UK: Black Country blues. (2 of 4)

UK: Black Country blues. (2 of 4) - The present recession is putting these changes to the test. After an initial delay, the region is now the hardest hit of all areas. In February the CBI reported that nearly three quarters of the larger industrial compa

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Last Updated: 31 Aug 2010

The present recession is putting these changes to the test. After an initial delay, the region is now the hardest hit of all areas. In February the CBI reported that nearly three quarters of the larger industrial companies in the area expect to cut their workforces by June. The same proportion of plants are operating below capacity.

The special problem for the West Midlands in this slump, says Engineering Employers Federation regional chief executive Cedric Thomas, is that local industry is exposed as never before. "From 1983 to 1989 we had a pretty high growth rate and this has meant that companies needed to deploy more working capital and now are near the top of their borrowing capacity." Thus not only are interest rates crippling but few banks are prepared to shore up firms with more capital. The industry is also much leaner than before, so cutbacks are more likely to bruise the companies' core operations.

This critical issue turns on just how long and deep the recession runs. "If it is deep and long," says GKN's Lees, "it would be foolish to think there wouldn't be considerable harm done to the base here. But I think there are quite a lot of lessons learned from the '80s as well."

One of these lessons is already acting as a buffer - ie. a much lower cost base and hence a lower break-even point than a decade ago. A second lesson is yet to be put to the test - involving the still tender issue of labour relations. It is a topic which has a perceptible effect on the GKN chairman. His hands, which ceaselessly explore everything around his intense but likeable person, suddenly stop. The job ahead, he pronounces, is one for "not only management or the workforce but a combination of the two. If they find it impossible to work out a suitable response in terms of pay negotiations, there is no doubt that there will be considerable demanning. You don't go down without a fight."

In the automotive trade, represented by Jaguar, Rover and Peugeot-Talbot and by hundreds of car component suppliers, this fight is clearly on. It is one which is well overdue. From being the prime car exporter in Europe before the mid-1950s, Britain has slipped to a position where over 56% of cars are imported, compared with 23% in 1972. At the turn of the '80s the Japanese, Germans and French nearly decimated the inefficient home industry. Only a massive reshuffling of assets and a crackdown in the workplace pulled the industry back on its feet.

Rover Group, for example, since it metamorphosed out of British Leyland (it is now owned by British Aerospace) has transformed from a muddling goliath into a robotised sharpshooter. While still trailing a history of losses, its outlook is bright, with creeping progress made in its market share. Sales from its Land Rover division leapt by 20% last year.

Jaguar, now owned by Ford, is in a far bleaker mood after a 10% drop in world sales in 1990, but spokesman David Bull still speaks confidently of plans to treble production by the end of the decade. Peugeot-Talbot is shedding 700 jobs in Coventry and still badly needs modernisation, but has made significant profits.

The serious trade deficit in automotives - £6.55 billion in 1989 or one third of the UK deficit in manufactured goods - last year did a welcome about-turn, falling to £4.6 billion. Exports, up 25% in value, were the major reason.

Garel Rhys, professor of motor industry economics at Cardiff Business School, expects that the trade deficit will remain for some time, but is nonetheless optimistic. Last year car production reached 1.3 million cars, the best figure since 1977. By 1995, he says, we could nudge over two million. "If one looks beyond the problems of the immediate market, it looks good," he says. "As long as we don't lose control of costs."

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