was delighted with both Gordon Brown and Alistair Darling's visit and statements that they would provide every assistance that was possible, but trust that when we come down to the practicalities of that that there is more of an impact than has been in the case of Rover, because to link that back to Rover the assistance there, which whilst was welcome and helpful, was largely ineffective. Statistics show that even on the best estimate a third of Rover workers are still without work. I would say a number—it may be many—of those who have been provided with training find themselves unable to complete it as the support runs out and they cannot continue in training.

  Q15  Chairman: We are going to get to these areas as well, I promise you. It is a question of what is the role of the trade union?

  Mr Simpson: What is the role of the trade union?

  Q16  Chairman: Yes and the government.

  Mr Simpson: I thought I was being asked about the role of the DTI.

  Q17  Mr Hoyle: The role of the DTI and the role of the government.

  Mr Simpson: I think the union would first of all have its traditional role of trying to persuade the company not to take the steps it is taking and to try and apply whatever pressure it can, supporting its members in a number of ways. In some instances that may even be about negotiating, where there are inevitable redundancies, the best of packages and then complaining to government that we do so against a legislative framework that leaves us less well off than our European colleagues. For example, in the case of Ellesmere Port I understand that the maximum pay, under what is regarded by UK standards as a very generous redundancy package, amounts to about £50,000. The average redundancy payment in Europe, in France, Germany, Italy and so on, is £150,000—three times the amount—and of course the impact of when these redundancies take place is significantly later in the case of the rest of Europe than it is in the UK. Our job, therefore, is to try to persuade the company not to do it, get the best deal we can for our members and try to persuade government to introduce a level playing field.

  Q18  Mr Hoyle: That is an interesting answer because "level playing field" always intrigues me, because I know that the French Post Office use Citroen vehicles, and we know that the French and the Germans, when government procurement is played, will always support their own car industry. Do you believe—and I am a firm believer—that, yes, Ellesmere Port have a very good contract with the Post Office, also most police forces do use cars built at Ellesmere Port, and surely we ought to see a playing field that they recognise the government should actually support British produced cars as a priority, and that ought to be the best way of keeping a car plant open.

  Mr Simpson: I have two ways of answering that. I think yes, I agree. I think procurement and certainly the government with its massive spending power across the whole range of sectors can significantly help British manufacturing and obviously cars. We do hear horror stories of orders that are placed that immediately get transferred to production abroad, which I think is something that the government could look at, as well as the investment grants that are given to companies who then relocate, and there should be some sort of penalty, of saying that if the government has given money to these people to produce in the UK and then they do not then there should be some recruitment facility. On the question of buying British, whenever that has happened in the past it has always struck me that it has ended up in a degree of failure, we buy British irrespective. I made this point to Vauxhall directly. Amicus buys—it is not a massive car fleet by some standards—400, 450 vehicles in our car fleet. The people tell me that we have about an £8 million contract. But the vehicles that they buy are Vectras. We have not produced Vectras in the UK for a number of years, Vectras are produced by General Motors, I think in Germany or Holland, and they are imported into this country. In a sense we are not buying British-built vehicles, but Vauxhall build Astras here and employ our members and we take a broader view than just buy British; we take the view that if a company is producing in Britain there is a quid pro quo here, but if Vauxhall were to decide not just to end the shift but, as may happen, end Ellesmere Port—and I hope that that is not the case but that is the worse case scenario—we will not buy any General Motor vehicle, we will switch our purchase away, and if that is good for us it is good for anybody else who is concerned about British workers and the British economy, which requires a manufacturing base.

  Q19  Mr Wright: To turn the clock back a bit in terms of the role that the government and the unions play, what do you consider the role of the RDA should be in these situations, not just in the car industry but manufacturing as a whole?

  Mr Simpson: I think the ideal that the RDA is supposed to pursue developing support for business, for training, for coordinating all the factors that go to successful business ought to be pressed fully home and not just be theoretical. It needs the resources to do that but with its resources it should be supporting that. The RDA Chair was involved in the meeting at Ellesmere Port and was saying that there is a package of assistance and financial support that was going to assist not just the 900 jobs that are lost but the more important question of making sure that the other 2,300 do not follow. So I think that there is a role. What I think worries ordinary people and worries those of us who have to represent and deal with it is that very often there is a difference between what is said in the theory of these things and what actually happens. It either happens the wrong way around or it is under-resourced and cannot happen and there are a lot of nice words said but the impact on the people that are supposed to be benefiting from that in terms of jobs and futures and retraining find that there is a big difference between what they end up with and what they are supposed to end up with.