This week saw the UK's new Budget spelled-out to the nation, the unsurprising theme of which is ongoing effort to cut the country's total debt level by 2015, not just by half, with a necessary re-structuring of Health & Education, and 'platforms for growth' said to primarily consist of SME assistance and the re-creation of Enterprise Zones.
These philosophically supersede the Regional Development Zones created under the previous government, yet now with a manufacturing bias as compared to the previous aspiration for nation-wide paper-less offices devoted to start-ups, but led to thousands of square meters of new office-space standing dormant, often in areas in which high-value entrepreneurial ism was an anathema, given the social realities Then the money flowed from government coffers whilst teams regional bureaucrats created overtly over-ambitious – ultimately empty - ideas for transforming run-down, post-industrial towns into the local silicon valley. As such, office construction work temporarily assisted the local economy, but a failure to 'snow-ball' the new small business ideology left a series steel & glass 'white elephants' standing on the edges of flailing towns.
So, today the Tory focus is back on manufacturing and the creation of tangible goods and services for domestic and export consumption. The previous creation of Economic Zones led to the attraction of FDI, the then contracting UK auto-sector seeing the likes of Nissan set-up green-field manufacturing in Sunderland, Honda in Wiltshire and Toyota in Derbyshire and latterly of its own accord BMW investing in the historic Oxford plant. But perhaps the most memorable case-study of the FDI good was the creation of the Hitachi television factory in South Wales that was hailed as a savior until its Asian re-location years later in 2001. Similar Sony and Panasonic plants were built but unfortunately shuttered after the Asian Tiger Crash. However, this month a different division of Hitachi announced opening of a £90m train production plant in Newton Aycliffe, Durham, which will build locomotives and rolling-stock that serves the N.E – London route, and the London – S.Wales route.
When it comes to world-class manufacture of high-value consumer goods the need for FDI – indeed arguably a reliance upon it – is crucial to the British economy. To this end the UK must once again demonstrate itself to the Japanese, S.Koreans and Chinese manufacturers, automotive and otherwise, from Japan's Big 3 and its others, to Hyundai-Kia to SAIC et al.
Beyond buying MG Cars' including the production plant in Longbridge, Birmingham, SAIC also has relations with 'China Ventures' which bought the assets of LDV Vans after its fall into administration. China Ventures partnered with Malaysian Weststar-LDV for a 'lift and shift' of tooling so as to serve the Asian van market, however simultaneously an announcement was made that a new company called 'Eco Concept Ltd' would create a low-volume light commercial vehicle in the Midlands. Yet, thus far little progression appears to have been made, the Longbridge plant once cited as a production base for 'old' MGTF having to wait for the engineering of a replacement car, whilst the trial production of the 'eco van' also at Longbridge is due now. The unfortunate inference is that China could be stalling with false promises, its ultimate intention to use Longbridge as a beach-head for the importation of Chinese made MG branded cars and otherwise branded vans. Reading between the lines, a possible business model would be the importation of basic low-cost Sino-Malay vans which are internally and externally modified in Longbridge for specialist customer demands, the company then able to under-cut present specialist van builders whilst also gaining large profit margins.
Thus in stark contrast to the rhetoric and 'real politik' of such promises, the UK must also look to leveraging manufacturing – large and small – which is 'live' (ie ongoing) or 'confirmed'.
On the global stage of automotive manufacturing GM Luton in the county of Bedfordshire here in the UK is relatively “small-fry”. Size-wise, from a production capacity viewpoint, at only approximately 70k units per year it hardly compares with the likes of VW's Wolfsberg plant in Germany at 500k units, let alone Hyundai's Ulsan plant in S.Korea at 1.9m units. Nor does it offer the touristic 'brand experience' seen at Wolfsberg's 'Autostadt', nor the national GDP contribution of Ulsan.
But this would be to compare Chalk and Cheese. Luton operates a no-nonsense focus on co-developed van production at what are realistically the auto-manufacturing margins, whilst Wolfsberg's & Ulsan's roles are as each respective country's innate socio-industrial heartlands.
GM Luton then is a very different industrial beast, in comparative terms somewhat niche and on the industrial fringe. One which unlike its super-sized Korean and German counterparts, GM executives argue as being well beyond its manufacturing heyday; when it served as GM's counterpart to Ford's Dagenham. (Dagenham ceased what was uneconomic whole vehicle production long ago). GM UK passenger car production has been re-location of car manufacturing to Ellesmere Port, Merseyside in the 1960s which meant that Luton was centred on commercial vehicles alone, experiencing a decrease of UK market share from the early 1980s onward and forced into product-line rationalisation, the adoption and 'badge-engineering' of other VMs vans, and the home-grown generation of smaller car-derived vans that acted as portfolio plugs which maximised cross divisional synergies.
