IMI Magazine

IMI Magazine

News Analysis

Will Ellesmere Port meet the same fate as Dagenham?

Is General Motors likely to follow Ford's example and cease major vehicle assembly in the UK? The arrival at the beginning of June of a new chief for GM Europe in the form of Fritz Henderson, currently heading up GM Asia Pacific, will almost certainly lead to further rationalisation measures. GM continues to incur losses in its European operations, with scant prospects of improvement given a strong euro and intense competition.

A further indication of the corporation's determination to restore equilibrium to its operations in the region has been provided, among other things, by the dispatch of the highly regarded and multi-lingual Bob Lutz as temporary head of GM Europe following the defection to Dana Corporation of the previous incumbent, Michael Burns. During the short period leading up to Henderson's arrival it appears that Lutz will act in the manner of a consultant by assessing the competitive position of the organisation and providing advice and guidance to his successor.

Undoubtedly the assessment process and arrival of Henderson will be accompanied by considerable anxiety within GM's British operations and among their suppliers and the communities where they are based. Notwithstanding the visit to the UK in March of Rick Wagoner (GM's chairman) who witnessed the first Astra in the latest range roll off the assembly lines at Ellesmere Port, it would be surprising if a questionmark was not hovering over the Plant's future. In a region where the focus of motor industry investment is shifting inexorably towards the east, Ellesmere represents one of the most western outposts. Moreover, as Ford has proved, the absence of a UK assembly capability is no barrier to a strong market presence.

With Ford and Vauxhall's Luton already gone, MG Rover clinging on pending the arrival of new mid-range models and now concern over the role of Peugeot's Ryton facility in the French company's European manufacturing network, the UK's car industry is looking distinctly out of sorts.

Meanwhile, GM Europe's new boss will want to make his mark in the corporation by bringing about a convincing turnaround as soon as possible, as a stepping stone perhaps to greater things back in Detroit. As such he cannot afford to be sentimental, and therefore is unlikely to shirk from difficult decisions. All is not lost, but the onus is on Vauxhall to demonstrate Ellesmere Port's crucial role in GM's European recovery.


'Dr Doom' and car sales

After a record first quarter, with '04' sales for March alone nearly equalling the traditional August figures, the UK's car market is on course for yet another all-time high. Against a background of a buoyant economy with low unemployment, property owners particularly are being encouraged to remortgage to fund cars, holidays and home improvements.

How long can it all last? Some observers believe that the new car sales trend will continue upwards to the point where UK demand will exceed Germany's, an unthinkable prospect only a few years ago. It may be prudent, though, to adopt a more cautious approach and anticipate a levelling off or even a modest correction in the short to medium term.

For a start, it is difficult to believe that property prices will maintain the kind of year-on-year advances which have been evident lately. It is not necessary to subscribe to the views of 'Dr Doom' who has predicted a 30% decline in real terms in the medium term, but it is not difficult to compare contemporary economic data with the past and produce a convincing case of trouble ahead. Those with a long exposure to the vagaries of free markets will know that the fall almost always comes at the point where the majority of 'the herd' has become convinced that things really are different now and that the good times will last for ever.

Much depends on the course of interest rates over the summer but if, as appears probable, they continue to track modestly upwards, the car market could lose some of its gloss during the second half of the year.


Trading without the milk and honey

Despite record new car demand and encouraging profit figures from some of nthe country's largest publicly-quoted and privately-owned vehicle distributors, including Arnold Clark, Pendragon and Reg Vardy, the latest financial results from some other dealer groups indicate that it's not all milk and honey in the sector.

Two of the few remaining publicly-quoted dealer groups, HR Owen and William Jacks, have both reported deteriorating results during their latest financial years, the former moving from a profit of around £3m to a loss of £2m despite higher turnover, while William Jacks barely scraped into profit even allowing for a £716,000 gain on the forced disposal of two BMW dealerships. Interestingly, both groups have their epicentre in the prosperous south and are concentrated at the luxury end of the market which is generally recognised as the place to be.

In the manner of Marks & Spencer, where a faltering recovery has led once again to rumours of predators circling overhead, the posting of poor results by vehicle distributors with a stockmarket quotation raises the prospect of further takeover bids within the sector, the more so as recovery is clearly underway at both groups.


'Holistic' swoop by Norwich Union

The acquisition by the UK's largest insurer, Norwich Union, of, the on-line and telephone-based motor sales business, provides further evidence of major financial groups becoming more firmly entrenched in the retail motor trade. Heavyweights like Alliance & Leicester, Lloyds TSB and Royal Bank of Scotland are already heavily committed to the sector.

Norwich Union's move is part of a clearly stated objective "to become a one-stop shop for the motorist" and develop "a more holistic approach to the customer". With a 14% share of the UK's overall insurance market where it is concentrated on individuals and small businesses, and one in seven motor vehicles insured by the group, Norwich Union must have a customer list which traditional vehicle distributors can only contemplate in their wildest dreams.

For the moment Norwich Union will continue to source cars for Oneswoop's customers from UK-based dealers but, if the momentum is sufficient, how soon before a dealer group is added to the portfolio or cars are acquired direct from manufacturers?


'Add on' proves a big minus

After the Kwik-Fit wealth destroying episode, Ford must be concerned that another of its UK 'add-ons' from the days of Jac Nasser's time at the helm has hit the buffers. The company's decision to put its Warranty Holdings subsidiary into administration and call in the police amid allegations of fraud is clearly a worrying and disappointing development and highlights the imperative of close scrutiny in subsidiaries which operate somewhat at arm's length.

In terms of financial loss, Warranty Holdings comes nowhere near the Kwik-Fit disaster. It does, however, provide yet another reminder of the folly of embarking on an acquisition without a clear understanding of how the operation will fit into the corporate structure and then failing to pursue an integration programme with full vigour.


Nervous energy

Rising tension in the Middle East inevitably brings with it unease over oil supplies. Those whose memories stretch back to the 1970s will recall two occasions during that decade when Opec members wreaked havoc on the automotive sector by curtailing oil output.

Vehicle demand throughout the world experienced a hefty decline at that time and there was a renewed emphasis on fuel efficiency which, among other things, laid the foundations for a sharp advance in the competitive advantage of Japanese producers. Since that time, though, oil supply and demand have been more closely in balance with the result perhaps that the world¹s main oil consuming nations have been lulled into a false sense of security.

So far the latest jolts have been confined largely to America, where of course consumers enjoy ludicrously low energy costs compared with their European counterparts. The expectation is that petrol prices in that market will continue to rise over the next few months to reach a record high by the mid-year, albeit still considerably adrift of the European average.

Rising demand as opposed to constricted supply is likely to be a much more acute cause of rising prices and perhaps occasional shortages in the future. Logic dictates, for example, that the headlong motorisation of the Chinese economy, in which western vehicle and component manufacturers are so enthusiastically involved, cannot occur without placing strains on the global energy equilibrium.