IMI Magazine

IMI Magazine

News Analysis

Why more plant closures are on the cards

Don’t be fooled by this year’s buoyant sales figures for new cars or latest findings  from the Office for National Statistics pointing to strong growth in exports from UK vehicle plants.

Carmakers throughout Europe are currently carrying out reviews of their business strategies, some as a prelude to temporary or permanent plant closures. Output levels have been cut back in an attempt to maintain inventories of finished vehicles at manageable levels, investment projects are being cancelled and redundancy programmes implemented.

A typical response is evident at Ford which, after the closure of its car assembly facilities in the UK, is now directing its cost saving attention towards Belgium where a proposal to assemble an additional model at Genk has been cancelled and 3,000 job losses announced. More ominously for British interests, there have been rumours that rationalisation is required at Ford’s Premier Automotive Group, with murmurings that Jaguar has one assembly plant too many.

Even companies which hitherto have managed to escape the worse effects of the European motor industry¹s chronic cocktail of overcapacity, poor demand and low prices are beginning to feel the strain. Peugeot, for example, was minded to issue a profits warning towards the end of October - its second since the summer. The company’s outlook has progressively dipped during the year against a background of dull conditions in the French and other key markets, while the strengthening euro has reduced profitability in key non-euro markets. This is notably the case in the UK which represents at present one of the few bright spots in the European new car market firmament.

With this backdrop, the task of achieving a turnaround at the region’s weaker operations becomes more and more daunting. At Fiat Auto, for example, the appointment of the highly experienced Herbert Demel as CEO promises a fresh approach, but the straightjacket of external economic conditions allied to the group¹s structural weakness implies a long and hard struggle.

The ability to pool resources between brands without compromising their integrity is now aprerequisite to international competitiveness. So Demel’s greatest service to Fiat Auto would be to make the operation an attractive partner for a wider grouping, along the lines of Renault/Nissan. In this regard the chief hope surely must be to rekindle the interest of General Motors.


MG Rover not out of the woods yet

Although the latest financial results from MG Rover show a reduction in annual losses compared with the previous year, at around £111m they remain large enough to be both disappointing and worrying, the more so in view of the robust state of the domestic car market.

With substantial cash reserves, there appears no short term threat to the operation’s survival, but losses cannot be sustained indefinitely and, with another deficit in prospect for the current year, there is now an urgent need to reach breakeven and then move into sustained profitability.

In the quest for profits, MG Rover is implementing a further round of cost cutting, with component and systems producers once again being called uponto play their part. In view of the company’s relatively low output level, however, there are limits to which suppliers will be prepared to go in order to accommodate demands for ever lower unit prices. It follows, therefore, that the establishment of one of two alliances would prove beneficial to secure manufacturing economies, but past experience has shown MG Rover to be somewhat accident prone in its choice of partner.

An obvious imperative is to achieve a higher domestic market share and a boost to exports. The latter should be possible thanks to the strengthening euro which offers the company a more kindly position in the markets of mainland Europe. But a clawback of market share in the  domestic market is almost certainly dependent on the arrival of an all-new mid-range model which is unlikely before 2005. The nightmare must be that the revitalised model range makes its debut at a time when the current effervescence of UK demand runs flat.


Carmakers act to defuse aftermarket threat

So far, the introduction of new block exemption provisions at the beginning of October has produced few, if any, ripples that have been discernible to consumers with regard to either the channels through which they source vehicles or have them serviced and repaired. There has been no overnight shift in the workings of the retail motor trade of the scale seen, for example, as a consequence of liberalisation of the directory enquiries service in the telecoms sector.

Even so, it is clear that there are rumblings beneath the surface which have the potential to effect quite dramatic changes, not least In the aftermarket where different players are planning for markedly different futures. At the franchised dealer level, for example, several major distribution groups are looking to allocate substantial investment funds towards establishing a chain of branded servicing centres, while others are stressing the specialised nature of servicing and insisting that individual marques will require their own dedicated servicing facilities.