Yet whilst Vauxhall (as Isuzu partnered IBC) was able to previously conquer UK competitor LDV it could not dislodge Ford and its Transit, and itself became open to attack from mid-size Japanese vans aswell as the crop of an ever-expanding van-variant offering from Daimler & VW. The Isuzu JV was latterly replaced with a Renault agreement, producing the Trafic badged Vivaro, and Master badged Movano, alongside the self-generated Corsa-Combo small van. (This model now discontinued in Luton, its successor manufactured by a GM-FIAT Tofas JV in Turkey re-badging the FIAT Doblo).
Increasingly harsh competitive terrain and a high UK cost-base have been the real-world 'headwinds' which have historically and today required Luton plant staff to be flexibility in attitude and labour demands. These headwinds also presented to the UK government when describing the structural picture to politicians and civil servants. As such over the last 2 decades a metaphorical axe has hovered over the plant when model life-cycles and production plans ended, in truth a very necessary bargaining tool for GM executives that could have likewise moves van production to Asia in the WestStar-LDV manner.
Thus the relative UK relief at the recent announcement that a new co-licensing and contract manufacturing deal had been struck with Renault-Nissan for ongoing development and manufacturer of the Vivaro model. It appears that Renault has decided to re-balance its Trafic production strategy away from its partner Nissan's Barcelona plant, instead focus upon capacities efficiencies at Luton aswell as re-organising the French Sandouville plant for Trafic. This leaves Luton as the Vivaro/Trafic European production hub – something welcomed by both the plant management and the union Unite, since it appears to safeguard over 1,000 jobs.
So much needed good news for not only the Luton plant itself but also for the regional economy in which workers spend their earnings, as well as of course for those UK parts and service suppliers that support the Vauxhall plant with components and activities.
The present basic Vivaro/Trafic model has been in production for 10 years (with facelift) during which 1.25m units have been built, so averaging 125k units per annum over what has been a boom decade. Instead the new 2013 vehicle programme's projections is for a more conservative 100k units.
This to be only expected given the level of pan-EU economic contraction with commercial focus targeted at Northern European countries which are in better 'rebound' shape than the periphery 'PIIGS' nations, even if 'anti-budget cut' demonstrations (such as London's this weekend) appear similar to those held in Greece. Moreover, this largely 'northern vs southern' European fiscal divide, could possibly become more evident if others follow Portugal's unwillingness to drastically cut its national budget spend, or in Greece and Ireland's case decide on a fiscal policy U-turn – unlikely but possible, and then creating a stale-mate for Brussels.
At face value Portugal's actions appear very cynical, taking such a turn after its peers have constricted themselves, it looks like it wants disproportionate access the low cost financing from the new ESF to support its state spending. Its attitude seems to be “why worry about a national credit rating fall and consequential added weight to longer-term liabilities when 'easy' money is on the table?”.
Such actions only serve to fracture Europe and concentrate investor confidence in the northern core; this viewpoint perceptively intrinsic to the GM announcement for Luton.
In stark contrast the Renault-Nissan lithium battery factory announced for Cacia, Portugal (next to Renault gearbox build, and a sister of similar UK, France & US plants) might well be contingent upon Portugese government assistance given the partnership deals agreed, which then would have the economic perversity of having other EU members indirectly paying for Portugal's hi-tech manufacturing future, when the state should by rights be self-supporting, and critically a manufacturing threat to those very same 'bail-out' member states. If this is the case, it highlights the ridiculousness of the situation – especially to the UK which itself must seek its manufacturing future by standing on its own feet and absorbing the economic pain to do so.
Hence, as mentioned in previous posts, the the UK has to create its own manufacturing and eco-tech future, one which whilst simultaneously listening to those new 'FDI promisorees' such as China, must be more acutely tuned to those that have already shown willingness to invest into the UK. And beyond this must create tenable visions for UK manufacturing and its correlated services, both with proven FDI partners, seeking out new stable possibilities, as well as undertaking wholly British R&D, development and market-reach endeavours; as displayed by many past achievements ranging from the 'public-good' Routemaster bus to the 'private-delight' of NAIM Audio.
