MONDAY 26 JUNE 2006

TRANSPORT & GENERAL WORKERS' UNION

  Q66  Chairman: Mr Osborne, welcome. Can I begin by welcoming you to the Committee, thanking the union, through you, for the evidence that was submitted in writing in advance for this evidence session and asking you to introduce yourself, for the record?

  Mr Osborne: Thank you, Chairman. My name is Dave Osborne. I am the National Secretary for the Automotive Group for the Transport and General Workers' Union.

  Q67  Chairman: Thank you very much indeed. I want to begin by asking you a very straightforward question indeed. What is your union's view of the overall strength, overall health, of the car and commercial vehicle industries in the United Kingdom?

  Mr Osborne: I think Britain has actually borne the brunt of a relentless drive to cut production costs in the industry, as car-makers are shifting output to countries, notably in Eastern Europe, like the Czech Republic and Slovakia, where labour costs are less than a third of what they are in Western Europe. I think it is well documented. We have seen a spate of closures of late. We had the tragic circumstances of MG Rover collapsing just over 12 months ago; just prior to that we had seen the closure of Brown's Lane, the Jaguar plant, and now it has been announced that Peugeot at Ryton, the company are going to end production at Ryton from July 2007. All in all, it has been a bleak period for the industry, and six of the last eight car assembly plants in Europe to shut down or announce that they are going to shut down are in Britain.

  Q68  Chairman: The Government, in a memorandum of evidence to us, emphasised the steady car production in the UK and painted a rather more, if optimistic is the wrong word then at least less alarming, picture of the situation than you just have. Can I just invite you to reflect on that?

  Mr Osborne: I will quote, if you do not mind, in answer to that question; this is from the SMMT Monthly Statistical Review from May 2006. We have all heard the statements about car production being around 1.6 million vehicles, I think is the figure that is being quoted, which is about what it was 15 or 20 years ago. I think two things have happened since then. First of all, the total industry volume in the UK has grown. Secondly, if I may quote this, which I think gives an insight into where we really are: "Car manufacturing in the UK has been unsettled by high profile announcements of plant closures and job losses" MG Rover, Jaguar and Peugeot, to which I have referred. UK car output since April 2005 has been significantly affected by the demise of MG Rover, Jaguar and Peugeot. "The performance over the first four months of 2006" means that the "outturn was the lowest since 2001 and over ten per cent down on the level produced on average over the past five years." Output has fallen by 45,000 units, or eight per cent, compared with last year, and it is predicted that will fall further in both 2007 and 2008.

  Chairman: Thank you. One or two of colleagues would like to pursue this in a little more detail.

  Q69  Mr Hoyle: Obviously, I worry about the future of the car industry in the UK as well, but would it not be fair to say that workers in Portugal, Belgium and Germany also are worried about the future of their car plants, and some would argue that the UK car industry is doing better than most? I do not know what your views are on this, whether you have any feelings about it, that actually it is the components sector which is taking the real hit?

  Mr Osborne: I think you just have to look at what has happened in the last 18 months. We lost over 1,000 jobs at Jaguar, we lost 6,500 jobs at MG Rover, we are about to lose another 2,300, if the company have their way, at Peugeot; that is just direct employment, taking no account of the components sector or even the service sector, which depend on the automotive industry for their livelihoods. You may argue that Germany is having a bad time. I do not see that. I am actually a part of the Ford European Works Council, so I do have some involvement at the European level. To be perfectly frank, I think the difference between Germany and the UK is that stricter laws and local ownership make it harder to close plants in Germany or France or Italy. The harsh reality of life is that we do not have a British car industry any more; we have a car industry in Britain.

  Q70  Mr Hoyle: As the Chairman started off with, what about the commercial vehicles sector; in fairness, we have actually had an increase this year in commercial vehicles, I just wonder what your views are on that?

  Mr Osborne: That is absolutely true. The commercial market has shown some buoyancy this year, and obviously that offsets anything that has happened in the passenger car sector, but, in terms of direct employment, the labour intensity is in the area of producing volume, and that is in the passenger car sector.

