Dagenham jeopardised by Volvo deal

Ford's purchase of the Swedish car marque seems to marginalise the American giant's main plant in Britain, writes David Brierley

FORD'S pounds 4bn purchase of Volvo on Thursday will come as bad news to workers at Ford's main British plant at Dagenham. The factory, which makes the Fiesta, now looks sidelined in Ford's push to shore up its position in Europe.

There were hopes last week that Dagenham might have been converted to make Volvos, but a Ford spokesman at the plant dismissed this idea.

"Volvo will retain its separate identity," said a Ford spokesman at the plant. "There are no plans to switch Volvo production to Dagenham."

The aged Fiesta, made at Dagenham and Britain's best-selling car, is rapidly losing its consumer appeal.

"The Fiesta is getting long in the tooth. Its decline is proving more rapid than Ford will have anticipated," said Professor Daniel Jones, of Cardiff Business School.

Two days before the deal, Ford confirmed it will close the lines at Dagenham for 25 days between February and April. A four-day week, introduced in October, will continue for the foreseeable future. This will reduce Fiesta production in Britain by some 40,000 vehicles. By contrast, the temporary closure of the Fiesta production line in Cologne will last only 12 days.

Doug Collins, of the Amalgamated Engineering and Electrical Union, said: "This is clearly a serious development. We cannot continue with a piecemeal approach. We need to assure the workforce that there is a long-term plan [for the plant] in place."

The unions are right to be alarmed. There are 7,500 workers at Dagenham, of which 3,500 are directly employed on the assembly line. While Fiesta sales remain strong in Britain, exports to Spain and Italy are falling. Despite regular face-lifts, the Fiesta is losing out to new models, such as Peugeot's 106 and the Renault Clio, that are selling briskly.

Although Dagenham makes some Fiesta-based vans and a Mazda, it is essentially designed as a one-model plant. This simplifies manufacturing and raises efficiency but limits its flexibility as Ford adjusts its strategy. Professor Jones said: "If you don't run your plant with two models, as Honda does, then you're vulnerable."

This is particularly true at the end of the life-cycle of a vehicle. Ford is a past master at extending the life of its cars by attractive schemes. It takes the view that smaller, less profitable models have to last up to 12 years. By contrast, Honda expects a model to last a maximum of only seven years. Now it looks as if Ford's strategy for the Fiesta is coming unstuck. An undoubted winner, it needed to be replaced earlier.

Demand is sagging. In December, Ford's European sales fell by 20 per cent while its market share last year fell from 11 per cent to 10 per cent. Europe's largest car manufacturer during the Eighties, Ford slid to number six in Europe prior to its purchase of Volvo.

Ford Europe lost money in the fourth quarter of 1998 due to write-downs, lower export sales and the launch costs of the Ford Focus. The purchase of Volvo gives it the chance to spread costs over more models, raising efficiency and profits.

Jac Nasser, Ford chief executive, said: "We are determined to improve our results in Europe by continuing to lower our costs, improve our quality, and grow the business."

Ford Europe offers an odd contrast. While its British plants are making the ageing Escort and Fiesta its new vehicles - such as the Ka, the Puma, the Cougar and the Focus - are being produced elsewhere.

The Focus, voted the European car of the year, gives every impression of being a winner. Ford thinks it could outsell the Golf this year. However, the car is being produced at Saarlouis in Germany, and Valencia in Spain. Halewood and Dagenham have missed out because of their relatively poor performance.

Departing Ford chairman Alex Trotman pointed out: "We find that our assembly plants in the UK are at least 20 per cent less productive than our best plants in the US. We attribute that to work practices, excessive indirect labour and infrastructure [costs]. Productivity is not what it should be."

However, considerable progress has been made in recent years, and Halewood will build the next Jaguar when Escort production ceases on Merseyside in 2000. Professor Garrel Rhys of Cardiff Business School says: "There's nothing particularly wrong with Dagenham. Its productivity is more or less the European average. The problem really is throughput. It's time for a fresher model than the Fiesta."

If the Fiesta replacement is delayed for any reason, then Dagenham would clearly be in severe trouble. "If the new model only appears in 2002 [instead of 2001 as expected], then they've got serious problems," an industry observer said.

The prospects for the British car market are not good. Some analysts are suggesting that UK sales could fall by a tenth in 1999. That would hit the Dagenham plant hard, given that 55 per cent of its production is sold in Britain.

Ford is in the throes of a heavy cost-cutting programme. It is aiming to reduce costs globally by $5bn (pounds 3bn) by 2000; last year, the company saved $2.2bn. Earlier this month, the Ford chief executive, Jac Nasser, announced job cuts of 8,800, with 2,000 to go in Europe.

It seems certain that workers at Dagenham can expect more bad news before very long.