Positioned between these two spheres is the UK auto-industry, spanning diverse sub-sectors from the niche production of track-orientated 'naked' sportscars (eg Ariel Atom & new BAC Mono) to the very opposite as illustrated with the mass production of basic vans, many vehicle companies located at various points along this line, with concomitant links to up-stream and down-stream commercial companies and activities that creates an effective UK automotive eco-system, itself externally and internally integrated with global commerce.
Many of the 400,000+ protesting in London's streets this weekend against the budget cuts are directly or indirectly employed by the state, in reality marching to protect their own futures - an understandable reaction. However, they should equally ask themselves how exactly value is created and paid for, and what the future shape of British industry to create a competitive Britain must look like. And whether they themselves - having been effectively cosseted for so long in the credit bubble at personal and employment levels - are truly equipped to add the necessary human value of knowledge and skills to this ambition?
The protesters would be advised to take an educational trip to the British Museum, to not only view the story of human advancement inside, but to also view a beautiful 1962 Vauxhall Bedford CA model Ice Cream van that sits by the front gates. It appears refurbished yet authentic, with a two-tone 'wave' livery of sea-blue & cream-white and big period Vauxhall Cresta rear lamps. It sells 'real' Cornish ice-cream, not the synthetic kind, and is able to charge a premium for doing so. A sensory delight that reflects the 'Best of British' and 'Made in Britain'. Built in Luton at a time when the country was also depressed soon after the Suez Crisis, yet those very tail-lamps high-light the direct links between its specialist body provider and Vauxhall itself, illustrating the scale and strength of UK industrial inter-relations that once were.
Moreover it served as a social beacon of optimism, for both children, their parents and its workforce. What's more this example is still serving the community 50 years on; the very example of sustainability, achieved by those who saw its innate worth. Luton's new 2013 Vivaro in its typical 'white-van' guise may not have its innate character but the truth is that it serves thousands of large British companies and SME's across the country – witnessed with van fleets of the AA, Sky, BT, and the emergency services. It is also an export earner for GME and ultimately the UK Treasury. Moreover, as the highly fragmented set of state-run agencies which also use the van are transformed into leaner privately run state-serving enterprises, so greater procurement scale economies can be achieved for both the new entities and GM Luton itself, so providing a basis for additional plant and product investment – to the good of the region.
Of course, like Nissan, Honda and Toyota, GM Luton is foreign-owned, but its very presence is vital to the UK economy, given that 12% of UK manufacturing is auto-related. Equally along with Nissan's R&D base on Bedfordshire, Ford's R&D base in Essex, and TATA's L-R-Jag R&D base in Warwickshire, so a secured GM Luton must also be seen to contribute to the national R&D agenda. Doing so via efforts such as NAIGT's recommended 'TESTBED' programme (presented in mid-2009) which itself is a critical part at overcoming the the auto-ambivalence of former governments since the early 1980s, and which NAIGT argues has undeniably resulted in innate structural disadvantages as a consequence of becoming an autos-assembler as opposed to autos-originator.
With that important 2013-2020 production announcement by GME in Luton comes a realisation that UK van manufacturing must be anything but “Headed for Bedfordshire”, instead very much part of the nation's industrial fabric, and if moulded properly, ripe for further exploitation. Critically, the Vivaro - aswell as Ford's iconic Southampton built Transit which had similar good news in late 2010 with a £1.5bn investment promise - to be seen as an essential part of a re-awakened “Alarm Clock Britain”: with its implicit overtones of making the most of the manufacturing base.
In this vain, the writers of BBC3's new comedy 'White Van Man' might well script their character to visit Luton, Southampton, Westminster and The City. Perhaps humourously don a plastic bowler hat instead of the usual tradie's cap as he drives down Piccadilly. Thus, a nod to Luton's own hat-making industrial past...a nod to his brown-coated bowler-hatted 1960s forebear...and when passing The Ritz or RAC Club, a warm nod to 'Michael the Doorman' who could doff his own top hat in return. Such a plot-line would then seek to heal any social wound created by the anarchistic actions of a small but virulent quarter of the 'anti-cuts march' who it seems wish to create social divisiveness, when the very opposite is needed.
With new production schedules set for Southampton and Luton, in the mid-term “the new van man cometh!”
City institutions seeking signs of ongoing and renewed corporate & SME growth will be viewing vehicle replacement actions as an indicator of capex confidence, and may wish to themselves doff their imaginary bowlers at such good news.
Better still, buy a real one - or any other type - from Lock & Co in St James's, and help keep economic activity on the home-front going.