  Q71  Mr Weir: We have been told that the growth in car sales is largely in areas such as Eastern Europe, China and India. If that is the case, is it not inevitable that car companies will concentrate on serving these markets rather than ones which could be called more stagnant, like Western Europe?

  Mr Osborne: I think we ought to, first of all, try to analyse where the growth areas actually are. One of the arguments that we hear from most companies is that the growth areas are in China, where capacity is being increased, and in Eastern Europe. We are currently in a debate with Peugeot, where they are saying to us that they are putting capacity where the growth is. It so happens that in the Czech Republic and Slovakia, by 2010, there will be capacity to build 800,000, when actually the total sales in Central Europe, in 2004, were just over 109,000. I do not think it takes much to work out that the objective is to relocate where costs are much lower, about less than six euros per hour for a Slovakian worker, as opposed to round about €25 or €26 an hour for a British worker, and to import those vehicles into the UK.

  Q72  Mr Weir: You will accept the argument that they are looking to the future by building up production, say, in Slovakia, as Eastern Europe opens up; you see it purely as driving down costs so they can import these cars back into the UK and other Western markets?

  Mr Osborne: I think if the argument is around capacity, in terms of the Peugeot case, the Peugeot case is not about cutting capacity, it is actually about increasing capacity. What they are doing is taking a workforce from what is a very profitable plant in the UK, and it made £25 million profit last year, and exporting those jobs to make even more profit in Slovakia, and then to import those cars back into the UK, from a position where the UK is Peugeot's third biggest market. The trade union demand, if I can say that, is that we do not believe it is unreasonable actually to build where you sell your cars.

  Q73  Mr Weir: What I am trying to get at is, do you see the Slovakian factory being a good example in Central Europe; is it likely to turn itself, if you like, to export to Eastern Europe, as that is a growing market, where many of these countries are just emerging now in a very low consumer market but are likely to be greater consumer markets in the future?

  Mr Osborne: If I say to the Committee that by the end of 2006 there will be 13 new assembly plants in Eastern Europe, and that could be either engines or cars, with the best will in the world, I do not see market growth in Eastern Europe of that proportion, so I would ask you just to work it out for yourself.

  Q74  Chairman: Can we just be clear whether or not you think there is overcapacity overall, over the whole global automotive industry?

  Mr Osborne: The answer is a clear, unequivocal, yes. I am sure Mr Browning, if you ask him a bit later on, will answer along these lines; the capacity produced is around 60 million vehicles globally, and we have about 40 million customers.

  Q75  Chairman: Peugeot, you say, are increasing their capacity; why would they be doing that?

  Mr Osborne: They are, indeed. They have an objective of reaching four million global production units. At the moment they have not achieved that. I think it is true to say that when they took that decision four million was a firm objective. I think, in the last four or five years, outside of the UK there has been what I would call a stable market in Western Europe. With the exception of the last 12 months, the UK has probably been an exception to that, in terms of market growth. Since that time, obviously, the UK, which is their third biggest market, that is now likely to fall, and so far this year the market is down just under five per cent over last year. That is obviously having an impact on sales. Having said that, they sold 280,000 units in the UK last year and produced about 100,000 in this country, so there are still major opportunities for the UK.

  Q76  Chairman: You admit there is overcapacity internationally. You say also, in your second memorandum[1] to us, numbered ROV 17, I quote: "the enlargement of the EU and the rise of China and India as manufacturing bases have fundamentally altered the economics of the automobile sector." If the economics have fundamentally altered, to what extent can we hold back that tide in the UK?

