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No longer strike bound, car sector bounds back

David Bowen charts the re-emergence of the motor industry as a magnet for investment from abroad
ONCE, it was almost impossible to open a newspaper without reading about a strike in the British car industry. Now it is nearly as difficult to avoid an announcement of investment in the industry.

On Wednesday, Peugeot Talbot said it was pumping £150m into its Ryton factory near Coventry over the next five years. On Thursday, Vauxhall said it was investing £136m in its Luton plant. These followed announcements last month from Toyota, which said it was doubling its UK production; from Honda, which is spending an extra £200m to expand its range at Swindon; and from Ford, which is building a £200m diesel plant at Dagenham.

In addition, it has become clear that Ford is to allow its Jaguar subsidiary to build its new higher-volume car in Coventry rather than Michigan. Here the investment is coming from the British government, in the form of a £60m grant.

These increases come despite a European car market that is as flat as Saskatchewan. "They are part of a rebalancing process, driven by the fact that it is reasonably good value to produce a vehicle in the UK," says John Lawson, director of the motor consultancy DRI/McGraw-Hill.

The weakness of sterling against the Japanese, German and French currencies has probably accelerated some of the decisions. The Japanese are faced with a yen at around 85 to the dollar, a rate that would have seemed impossible to live with only a year ago when the strain was showing at 100 to the dollar. "The strength of the yen is very much an issue for the Japanese," Mr Lawson says.

But Garel Rhys, motor industry professor at Cardiff Business School, says the underlying decisions have nothing to do with currencies. "The motor industry will not invest long term on currency or wage-rate effects," he says. "That is why they won't invest in eastern Europe, despite the very low wage rates."

He says the announcements are all part of the long-term revival in the British motor industry and reflect its increasing ability to produce high- quality cars, as well as the availability of plenty of spare capacity. To put this success into context, though, it is worth noting that the UK makes - and will continue to make - fewer than half the cars that Germany does.

As the Independent on Sunday reported on 19 March, the most economically significant announcement came from Toyota. Although the immediate effect is to increase capacity at its Derby factory from 100,000 to 200,000 cars by building another line, Professor Rhys says the company will have an eventual capacity of double that figure. "Toyota will have two plants, each of which can produce 200,000 cars," he says. He predicts that one of these will build the Escort-sized Corolla, while the other could produce two different models. He believes this shows just how long a view Toyota is taking: its existing model, the Carina E, is finding the going tough in the fiercely contested Mondeo-sized sector.

Honda's decision to build new models in the UK was flagged a year ago, and followed BMW's purchase of Rover. The company decided it could no longer rely on supplies from its former partner, and is trying to make sure it is not marginalised in Europe. The Swindon-built Accord has been consistently outsold by the near-identical Rover 600. Last month, the factory started building the Civic hatchback.

Vauxhall's decision to upgrade Luton is also important, because it will bring the first increase in car output at the General Motors subsidiary for many years. A decade ago the plant was assembling parts made in a GM Opel factory in Germany - an activity usually reserved for screwdriver works in developing countries. GM had started running down its British activities in the early 1960s, though it managed to maintain the fiction that the Vauxhall was a British car.

The UK component content started to rise in the 1980s, although it was not until late in the decade that GM committed itself to direct UK investment, in an engine plant at Ellesmere Port. The Luton initiative will bring it almost on to an equal footing with its German cousins, although its cars will be still less British than Fords or even Nissans, as no small- car engines are made in the UK. The Luton upgrade is much needed, says Professor Rhys: "It is one of the least automated plants in Europe."

Ford's decision to increase engine production at Dagenham means the plant is now the company's diesel centre. Unlike GM, Ford has maintained a commitment to the UK, particularly in engine production, which is more capital-intensive and therefore less vulnerable to industrial action. The company considered building a new engine factory in Hungary, but decided this would just add complexity. However, there has been a revolution in attitudes in the assembly plant, which is why Ford has also announced that Dagenham will be producing cars for its partner, Mazda.

Like Luton, Peugeot's Ryton plant - the old Rootes factory - has suffered from under-investment. With the injection now planned, it will be automated and should be able to increase capacity from 120,000 to 200,000. French plants are as badly hit by the rise in the mark as the German ones, because the franc is still in the ERM.

Mr Lawson says Ford's decision to build the new Jaguar in Britain was not a foregone conclusion. "There is a perfectly possible alternative plant at Wixom in Michigan," he says. "It will be building cars using the same platform." The car, codenamed X200, will be aimed at the lower reaches of the BMW range and should start production in 1998. It will be the biggest-volume Jaguar ever built, and will double output at the Browns Lane factory in Coventry.