UK: Car manufacturers' new efficiency bodes well for the future.

UK: Car manufacturers' new efficiency bodes well for the future. - Roger Eglin is associate business editor of The Sunday Times.

Last Updated: 31 Aug 2010

Roger Eglin is associate business editor of The Sunday Times.

With improved quality and design, the UK car industry is looking healthier.

Shortly after Arno Bohn had taken over as chief executive of Porsche in 1990, he talked to me in his office in Stuttgart about the company's success story built around its range of sleek, expensive sports cars. They had to be good and their quality outstanding to justify their price and the cost of employing Porsche's workforce, Bohn said. Like most German car workers, the Porsche team were paid more for working a shorter week than any of their European contemporaries. But however expensive the labour, Bohn was confident that not even the Japanese car makers were going to get in the way of the German motor industry success story.

Now Bohn has gone. Porsche is losing money and Germany's other car makers are suffering. BMW is being helped by a new model range but Volkswagen's profits have sagged and short-time working has been introduced. Audi, the quality division, is laying off workers and VW's management has been overhauled amidst speculation that the new Golf has not proved a runaway success. Even Daimler-Benz's Mercedes car subsidiary plans to cut 40,000 jobs by the end of 1994.

Managers are now trying to cut the fat and slim their costs - ironically the treatment UK car makers have been forced to adopt in recent years and which is now paying dividends. Productivity of UK car workers may still lag behind their German counterparts but the cost of employing them is less. With improved engineering, better quality and design the UK industry's prospects are better than most of us might have believed possible five years ago. The balance of power has shifted. In the '80s the Government's plan to save Rover by allowing Ford to buy it caused a parliamentary storm. Now as Ford cuts 10,000 jobs and slashes output, the once all-powerful car maker, has become the lame duck.

The Japanese are the new power in the land, first Nissan and now Toyota and Honda. By next year, Nissan's Sunderland car plant will have become one of the country's top 10 exporters. Within a year Toyota says output at its Derby plant will have reached 100,000 a year. A year from now these two plants will account for about one third of Britain's 1.2 million-a-year car output. With the exception of Ford, the Japanese effect has galvanised the industry: Rover, helped by its Honda link, has embraced lean production techniques to become one of Europe's official car makers; Peugeot says productivity has risen 30% in three years at its Coventry plant; Vauxhall, which General Motors claims has some of the lowest cost plants in Europe, set production records at Luton and Ellesmere Port in 1992; and even Jaguar was set to achieve a 30% productivity increase last year while Land Rover goes from strength to strength.

Though there were modest signs in late autumn that the UK market was on the turn, recession has hit the industry hard, knocking sales back last year to an estimated 1.6 million, 700,000 less than the 1989 peak. However, the industry's new-found efficiency means manufacturers have been able to make up losses in export markets: production fell by only 4.8% from its 1989 peak of 1.3 million to 1.24 million in 1991 - and will probably be shown to have held its own when the 1992 figures emerge.

With most manufacturers hoping to increase output this year and the home market on the mend, 1993 car output should reach 1.4 million, well up on the estimated level for 1992. With export sales building steadily, analysts are predicting that the trade deficit in motor vehicles will be eliminated in 1994.

Success begets success. Britain has been rewarded with GM's biggest ever British investment, a £190-million plant that will make engines for use in GM plants across Europe. Robert Bosch, Germany's components maker, has set up in South Wales, and Valeo, the giant French components company, is expanding in the Midlands. But the drive to higher productivity levels has, if anything, to accelerate. European capacity is expanding and new bosses at VW, Ford of Europe, GHM Europe and Renault have everything to play for. It promises a lean, competitive market.

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