Oral statement to Parliament

New opportunities for investment in UK auto industry

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Good evening, it’s a real pleasure to be here. A very warm welcome to the directors of ACEA, the European Automobile Manufacturers’ Association…

Good evening, it’s a real pleasure to be here. A very warm welcome to the directors of ACEA, the European Automobile Manufacturers’ Association, who are convening in the UK for the first time.

The timing of this dinner couldn’t’t be better, actually - I shall be visiting Detroit next week as part of a visit to the US. So this evening is an excellent opportunity for me to pick some of the finest brains in the automotive business.

When this Government took office a year ago we were confronted with the most toxic economic conditions in the post-war period - the biggest deficit in the G20; household debt and a budget deficit swollen to unsustainable levels; and a severely damaged banking system shaken to its foundations.

As we set about the complex task of restructuring and reviving the UK economy, we did so with the clear conviction that growth must come from private investment and from rebalancing the economy towards exports and manufacturing.

Clearly it will not be achieved overnight. Manufacturing, within which the automotive sector is a major player, illustrates that fact.

In common with other industrialised countries - including the US, Japan, France, and Germany - the share of manufacturing in the economy has fallen. In the UK, manufacturing as a percentage of the economy fell from just over 18% in 1990 to around 11% in 2009.

This is the most rapid fall of any significant developed economy, though the scale of the manufacturing sector in relation to GDP is not greatly different from France or the US (though well below Germany and Japan). We cannot reverse the structural factors that have led to deindustrialisation of output and employment in Western economies - the growing share of consumer spending in services; the growth of new low cost suppliers and automation. There will not be a return of low skill, low productivity, metal bashing.

But there is a role for a substantial and growing manufacturing sector and, indeed, for partial reversal of manufacturing decline. Britain has some outstanding manufacturing companies, many of them foreign owned but operating here. Britain is, actually, very good at making things.

Despite the misconceptions that have been allowed to flourish in recent years, we still have the know-how to manufacture products that consumers at home and abroad want to buy.

A resilient economy depends on growth rooted in a diverse range industries and sectors, so we are striving to support an expansion and resurgence of our manufacturing base. Much more than other sectors of the economy, manufacturing contributes to productivity, growth and exports. The UK’s automotive sector is a major player in this respect.

Some of us remember the 1970’s when the car industry became a sad symbol of Britain’s decline; endless strikes, poor management, under investment. But the industry didn’t die. Thanks mainly to overseas investors bringing new technology and management techniques the industry had a renaissance.

It is already established as our number one manufactured export: in 2010, we exported over £27bn of vehicles and parts. Of the 1.39 million vehicles made here, 75% of the cars and 73% of the commercial vehicles were exported. Export levels are now nearly at an all-time high for the industry, approaching the record pre-recession levels and representing a marked turnaround from the preceding years. BMW and the MINI are playing their part in this, exporting to customers in 90 countries.

Britain is now one of the leading locations for engine production - 2.4m units were made here last year, of which 72% were sold overseas.

Many of the major auto companies recognise our strong track record in innovation, research and development and design - 11 of the global volume manufacturers have bases here, backed by 19 of the world’s top 20 suppliers.

In addition, a large number - over 110- of UK-based premium and niche manufacturers are driving developments in new materials, technologies and processes in the production of high performance cars, vans, taxis, buses and others.

Our job as a government is to use the policy tools at our disposal to help UK-based auto companies capitalise on these competitive advantages, and clear away the barriers to economic expansion.

The Automotive Council is a tangible sign of our desire for a new model of collaboration between the industry and the Government.

Its aim is to identify the long-term challenges facing the industry that, if left unresolved, could act as a brake on growth - and to identify and exploit the commercial opportunities arising from the demand for new technologies, such as low carbon vehicles and fuels.

This is about Government sitting down with the auto industry to work out the major drivers of change over the next 20 years, and then drawing up a road map for the future.

But our fresh approach must also include showcasing more clearly what we have to offer potential auto investors.

Ours is a dynamic, innovative, cutting edge industry. Research and development investment in Britain’s automotive sector is running at over £1.5bn a year - and the fact that it rose by 9% during the recession is a sign of the UK industry’s commitment to sustained investment in innovation.

It’s backed up by two of the most renowned development facilities anywhere in the world. The GM Millbrook facility near Bedford supports the development, testing and demonstration of every type of land vehicle - from motorcycles and passenger cars to heavy commercial, military and off-road vehicles.

MIRA, which I visited a few weeks ago near Nuneaton, offers state of the art facilities and provides a range of services including product engineering; testing; consultancy; and certification.

Major investments are now coming through. Just today, Nissan announced that its all-new Nissan Qashqai is to be designed, engineered and built in Britain - with production based at its plant in Sunderland, and development at its technical centre in Cranfield. This is on top of Nissan’s investment of £420m - backed with a Government grant of £20.7m - in its new battery plant in Sunderland and the production of its Leaf electric car.

Ford has committed to investing £1.5bn over the next five years in the UK, to research, develop and manufacture low-CO2 technologies for cars and commercial vehicles. And GM has committed itself to the long-term future of Luton with the Vivaro van as well repatriating over £185m worth of supply chain contracts to date.

And Jaguar Land Rover, owned by Tata Motors, is predicting an investment of £5bn over the next five years, recruiting an extra 1,000 engineers to focus on developing engine technology and car body design, in response to the demand for lower emission and higher quality vehicles as well as working with Maclaren.

The burgeoning global market in ultra low carbon vehicles is a key growth area for the UK. We are already established as Europe’s leading producer of electric vehicles and UK work on hybrids and Hybrid engines is progressing well as I discussed at Toyota’s launch of the Hybrid Auris. We are capitalising on this advantage. But the necessary shift to low carbon transport demands a profound technological transformation.

This is why we are encouraging R&D - supporting major investments by auto manufacturers, through the Regional Growth Fund and other means; and setting up Technology and Innovation Centres - so these emerging technologies can get off the drawing board and into the market. And we are developing the infrastructure that’s necessary if people are to adopt ultra-low carbon vehicles.

But these investments are not an attempt to create a market where none exists. They are designed to help low carbon vehicles achieve critical mass, so they can be produced on a scale that brings down the costs for manufacturers and motorists.

That’s crucial - and it’s the reason we are backing a range of technologies, whether that’s electric vehicles, hydrogen technology or low carbon fuel cells. We are not in the business of picking winners. We also recognise there is considerable scope for conventional engines to become more efficient and that they will have a continuing role for some time.

We are, however, focused on ensuring that UK-based auto manufacturers are positioned to grasp the immense opportunities that global markets for low carbon vehicles represent. This work is being taken forward under the auspices of the Automotive Council.

In March, it published its analysis of UK supply chains, which examined UK suppliers’ capabilities and manufacturers’ requirements to identify gaps in capability and new business opportunities.

Just as importantly, the plan identifies over £1bn worth of products that companies want to source in the UK. The Council has already helped bring £130m of these new supply opportunities back to this country, and now we are working to capture the rest.

The Council has also drawn up technology road maps for passenger and commercial vehicles - the latter the first of its kind in Europe. These maps give a detailed view of the technological challenges ahead - for the auto industry, its research partners, and Government.

This is one of the many tasks we will be focusing on in the months and years ahead, as we strive to achieve our vision for economic transformation and renewal. One that locates a resurgent manufacturing sector, and a world-class automotive industry, at the heart of a strong and balanced economy in the UK.