While it makes sense to reap the maximum possible savings by exploiting the economies of scale afforded by pooling servicing activities into large scale workshops, the strategy of establishing a new chain of branded workshops is not without considerable risk. If too many of the major dealer groups get in on this act, it may well prove the undoing of some of them. The UK aftermarket is noticeably over-supplied and, notwithstanding a rising vehicle parc, servicing and parts demand is falling across many sectors due to a variety of factors including longer servicing intervals and better parts quality.

Meanwhile, it is hard to imagine that vehicle manufacturers will sit back and allow themselves to become mere bystanders in the aftermarket’s changing structure. A significant foretaste of the future has been provides by BMW which is offering a free 5-year or 60,000 mile service and maintenance package with the new diesel 3 Series. Items such as wiper blades and brake parts are included together with all labour costs and, crucially, the programme is fully transferable to subsequent owners. How soon before vehicle  manufacturers offer this as standard across their ranges, thereby defusing in large measure the threat posed by the independent aftermarket?


Divine interior, darling!

Not before time, carmakers are showing signs of devoting more effort to interior design. If, as seems likely, motorists will be wiling away ever more time in traffic jams, they must surely welcome an alternative view to sombre coloured plastic relieved only by the instrument panel (which, by its nature, needs to be more functional than aesthetic).

This interest in what a car should look like “inside the skin has no doubt been spurred by the growing significance of women as car consumers.

Certainly the seriousness with which the industry is addressing this subject came across forcibly at the recent Frankfurt conference on automotive interiors when speakers from vehicle, component and system manufacturers, along with raw material suppliers, highlighted the developments which will be incorporated into future models.

Taken to its extreme, the cult of the interior designer is beginning to assume a more prominent role in the motor industry in much the same way that a rising number of home owners are specifying designer kitchens and bathrooms. As vehicle manufacturers attempt to package a growing number of driver and passenger aids and comforts, and also as consumers take a greater interest in their surroundings, it is easy to believe that liaisons between vehicle manufacturers and designers, along the lines seen recently with Nissan/Conran and Mercedes-Benz/Armani, will become increasingly conspicuous.

The first fully branded dealer for SsangYong Cars UK has opened its doors at the Norwich-based Norfolk Motor Group. SYUK is expecting to have around 60 dealers on board by January, but stressed that most would be partnered with other franchises.

The Learning and Skills Council -  the main government body for post-16 education - reports that UK manufacturers feel at a disadvantage in terms of attracting young talent because of the perceived lack of industry-specific qualifications. Despite this, latest LSC research showed that only 58% of surveyed companies trained their  staff constantly, offering nationally recognised qualifications such as the NVQ. Additionally, as many as 44% of manufacturers admitted their staff training was ad hoc and on-the-job.

Drivers who own cars with larger engines could face bigger road tax bills in future. A spokesman for the Department for Transport confirmed that it was in consultation with the Treasury over revising the current tax bands, which already encourage use of smaller cars. 

According to Cap Gemini Ernst & Young’s latest Cars Online study, there is strong consumer loyalty to automotive brands, but less to dealers. According to the report, the brands inspiring the greatest loyalty were Toyota, Audi and Volvo. A survey by Vehicle Remarketing Solutions reveals that three quarters of UK motorists would consider moving from franchised dealers for vehicle service. Over half (54%) said pricing would make them move, following the introduction of the Block Exemption renewal. Over a third (36%) were motivated by service levels or reputation.

Fewer than one in five people in the UK are aware of the changes to car retailing caused by the introduction of the new block exemption, according to research by Virgin Cars. Virgin said the vast majority of people were ignorant of how they could benefit from the changes to the distribution laws.

Franchised dealers are ready for authorised repairer status (ARS), but independent repairers are still in the dark, according to the Retail Motor Industry Federation. A federation survey revealed that 71.4% of independents do not believe that they have been given all the information to understand fully the implications of becoming authorised, as opposed to only 17.1% of franchised dealers. Subsequently, 64.1% of independents have yet to assess how much they are willing or able to invest in becoming authorised, and 46.1% have not yet made a decision as to whether or not they will seek authorisation.