MONDAY 26 JUNE 2006

GENERAL MOTORS

  Q106  Chairman: Mr Browning, welcome. I am sorry to have kept you waiting a little bit, but you were in the room and you heard the first evidence session; we had to truncate it, as it was. I am grateful to you for your patience. Thank you for your written memorandum, which I have read with great interest; admirably succinct and to the point. Can I ask you, for the record, as I always do, to introduce yourself?

  Mr Browning: My name is Jonathan Browning. I am Chairman of Vauxhall Motors.

  Q107  Chairman: Thank you. Tell us about the worldwide situation, the same basic question I asked our first witness this afternoon: is the situation, of worldwide overproduction, overcapacity, better or worse than it was a couple of years ago, and what is GM doing about its own part of that problem?

  Mr Browning: I think it is very clear and you can look at different statistics from different perspectives around the world, but I think one generally accepted view of the overcapacity within Europe, at least, is that there is in the region of 20 to 25% overcapacity for the industry in Europe, so that is a very substantial margin of overcapacity. The definition of overcapacity is always a little difficult in terms of precise data, but it is, I think it is fair to say, a very substantial overcapacity. One of the key dynamics which are having to be managed today is that the Western European demand is largely stable; as you have already heard, growth is very much a focus within Europe, in Central and Eastern Europe. On the one hand, you have most of the production focused in Western Europe and you have most of growth in demand in Central and Eastern Europe. If you take just the simple fact that you would need demand to be growing in the region of eight to ten per cent per year for the existing installed capacity to be fully utilised, because of ongoing productivity improvement, you can see that is a situation which leads to overcapacity and growing overcapacity over time. There is overcapacity in the industry, focused largely in Western Europe, less so in Central and Eastern Europe.

  Q108  Chairman: And America?

  Mr Browning: If you look at the global picture then I would say the data becomes less transparent, in terms of really apples for apples comparison. In general terms, you would say, in North America, including Canada and Mexico, you have got overcapacity, in Latin America and Asia Pacific some degree of undersupply versus the potential demand in those markets, although when you come to Asia Pacific individual markets you have very different situations. For example, I think you are all very well aware of the tremendous demand growth in China and the race to install capacity in China.

  Q109  Rob Marris: I have to say, being perhaps somewhat simplistic, on this side of the Atlantic, it does look as if GM is losing shovel-loads of money in the USA because it is producing the wrong product at the wrong quality and we are being asked to pay the price in Europe for that. What is the response of GM to that?

  Mr Browning: That is a pretty broad question and I will try to keep the answer as short and precise as possible. Let me put the position for General Motors into the North American situation and in Europe. In North America, you are right, last year there were some very substantial losses in GM, in North America specifically, and there has been a range of actions put in place to address those. Those actions are addressing the situation specifically in North America. If you look at General Motors in Europe, our history of financial challenges, underperformance, actually is somewhat longer than in North America; indeed, for General Motors in Europe, we have lost over $3 billion over the last six years, so an extended period of financial losses for the company in Europe. As a result, there have been a number of actions taken over a period of time to address the losses specifically within Europe. I am pleased to say, those actions are beginning to show progress and in the first quarter of this year General Motors Europe actually reported positive net income for the first quarter of the year, for the first time since the year 2000. Whilst it is true to say that in North America there are financial performance challenges, it is certainly not true to say that in Europe we do not have our own share of those and do not have our own issues to address, which is exactly what we are doing.

  Q110  Rob Marris: We are going to go on to Ellesmere Port, as you might imagine, but just sticking on the European level, you are back in profit for the first quarter of this year, GM Europe; how much more cutting back do you need to do in Europe, if any?

  Mr Browning: The answer there is very simple. Until we have a sustainable business in Europe, we need to keep rebalancing both our revenue generation and our cost management. Over the period since late 2004 we have put in place a very wide-ranging restructuring which actually has resulted in a substantial shift to our structural cost base in Europe; that is a programme which is ongoing. At the same time, we are looking to improve the revenue generation across Europe. I would describe the task as partially complete but still a lot to do really to get to what I would call sustainable profitability for the business in Europe.

