November 2010 | Paul Everitt

Overseas investment in UK automotive

Paul Everitt, chief executive, Society of Motor Manufacturers and Traders (SMMT), talks about the benefits of overseas investment to the UK car industry

Vehicles are a global commodity that can be designed and produced anywhere in the world. The UK is playing an increasingly-significant role in the global industry and has the potential to enhance its standing in the years to come.
 
The country is recognised as a global automotive player, producing an average of 1.5 million vehicles each year (2005 to 2009), in addition to more than two million engines. This scale places the UK as the tenth-largest car producer globally and the fourth-largest in Europe. Within the UK economy, the automotive industry is a large and critical sector. It accounts for 729,000 jobs, has £40 billion in turnover and represents 10.5 per cent of all UK exports, worth £23.8 billion annually.
 
Britain’s automotive heritage is one of the longest and most respected in the world. International companies have seen the benefit of investing in the UK, recognising its world-renowned brands, skilled and motivated workforce, excellent R&D facilities and highly productive manufacturing plants.
 
From as far back as 1911, when Ford established a production facility in Manchester, international companies have seen the strength of the UK as a manufacturing base. Vauxhall experienced the first overseas investment in a British automotive brand as GM acquired the fledgling motor manufacturer in 1925.
 
More recent interest in the UK as a manufacturing base came from the Far East as Japanese brands showed similar willingness to capitalise on the host of benefits the country offers. Nissan established a factory in Sunderland in 1986 that is now considered one of the world’s most productive facilities. Japanese counterparts Honda and TTFT Honda and Toyota saw the UK’s potential and established three production facilities in England and Wales in the early 1990s.
 
Soon, the appeal of the UK market attracted large-scale investment in successful British automotive companies. Ford bought the world-famous Aston Martin and Jaguar brands in 1989 and followed this by acquiring Land Rover from the BMW Group in 2000. With significant investment in UK automotive from America and Japan it was not long before Malaysia and Germany came to British shores. A Malaysian company, Proton, took on Norfolk-based sports car brand Lotus, while Volkswagen Group saw the global potential of Bentley, manufactured in Crewe.
 
A case study in the power of a British brand, its worldwide appeal and the strength and flexibility of UK production facilities came in 2001 when the BMW Group established MINI in Oxford (following its earlier purchase and restructuring of the Rover Group in the mid 1990s). The UK-based BMW production triangle demonstrates the expertise and supply-chain capabilities of the UK, producing the body-in-white and engines for the Oxford production line from the Group’s Swindon and Hams Hall bases.
 
With Jaguar Land Rover now in the hands of Tata Motors, the future for UK-based manufacturing is as strong as ever. It is yet another global success story of British brands benefitting from overseas investment as their international owners capitalise on the country’s high skill base, engineering excellence and R&D prowess.
 
It is not just UK automotive brands that have encouraged foreign investment in the country’s automotive industry. Numerous international automotive companies have chosen to locate design, R&D, engine, car and commercial vehicle facilities in the UK to capitalise on its workforce flexibility, positive business environment and cultural openness.
 
Testaments to this include examples such as Ford, producing a third of its global engine requirement at two UK locations and Nissan’s Sunderland plant, which is set to be a European hub for battery and electric vehicle production.
 
The combination of investment in British brands and investment in the country’s personnel and plants by foreign companies also brings significant benefits to the full breadth of the UK automotive industry. With eleven volume manufacturers and numerous niche and specialist brands located across the UK, the positive impact on the industry is significant. Greater investment in UK R&D enhances the country’s international reputation as a hub for new ideas, technological developments and innovation. Additionally, higher production volumes, created by inward investment in UK facilities, assist the development of more robust supply chains, capitalising on economies of scale.
 
The UK government works closely with industry in the UK through the Automotive Council.  The body, a unique collection of industry leaders and government, works to develop opportunities for the automotive industry, focusing on low-carbon technology and demonstrating the benefits of investing in the UK.
 
The UK government recognises the positive impact of inward investment and promotes manufacturing as a key part of the UK economy. Through incentives, tax credits, low-cost funding and sympathetic legislation, UK-based companies in the automotive arena are encouraged to develop and prosper.
 
In addition to government assistance, high productivity, good labour relations, workforce flexibility and the depth of the skill pool tend to be strengths that attract overseas investment. Through modular design of vehicles and flexible manufacturing technology, UK plants are some of the most productive in Europe and independent external reliability surveys put UK-built cars at the top of the rankings.
 
The high productivity and quality relies in part on the dedication of the UK workforce. In addition to its quality, UK labour relations and workforce flexibility are among the best in the world. Numerous world-renowned universities play a key role in maintaining the UK’s international attractiveness by conducting high-level research and development work, plus educating world-class engineers, management and designers.
 
Fuelled by the work of the Automotive Council and particularly the drive for leadership in the low-carbon technology arena, the UK’s automotive future is bright. The past has set the country on a solid foundation of heritage, quality and world-renowned expertise. The industry is now setting the scene for future prosperity by developing its R&D capabilities and building on a new level of government support. With prospects so good and the future so promising, international investors are sure to be taking the UK seriously as the automotive industry enters a challenging and exciting low-carbon era.