UK: Experts foresee an engineering revival.

UK: Experts foresee an engineering revival. - Engineering may be poised on the brink of a comeback and a revolution. Roger Eglin.

Last Updated: 31 Aug 2010

Engineering may be poised on the brink of a comeback and a revolution. Roger Eglin.

The accelerated closure of Ravenscraig steelworks underlines the continued contraction of the mechanical engineering industries. The early '70s dream of a steel industry producing over 30 million tonnes a year has turned into the harsh reality of the '90s where an output target of 15 million tonnes a year is ambitious.

The customers, as British Steel's management has pointed out on several occasions, are simply not there any more. With only one active commercial shipbuilder in Scotland and its motor industry only a memory, what use has Ravenscraig?

Nationally, the picture is no better. A recent study by the National Economic Development Office (Neddy) charts the inexorable decline of the engineering industry. Nothing appears to have gone right. Since 1979, the growth of output has been slower than the average of the economy and manufacturing industry as a whole. As a share of manufacturing output, engineering fell from 43.8% to 42.1% in the 10 years to 1989. Its percentage of GNP has fallen from about 12% in 1979 to under 10% in 1990. Nor does this simply reflect the changing needs of a modern economy, shifting away from heavy industry; this decline is by far the largest among the six major industrialised nations.

We know why this has happened. Poor industrial relations, lack of training, inadequate investment, and a low rate of innovation conspired to create an internationally uncompetitive industry. The toll in jobs has been shocking. The 3.9 million employed in the industry in 1970 has shrunk to approximately 2 million today; in the same period, employment in the Japanese engineering industry has risen by 27.2%.

This decline has also blown a hole in the trade accounts. In 1990, engineering had a trade deficit of £5.5 billion, underlining why attempts to expand the economy invariably precipitate a surge of imports and a balance of payments crisis. Fortunately, tucked away in this gloomy appraisal there is some encouragement, sufficiently so to raise the question: is engineering on the way back?

According to the research from the West German Motor Industry Association, the UK motor industry has the lowest hourly cost among major vehicle producing countries in 1990. British costs are DM 25.58 per hour compared with DM 28.64 in Japan and DM 41.87 in West Germany. "If the productivity of UK workers and the quality of their output were comparable to those of their competitors, the lower hourly costs would make motor vehicle manufacturing and assembly in the UK an extremely attractive investment proposition," says Neddy.

That the UK motor industry can do much better is now more than a matter of conjecture. Given the right management, British car workers can produce the winning mix of quality, productivity, and competitive cost. Nissan's Sunderland car plant continues to go from strength to strength. In January, Ian Gibson, MD of Nissan motor manufacturing in the UK, announced, "more jobs, more investment and more output". An increase in investment by £150 million to £850 million will increase installed production capacity to 300,000 cars a year. In 1991, Sunderland's export increased by 52%. Though they have yet to achieve the same scale as Sunderland, Neddy sees similar trends emerging in other British car plants. But what are the chances of this performance being repeated more widely through the engineering industry?

Some companies, overcoming the impact of recession, have fought their way out of the pack. At TI Group, chairman Christopher Lewington has demonstrated that by shedding the company's traditional past of low value-added metal bashing, results can be transformed. Switching away from a UK dominated, commodity-based product profile to a world leadership position in specialist engineering products, has galvanised the group, say engineering analysts from Barclays de Zoete Wedd in a recent study. Similar strategies are bringing good results at other engineering companies. Weir, for example, has built up a worldwide presence across many market sectors for years.

Other engineers are succeeding. Perkins has won a $1 billion, 10-year contract to supply diesel engines to American-based Caterpillar, the world's largest construction equipment group, in the face of intense competition from the Far East and Continental Europe. It shows that achieving better performance in engineering is not just a pipe dream.

BZW's analysts support the thesis that the engineering industry could be poised for a comeback. Calling it "the manufacturing revolution", they argue that the gains in industrial performance seen in the '80s have survived the recession. "Unit labour costs and productivity measures have both improved since the last recession. While many industrialists believe this recession compares adversely to previous ones, manufacturing industry has proved much stronger," they say.

Since all the key indicators - stock levels, labour costs, employment levels, strategic positioning, and investment - have shown a marked improvement during the '80s, the BZW team believes engineering will out-perform in the upturn. Like most forecasters they expect little market improvement before the second half of the year. But the Engineering Employers Federation believe recovery should be under way by then. It expects output volume to increase by 2-3% in the 12 months to the fourth quarter of the year.

Despite cautious optimism, Neddy still questions the calibre of the labour force. At a recent Sunday Times forum on business skills, Michael Howard, the employment secretary, said he was heartened by the way training spending had held up during the recession. Let's hope that this is the case. There's little future for an economy whose labour is unskilled, even if it's cheap.

Roger Eglin is managing editor of the Sunday Times.

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