Low-cost threat to UK plants

Lovers of Britain's proud motoring heritage have suffered more disappointments than they'd care to remember over the past few decades.

They have seen brand after brand fall into foreign hands – or fall to the economic pressures of globalisation.

But there has always been a crucial consolation. Although companies like Rolls-Royce, Lotus, Jaguar and Land Rover may no longer be home-owned, Britain has retained its position among the most important vehicle producing nations in Europe. Whenever the newspapers report the sale of another legendary car marque, we are reminded of the continuing powerhouse that is Britain's motor industry. So what if Bentley is now part of VW? Nissan's Sunderland facility is Europe's most efficient car plant, and automotive factories still make up Britain's largest manufacturing sector. In fact, there are 11 manufacturers building volume cars in the UK, more than any other European country.

Consolidations have helped boost confidence in the industry at a time when global competition has intensified dramatically. But for how much longer? A new report from the Society of Motor Manufacturers and Traders – whose job it is to keep the flag flying for our car industry – reveals that most motor executives doubt the government's commitment to the sector. They fear that our antiquated transport infrastructure, growing union militancy, red tape and globalisation will combine to threaten the survival of a manufacturing base that's already struggling to compete.

“Survival is by no means guaranteed,” says the SMMT report. “Collectively, the industry does not believe it will grow... it faces increasing pressures from low-cost manufacturing bases... companies are concerned about the burden of legislation, about trade union militancy, and about the declining transport infrastructure.”

The immediate solutions to many of these challenges are clear to executives who took part in the report. One says: “We need to attract product innovation, and clearer tax breaks.” Another adds: “We need to ensure skills taught in academia are those actually needed.

Government needs to focus on infrastructure, education and training.” Others talk about international partnerships, with government support.

Allan Amey, LDV chief executive, focuses on three main problems for the sector – worsening employment legislation, falling skill levels, and a deteriorating transport infrastructure. “The Prime Minister ack-nowledges that transport is a problem, but he is not clear as to who should address this issue,” he says. “Given what we have heard, why should I invest for the future in the UK? We need to harness our skills base in engineering and manufacturing and place a premium on its development. We believe that manufacturing industry in this country has a strong future.

“The key to that success will be to train and develop future generations of skilled engineers and technician. We want a business plan for industry, joining employment legislation with training and development and a robust transport plan.”

Despite the brave words of Amey, is the health of Britain's vehicle manufacturing outside the influence of these executives? Government support, training and efficient transport are all very well – but many would argue that global pressures will force Britain's vehicle production capacity down over the next 20 years.

One thing now seems certain. Britain is unlikely to ever again attract a major manufacturer to invest in a new car plant. Ten years ago Hyundai was searching for a European manufacturing base – and Wales was among the favourite locations. Now, as Hyundai once again looks to open a European factory, all the handful of locations on the shortlist are in Eastern Europe.

There is general unhappiness that the UK remains outside the euro. Every major car producer has at some time urged the government to seek eurozone entry as soon as possible. It's not so much exchange rates that penalise exporters, as the uncertainty about how things will pan out in the future. And yet most economists have ruled out any imminent scrapping of the pound.

The factors most likely to hit UK car factories in the future are globalisation and rationalisation of multinational motor giants. In the current climate, no automotive plant is safe in Western Europe – bar flagship German and French factories for brands of national importance like Porsche, Mercedes, BMW, Renault and Peugeot.

In Britain, there's concern that Ford's PAG Group will rethink its commitments. Few believe Jaguar will remain as it is with sites in Coventry, Halewood and Hams Hall and Ford has shown it is willing to change Land Rover's structure by shifting Freelander production out of the Midlands. Others question if General Motors needs its current European capacity – and, despite the closure of Luton, that could affect Ellesmere Port.

Officially, all carmakers say they remain committed to their UK production facilities, but those who saw GM and Ford pulling out of Luton and Dagenham know that official statements can are only as relevant as the next main board meeting in Detroit.

“It's certainly possible that two British automotive plants could close this decade,” says automotive industry expert Professor Garel Rhys. “There could be rationalisation within PAG. Some say for Jaguar to have three production plants is an absurdity. PSA Peugeot/Citroen's plant has to be marginal. They have been riding the crest of a wave with the success of the 206. Ellesmere Port has life at the moment – but how many Astra plants does GM need, and the Vectra segment of the market is dying on its feet.”

And what about the Japanese? During the 1980s, the decision by Toyota, Nissan and Honda to centre their European production facilities in Britain is recognised as among the greatest industrial triumphs of the Thatcher era. But all three are keen to see Tony Blair commit to the euro, and Nissan, under the wing of Renault, could easily decide to voice its protest by moving vehicle lines into French plants.

But Rhys believes the three Japanese plants are perhaps the safest in the UK. “In 2010 I would still expect all three to be where they are now – they were bridgeheads for the Japanese,” he says. “You have to admire the fact that now Honda is saying we have to live with the pound/euro exchange rates, contrasting with the bleating by other manufacturers.”

And what about Longbridge? Rover's survival in its famous old Midlands factory depends on the success of the mid-sized car due in 2005, and its ability to find a partner to make the successor to the 25. Everything until then is a holding operation.

Many think the real future for UK carmaking is the luxury and specialist segments. That allows for a successful – albeit streamlined – future for Jaguar, Land Rover and Aston Martin. Rolls-Royce, TVR, Lotus, Morgan and other niche specialists will proliferate. And of course there's Mini, which has made a wonderful start to life as part of BMW from its base in Oxford.

For most of the volume plants in Britain, global trends are working against them. One wonders what an SMMT report in the year 2013 will be saying to the government on the subject of car manufacturing.