UK carmakers buck downsizing trend

Across Western Europe, car plants are falling silent as they slow assembly lines or cut working days. Employees at Germany’s Opel, owned by General Motors, and France’s PSA Peugeot Citroën are bracing themselves for job cuts.

Yet in Britain, two of the biggest carmakers, Nissan and Jaguar Land Rover, are hiring workers and launching round-the-clock production. Toyota and Honda are also adding jobs and scheduling new products at their UK plants.

As Europe’s car industry copes with a crisis of excess plants and plummeting profitability that some compare with the Detroit industry’s crisis before its near-collapse in 2009, the UK could offer the continent some clues in how to make automobiles profitably.

While some of the British industry’s relative health owes to successful products, a competitive exchange rate and good luck, flexible labour looks to be part of the formula for an industry that struggles with high fixed costs and cyclical demand.

Nissan said last week that it planned to build a new midsize hatchback at its plant in Sunderland, England, from 2014. Next year Sunderland will also begin producing Nissan’s Leaf electric car and small Invitation. To make the Invitation, the plant successfully competed within Nissan against the Japanese carmaker’s plant in Chennai.

The expansion will add 3,000 jobs at Nissan and suppliers and the plant will move to 24-hour production on two lines for the first time in its 26-year history. Round-the-clock car production in Europe is rare right now apart from at Germany’s prospering producers such as Volkswagen.

“It is absolutely creaking at the seams in terms of the amount of cars we produce there,” Andy Palmer, Nissan’s senior vice-president, says of Sunderland. Production of the new models will take the plant’s capacity beyond 550,000 units, about one in three of the cars Britain makes.

JLR, meanwhile, is recruiting 1,000 new workers at its Halewood plant in Liverpool to meet strong demand for its Range Rover Evoque and Freelander small sport utility vehicles. From August the plant will begin working three shifts on Monday to Friday.

The launch of 24-hour production attests to the health of the two UK carmakers, and will also sharpen their competitive edge by allowing them to sweat their assets. “Car manufacturing is a capital-intensive business, so if you can get your capital utilisation up it’s a great thing,” says Des Thurlby, JLR’s head of human relations.

If Britain’s car industry is in a sweet spot, producers have been both fortunate and well-placed in the models they make, and where they sell them.

While demand for cars is weak in Britain and most of Western Europe, UK “heritage” brands such as JLR, Bentley and Rolls-Royce make larger premium cars, which are selling well overseas.

Britain’s governments, past and present, have played an activist role in courting carmakers’ investments. Nissan received £17.5m from the UK government’s Regional Growth Fund to build its two new hatchbacks in Sunderland.

The Japanese carmaker, along with its rivals Toyota and Honda, first came to Britain in the 1980s, when prime minister Margaret Thatcher’s government was loosening labour laws. Nissan’s chosen base in north-east England was one of the UK’s highest unemployment regions.

Today, while all of Britain’s main car plants are unionised, labour relations are more typically co-operative than fraught.

At Nissan, workers migrate between jobs – installing a car’s windscreen or dropping its engine, for example – with a flexibility that would be unusual on the continent. Each operator is graded in steps on whether he can do a job, how proficient he is and whether he can teach someone else to do it.

At JLR, workers agreed to an unusual degree of flexibility during the financial crisis, when its owners Tata Motors said they might have to close one of the carmakers’ two West Midlands plants.

In a landmark compromise reached with management in 2010, JLR’s workers agreed to take on new hires as temporary workers, moving to fixed-term contracts after a year and full-time jobs after two. Employees also agreed to move physically between JLR’s Midlands plants in keeping with fluctuating demand for the different vehicles they make.

The two-tier wage pact resembles the regime for new hires agreed by America’s United Auto Workers Union and General Motors, Ford Motor and Chrysler in 2007 in Detroit.

Today, about 1,700 or half of JLRs’ workers at Halewood are agency workers or on fixed contracts, and receive 80 per cent of their incumbent colleagues’ pay. JLR says that it hopes to make them permanent after the two-year period is up, when they would receive 90 per cent of longer-standing colleagues’ pay.

“We’ve seen a lot of the car industry leave the UK,” says Roger Maddison, national officer for the auto industry with Unite. “Thankfully, a lot of that is coming back now because we’re much more flexible on shifts, mobility of labour, and so on.”

Not all British carmakers are harmonious workplaces right now. Morale at GM’s plant in Ellesmere Port has been hurt by rumours that it might need to close as Opel restructures.

At BMW’s Mini plant near Oxford, workers and management are locked in a dispute over pay and the length of tea breaks. Last weak 97 per cent of balloted workers rejected the German carmaker’s pay offer.

But esprit de corps is good at Land Rover, which says it will be hiring even more workers for a new engine plant in Wolverhampton.

“I’m having to hire recruiters to do the recruitment,” says Mr Thurlby. “We’re very busy.”

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Production volumes in decline

If Britain’s strongest carmakers are hitting their stride right now, few executives are feeling smug, writes John Reed.

The last decade was a traumatic one for the industry: Ford Motor stopped making cars in Dagenham, east London, PSA Peugeot Citroën closed a plant in Warwickshire, and MG Rover collapsed.

The industry made just under 1.5m vehicles last year, fewer than the 1.9m vehicles British carmakers made in 1972 in the heyday of national champion British Leyland, and well behind France and Spain, let alone Germany.

Some older Britons still bemoan the fact that the country’s major carmakers are all now foreign owned. Whether the nationality of a carmaker’s owner matters is a subject of lively debate in the industry. However, most executives and analysts agree that the UK sector has lost a significant portion of its critical mass.

As production volumes declined over the past decade, many suppliers decamped to eastern Europe or China in search of lower costs, or closer to the industry’s centre of gravity in Germany.

“It’s accepted that over the last 10 to 20 years there has been a steady hollowing out of the UK supply chain,” says Paul Everitt, head of the Society of Motor Manufacturers and Traders, which represents UK-based automakers.

Another area where Britain has lost out is in automotive research and development.

JLR does virtually all of its vehicle design and development work in the UK, and Bentley – owned by Volkswagen – and Nissan do significant R&D in Britain as well.

While it no longer makes cars in the UK, Ford builds vans and engines, and employs 3,000 engineers in Dunton, Essex, who research powertrains and commercial vehicles for the US carmaker on a global basis.

But BMW and General Motors, two of the country’s biggest automakers by volume, do no significant R&D in the UK. BMW’s British-made Minis and Rolls-Royces are designed and engineered in Germany.

As carmakers such as Nissan and JLR begin to expand production and add jobs, the SMMT’s Mr Everitt thinks that more suppliers could return to the UK. “We haven’t turned things around yet, but that’s the next area in which I think we will see progress,” he says.