Thank you for inviting me back, I was here a couple of years ago just after the Coalition was formed. Those were difficult times as well. The automotive industry in the UK was coming out of recession after a very tough few years during which time UK based companies and workers had shown flexibility in responding to the fall in demand during the downturn.
That flexibility and toughness has paid off because two years later we are seeing sustained and strong growth which is all the more striking because of what’s happening in the rest of the economy. What’s happening today is a very positive story and I think it’s worth recapping.
Production was up over 5% last year, producing 1.4 million vehicles, of which, over 80% exported and industry is on track to produce 2 million by 2015. Engine production was also up by nearly 5% to 2.5 million units. That good news has continued into this year, according to SMMT figures. UK car manufacturing rose by 9.3% in April, and was up 11.8% over the first four months of the year. Exports up 10% in the year to date and in the first quarter of 2012 we have seen the value of vehicle exports exceed the value of vehicle imports for the first time since 1976.
I’ve seen a lot of this first hand. Only last week I was in Southampton opening the new deck in the port where there was a constant stream of Jaguars and BMWs rolling off the production line going off to Europe into containers. In the last couple of years I’ve made a point of going round almost all of the volume car factories and specialist motor sport producers. It is a very good story and the industry needs a massive pat on the back.
Just to put it into a bigger context and what essentially the industry now adds up to, we have more than 40 companies manufacturing vehicles in the UK. As well as global volume car makers there are van, truck and bus builders through to specialist, niche marques. The best plants in the UK are amongst the most productive in Europe. Added to that there’s the quality of design and the quality of management. In all, over 3,000 companies, directly employing 135,000 people, are active in the sector, generating over £10 billion for the UK economy annually - while the related retail and service sector brings in a further £22 billion each year. On top of that, the UK’s motorsport industry brings another £6 billion to the UK economy annually. We’re talking about a massive contribution to the UK economy. And you get a sense of real momentum, we’re getting a lot of new investment, certainly over the last 18 months, two years, £5.5bn of new investment by the industry.
The headline cases such as Jaguar Land Rover’s announcement on 11 May that it is spending a further £1 billion with UK suppliers (that’s on top of £2 billion awarded in March 2011) is an indication of the strength of the UK auto sector and the commitment to the UK of major producers and exporters.
Nissan has recently confirmed production of two new models for Sunderland which they estimate together represent over £250 million of investment and will create around 3,000 new jobs at the plant and UK supply chain. Other announcements recently from BMW, Ford, Bentley, Toyota and others.
Some of these projects are being supported by successful bids to the Regional Growth Fund. Round 3 closes tomorrow and I understand that there will be further bids from automotive companies.
I think it’s worth mentioning that a lot of this activity is happening without government. This is private enterprise, private investment. We did facilitate a bit but we don’t have money to hand out but we try to use what we have carefully. The Regional Growth Fund has proved to be successful.
I think an example of British motor vehicle industry at its best was the decision of General Motors to build their next generation Astra at Ellesmere Port on a strictly commercial basis. The really significant factors were the flexible labour agreement and what they regarded as the fact that the UK has a very good business environment. I went to the States to talk to Mr Akerson and Mr Girsky and to try and persuade them this was the place to be. I think the arguments that really cut through to them was this idea of Great Britain Limited, that we had a very co-operative, very flexible work force, and that the government was very much four square behind the industry. That was a persuasive case. As a result it was a real boost to morale, not just in their own plant but also the supply chain coming in off the back of it.
I think that is the combination of a lot of experiences I’ve had with the industry. When I took office, I had to sit down with Treasury officials and work out how to cut 25% off our budget so there was no environment to go around with a big cheque book. We now have to support the industry in more subtle ways. It’s partly done by creating generally good policies across the board. We are trying to create an attractive tax environment for business investment and hard work, investing in infrastructure and what’s called soft infrastructure - knowledge and education; creating a business-friendly approach to regulation; and trying to get finance moving out of the difficulties we’ve had with the banking system.
I also believe and it’s now becoming very clear that quite apart from these general policies, it is the responsibility of government to get behind our successful sectors and successful industries, this isn’t about picking winners in the old fashioned way. When you have a successful industry, and it could be aerospace or creative industries or professional business services, I think it is important that we as a government do what we can to get behind them.
I think in your sector we have a real role model and it works with the Automotive Council. It seems to me it has exactly the right kind of relationship between companies within the industry and the Government. It’s not intervening, trying to tell you what to do as part of a central plan but it’s a mechanism to get a high level conversation about how you develop the supply chains, how you develop the new technologies which are unlikely to develop spontaneously, how to develop future low carbon products, addressing the issue of skills and having a good commercial environment. So it is a good collaborative approach, it isn’t a cartel, it’s sensible and collaborative and that’s exactly what we need to have.
It’s in that kind of environment it’s easy to engender a great deal of investment. There’s Ford investing £1.5 billion to support R&D and production in environmentally friendly vehicles. Nissan’s £420 million for the electric LEAF and associated battery factory in Sunderland, and Toyota’s first mass-produced fully hybrid car in Europe. And just today BMW has announced that the new 3 cylinder engine for their hybrid sports car, the i8, will be built at Hams Hall.
We do take the view that where there is a market failure, governments do have a role to play particularly in relation to new technologies, we’ve tried to get behind ultra low carbon vehicles, we’ve put £400 million into that and the Technology Strategy Board is putting £250 million for low-carbon research, development and demonstration.
We also think we have a role to play in helping the industry to get back some of the supply chain which has gone offshore. I get a sense that a lot of the companies now want to bring it back, it’s partly an exchange rate phenomenon, for some it now actually makes sense but it needs a bit of pot priming. So we’ve set up a £125 million supply chain initiative to support companies trying to bring their supply chains to the UK.
Putting that all altogether, the strength of the automotive industry and work of the Automotive Council creates a model we are trying to replicate in some other industries and sectors, I’m trying to encourage my colleagues in Government to set up things like the Automotive Council in other sectors and it’s beginning to get traction. This is important particularly on the manufacturing side because although manufacturing accounts for only 10% of our economy in crude terms, nonetheless it’s half our exports, it’s a very high proportion of business R&D, and much of the productivity growth of the economy.
Now I do accept that there’s still a long way to go. Car manufacturing in the UK hit a 16-month high in January and car exports are almost at an all-time high but we’re still operating at levels which are very different from the downturn in the recession, we know there are serious problems in the eurozone, we know we have domestic problems we still have to overcome particularly in relation to skills and supply of engineers but the key point is that we’re heading in the right direction. I think there’s some really, really good news in this industry, there’s some really positive things happening and I just want to applaud what you’re doing, it’s fantastic value for the country and I want the Government to get behind you.