Stephen King: UK car makers hog fast lane as Rover stalls

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The Independent Online

Before the Second World War, there were hundreds of UK car companies. Had you wanted to buy a car, you could have opted, in the 1930s, for an elegant Alvis. Going back a bit further, you might have preferred the rather underrated, yet classy, Albion. Now, with the administrators called in to sort out MG Rover, it looks increasingly likely that you will no longer be able to "Buy British" at all unless you're heading for the niche world of Morgan or for self-employment as a taxi driver.

Before the Second World War, there were hundreds of UK car companies. Had you wanted to buy a car, you could have opted, in the 1930s, for an elegant Alvis. Going back a bit further, you might have preferred the rather underrated, yet classy, Albion. Now, with the administrators called in to sort out MG Rover, it looks increasingly likely that you will no longer be able to "Buy British" at all unless you're heading for the niche world of Morgan or for self-employment as a taxi driver.

So is MG Rover's collapse the final nail in the coffin of car manufacturing in Britain? Not at all. MG Rover's problems may reflect difficulties with British-owned, British-run car companies that have lost their way, but the car industry based in Britain - as opposed to the British car industry - is actually doing rather well. It's just not so easy to get your hands on the modern-day equivalent of a Morris Marina or a Hillman Avenger - particularly if you want the optional luxury of a vinyl roof.

According to the Society of Motor Manufacturers and Traders, nearly 1.7 million vehicles were produced in Britain last year. Ten years ago, total production was little more than 1.5 million vehicles. There have been a few ups and downs in between - the peak production year was 1999 at the height of the global economic boom, when almost 1.8 million vehicles were produced - but, for much of the past decade, production has hovered about the 1.6 million mark.

Set against history, this is an impressive result, with production now more than 50 per cent higher than at the beginning of the 1980s, when people believed that the car industry was about to disappear without trace.

So who is making all these cars? The top three producers last year, based on provisional data, were Japanese. Nissan topped the table with 325,000 vehicles, followed by Toyota with 240,000 vehicles. Honda was third, with 199,000 vehicles. BMW, with its modern-day Mini, was in fourth place from nowhere in 2000. And MG Rover? I'm sorry to say that the great hope of truly British car manufacturing produced only 100,000 units last year, behind Peugeot, behind Land Rover and Jaguar - both part of Ford's Premier Auto Group these days - and behind General Motors' Vauxhall.

The truth is, despite MG Rover's trauma, car manufacturing is alive and well in Britain. We may not be the biggest volume producer in Europe (Germany, France and Spain are in front of us on that measure) and our volumes may not be growing (they are in the aforementioned three), but Britain has three of the most productive vehicle plants in Europe, namely Nissan in Sunderland, Honda in Swindon and Toyota in Burnaston.

What all of this reveals is our collective confusion with the idea of Britishness, a confusion that has intensified in recent years in large part because of the creeping process of globalisation. What does it mean to buy British, for example? Popping to your local car supermarket, you may be surprised to find that the Peugeot 206 was, in 2003, the most heavily produced British-built car, followed by the Nissan Micra. The Mini was in third place - in reality, a BMW - followed by the Toyota Avensis. Other than the Mini, none of these feels particularly British. But perhaps that's a problem with Britishness as a concept - all bowler hats, cucumber sandwiches and cream teas - rather than a problem with the cars.

In business, national borders no longer matter as much. Brands may evoke national identity - Minis and Aston Martins will be forever British - but companies are no longer tied so rigidly to national jurisdictions. When you buy a Mini, you might think that you are acquiring something that's quintessentially British, but a lot of what you're buying is German. Similarly, a Frenchman hoping to express his Gallic charm through his car may be surprised to discover that his Peugeot 206 was assembled in Coventry, hardly the most obvious place to enjoy a tasty bouillabaisse alongside a glass of Côtes de Provence.

This story is not just confined to car manufacturers. The table shows the top 10 non-financial companies in the world, ranked by the size of their foreign assets. Of these, three are auto companies (two American, one Japanese), two are telecoms companies (one British, one French) and four are oil companies (British, Anglo-Dutch, French and American). GE, the biggest, is probably best considered a conglomerate - manufacturing and engineering at heart, perhaps, but also a powerful financial company.

When you look at these companies, the notion of nationality seems to be extraordinarily fragile. Almost 90 per cent of Vodafone's assets are foreign. Almost 80 per cent of its sales are foreign. 85 per cent of its employment is foreign. Similar numbers apply to BP. The other companies are, perhaps, less extreme on the employment front but the table suggests that the "nationality" of a company can, to a degree, be taken with a pinch of salt.

From a macroeconomic perspective, this is an important result. We tend to think that a company's prospects will depend on its "nationality". But what happens in any one economy may carry few implications for the world's largest companies. These businesses have thrived because they looked for growth opportunities elsewhere, and have refused to be tied down by national chains. MG Rover's decline reflects, in part, a desire simply to put up the barricades and produce cars for a domestic customer base that was happy to wallow in the nostalgia of a bygone era rather than produce cars that could truly compete on the world stage.

Corporate health and national economic health are related in increasingly obscure ways. We know that Japan's and the eurozone's economies have performed poorly relative to the US recently, but that hasn't stopped Japanese and eurozone corporate profits from rising as quickly - sometimes even more quickly - than those in the US. We also know that companies have increasingly been able to deal with cost shocks - higher oil prices, for example - by cutting costs in other areas. Outsourcing and off-shoring may have left labour more vulnerable, but I doubt that shareholders - or, for that matter, consumers - will be complaining.

In the 21st century, we're part of an international economy. We may not likethe implications of this - as workers, we inevitably feel vulnerable - but as shareholders and as consumers, we should embrace these changes. Japanese car companies were seen as a threat to British jobs in the 1970s, yet today Japanese companies provide more opportunities within the UK car industry than anybody else.

No one ever suggested that competition was always going to be pleasant yet, through it, the UK has emerged with a productive car industry that thrives on the international market. Last year, international sales accounted for more than two-thirds of all UK car production.

The industry may no longer be UK-owned but, for most of us, this really shouldn't matter. We may be confused about buying British but, whatever our nostalgic views, the world of croquet and Pimms and, as Toad came around the corner, the sound of "Parp, parp!" was always more fantasy than reality.

Stephen King is managing director of economics at HSBC

stephen.king@hsbcib.com

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