  Q111  Rob Marris: Restructuring is one of those, to me, as a politician, somewhat elastic words. Do you anticipate further cutbacks in Europe, as part of this restructuring which you say is on track, in terms of further lay-off of staff, bailing out of Fiat, or whatever?

  Mr Browning: If you talk about the very specific programme that we announced, as I said, in late 2004, at that time we said we needed to shed in the region of 12,000 jobs in Europe; the majority of those were in Germany and to date we have completed around 10,000 of those. It was a programme that ran through 2007 and so about 10,000 of those employment changes have already occurred and we believe, with commitments that we have currently through the course of this year, we are at about 95% completion. Whilst the term may be somewhat vague, the actions that we have been taking since 2004 have been very specific and we are well on track to deliver it.

  Q112  Rob Marris: These things sometimes are somewhat dialectical and they can change as they go on. Your aim was, I think you said, 12,000 cuts by 2007. You are most of the way there, both in terms of numbers and in terms of the date. Do you think you are going to increase that 12,000; one keeps it constantly under review, I am sure?

  Mr Browning: As you know, the world changes, it is a very dynamic place and so the goalposts do not always stay in the same place. I think it is true to say that any business, irrespective of whether it is in the automotive sector or any other sector, has to keep evaluating the state of the business and make the appropriate changes, given the market environment, given its success in that marketplace and depending on where the market is focused, in which part of the world. Whilst there have been some very specific phases of restructuring and change going on for General Motors in Europe, I foresee continuous evolution, continuous change of our operations over time. You will not get to a point where you can say that the job is complete.

  Q113  Rob Marris: Does that mean continuous job losses in Western Europe then?

  Mr Browning: I think it is too easy simply to say one relates to the other. If you talk about what is happening for General Motors in Europe today, as I say, there was an announcement of a programme to adjust 12,000 jobs in late 2004; that is underway. We continue, obviously, to try to match, as best as possible, our production operations with our demand footprint and we will see how the future develops as we go forward.

  Chairman: I should have said, Mr Browning, before I declared the session open, how grateful we are for your willingness to come and talk to us. In other words, you are taking some difficult decisions at present and your willingness is very much appreciated, and I should have put it on the record earlier. We want to turn now specifically to Ellesmere Port.

  Mr Hoyle: I am just looking at some of your production figures for Ellesmere Port; very successful. Looking at the UK sales for GM, very successful as well; in fact, would it be right to say there are 415,000 vehicles sold in the UK? If that is the case, and you produced 280,000, GM has got a very good market in the UK. I just wonder, I have got the UK figures, 415,000; can you give me the figures for Belgium, Poland and Germany?

  Chairman: Off the top of your head!

  Q114  Mr Hoyle: I would expect you to know this, yes?

  Mr Browning: I would be very happy to provide those figures for you. I cannot actually do that off the top of my head. I think what it is important to understand is that when you look at the context of General Motors' production operations in the UK, both at Ellesmere Port and in Luton, because we have the two manufacturing operations, those operations account for around 16% of the total car and light commercial vehicle production in the UK. Our sales, as a proportion of the total market, are, in round numbers, 15%; so, in terms of our share of the manufacturing operation in the UK, it is approximately balanced if not slightly above our sales share of the operations in the UK.