  Mr Osborne: In terms of the UK, we recognise we cannot compete on cost alone. I think, in terms of any decision for where companies locate, labour cost should not be the only consideration. If you focus only on particularly labour cost, which is where most companies are heading, I do not think that is a good, long-term strategy for this reason: that they move to Slovakia and in ten years' time Slovakia develops and they are on a par with the UK, and multinational companies will always find somewhere cheaper to produce motorcars, or any other commodity which is designed to maximise their profit. In that sense, during the period of the emerging markets, we adopt a simple philosophy and that is to try to make our plants—and we have done that in partnership with employers—as efficient as we can. That does not mean necessarily that we have to cut wages and conditions of employment. My union has no intention of joining what we call the race to the bottom. However, we are capable and have indeed, you might recall, last year, that the Dagenham plant won £200 million worth of investment in the new diesel engine at Dagenham, which secured the plant for the long term, created 600 jobs and safeguarded the other 1,500. That was done in partnership between the company and the trade unions, who delivered $16 million worth of savings without impacting on terms and conditions of employment. To be perfectly frank, the answer to your question is simply we are attempting to, quoting my General Secretary, "stay in the game," if you like. I think that is the fairest statement I can make, stay in the game whilst some of these other countries.

  Q77  Chairman: You think there are still volume areas where we can stay in the game, or are you saying we are looking at hi-tech, higher-value, knowledge-intensive sectors?

  Mr Osborne: Absolutely, there are volume areas where we can stay in the game. Vauxhall, Ellesmere Port, is one of them. They produced 186,000 vehicles last year, if I recall; that is close to a record, if it was not a record. Land Rover itself produced record sales last year. Peugeot is considered to be still a volume car producer and with the right investment, the right product, can be once again.

  Q78  Mr Clapham: Mr Osborne, a little earlier you made the comment, which I think fits well, the car industry in Britain rather than a UK car industry, and the two companies which you have just referred to, Vauxhall and Land Rover, we are talking in terms of GM and Ford. Has the union done any research into why it is that, companies in Britain which are producing cars, there are some which are much more able to cope with the changing situation than others? That is true worldwide, but in the UK we have seen particularly that some companies are much better than others, that some companies have got better production rates than others; is there anything in research which has been done by the Union which indicates why that is?

  Mr Osborne: I think individual employers would comment on their own circumstances which prevail at the time, but, in terms of how companies cope with change, and it is difficult change, in fact, I can give you an example. Land Rover is successful. I hope, in two years' time, we can turn round and say Jaguar is back to break-even or profitability. Aston Martin is becoming a company which we know will grow. If Ford, for example, took a decision, for whatever reason, that, let us just say, for the exchange rate problem or anything like that, they decided to build where their big market is, in Jaguar and Land Rover it is effectively, outside of Freelander, the US, and you have got this exchange rate. If they did that, it would not be the only consequence, because Ford of Britain, Blue Oval, actually produce engines for Jaguar and Land Rover, so there are consequences. Really it depends on what your business footprint is, where your markets are, what the cost bases are, and I think each company has a different view of that.

  Q79  Mr Clapham: Are there other factors as well, do we see changing trends, for example, we saw the SUV come on, and some of the companies here in the UK seem perhaps to come into the SUV market later? There is the aspect of design, we see designs changing quite rapidly. Is there an aspect here of where some of the companies which operate in the UK probably come to accept changing trends late in the day?

  Mr Osborne: No, I do not think so. In reality, the competition that we face, we are talking about the UK now, the threat has been there for some considerable time. Everybody has talked about China and the growth in China, the capacity that is being poured into China. In the short term, I think that the threat is Eastern Europe and not China, simply because of the proximity of Eastern Europe to Western and Central Europe. When you are talking about rates in Slovakia of six euros an hour, I had the privilege of visiting the Ford plant where they do the Transit van, in Turkey, last year, Otosan, which makes an inordinate amount of money for Ford Motor Company in Europe, they pay two euros an hour in that plant. We have a plant in the UK, in Southampton, which produces Transit vans, and, of course, unless we become more and more productive then, the cost of creating the business, it will gradually become irrelevant and you will find more and more sourced elsewhere. I think every multinational company in the industry, with the exception of Toyota, has said, quite clearly, that they intend to increase production in Eastern Europe. I think all major manufacturers are basically looking to take advantage of the low costs which exist not a million miles away.