  Q115  Mr Hoyle: Let me put it another way. Okay; Poland, I do not believe you sell as many GM cars, and without knowing the figures I think we can both agree on that. I would think it is substantially higher in the UK, the number of cars bought, and I think it would be fair to say, for Belgium, that you sell a damn sight more cars in the UK than in Belgium. Germany, the question is out, so I look forward to you supplying the figures. Of course, the other figure which would be interesting is how many cars were actually procured by the UK Government, using taxpayers' money? I think, at the end of the day, the responsibility has got to go both ways. We always come back to this, that you have done very well out of Government in support previously, with the new model which was launched at Ellesmere Port; we have taken a lot of pain already with Luton in the past. It does not seem so long ago that GM was coming before this Committee explaining the rationale behind Luton, "We've got to use Ellesmere Port, this is the future of the car production for GM and its presence in the UK," only to find that you are taking off a shift, and I do not think it is very good. I think the UK public are very responsible in supporting your company. I think the time has come to see a little bit more support coming from GM with the promises which were made four and five years ago. I just wonder what message you have got for those workers who are losing their jobs at Ellesmere Port?

  Mr Browning: Let me step back. First of all, 16 per cent share of total production in the UK is, I think, a very credible performance when we sell 15 per cent of the total market in the UK. I think the Committee would recognise that is a substantial and, very importantly, a long-term commitment to the UK. Vauxhall has been present in the UK since the beginning of the 1900s, 1903 is when the company was established, and we have a long history of participation in the UK industry. The UK is the fourth largest market for GM worldwide, so, irrespective of Europe or the rest of the world, the UK is a very important market for GM. That is why we are looking to maintain our manufacturing operations in the country, as long as they can be competitive, and I think that is the real challenge for all of us, how to make sure we sustain competitiveness of this manufacturing base in the UK. That is something that we are working very hard to achieve, working very hard with all of the relevant stakeholders, whether that be local development agencies, national government bodies or our individual partners, whether it be trade unions or our own internal groups, so a lot of effort to maintain the manufacturing base that we do have in the UK.

  Q116  Mr Hoyle: Would it be fair to say, and I look at Lancashire Police, that you have a huge volume of Vauxhall cars, they operate Vauxhall cars and I am very pleased to see that? Do you believe that if production of GM cars did not continue in the UK we ought not to be procuring cars that are not produced without a plant in the UK?

  Mr Browning: If you look at both the retail and the fleet sectors of the UK market, and what you are talking about here is the fleet sector, Vauxhall has been very successful in the fleet market and, in fact, is market leader in the fleet sector, so our focus on fleet customers is very important to us. We do think, by being present in the UK as a manufacturing organisation, that does show a level of commitment to the economy, a level of commitment to the economic well-being of the country which is positive; that is part of our reason why we would like to maintain, if at all possible, a competitive manufacturing base in this country.

  Q117  Mr Hoyle: Those are very hesitant and very carefully crafted and chosen words; what I would say is have you got a long-term commitment to Ellesmere Port and to Luton for the future? Crafted words are very good but the reality is, what we really want to know is, are you 100% behind both plants, or is the writing on the wall, there really is not a future at these two plants?

  Mr Browning: My answer is very simple. We are committed to manufacturing operations in the UK, as long as they remain competitive. It is, I think, the duty of all of us to make sure we do everything possible to maintain that competitiveness.

  Q118  Mr Hoyle: What are you comparing the competitiveness with, the US, the UK, or some third world site?

  Mr Browning: First and foremost, the competitiveness is within the Western European arena, but, at the end of the day, this is a global industry and global choices and decisions have to be made, in terms of manufacturing and sourcing footprint decisions. Ultimately, it is a global industry with global dynamics affecting that industry, but right now our competitiveness has to be, first and foremost, in a European context, and that is the focus of the operations that we have in place.

  Q119  Mr Hoyle: Have you reached that in the UK yet?

  Mr Browning: No. Maybe coming back to the discussion about Ellesmere Port specifically, Ellesmere Port had the third shift taken off because it is the highest-cost production operation for our Astra plants in Europe. Whilst it is the highest cost, it was always at the greatest risk; therefore, when there had to be a decision to take off a shift at an Astra plant, because Ellesmere Port was the highest-cost plant, it was the plant with the shift to come off.