The Unions are right to be worried about the future of British car manufacturing capacity. They are not necessarily right to say we need to preserve the capacity and the model ranges we currently have. We need to export more vehicles.
Even at the height of the over borrowing in 2007 the world had too much car capacity. Many of the west’s factories were geared to selling expensive and complex vehicles to the successful and to the affluent in the west. Some manufacturers concentrated on selling second and third cars to the very rich. Volume manufacturers often specialised in company car products to middle managers or ever more sophisticated vehicles to discerning individuals who could get access to large car loans. These markets are badly damaged by the end of easy credit, and may not return to their former levels for a long time.
The car market is a good illustration of the imbalances that bedevil the world economy. In the east are millions of people who have never owned a car. Many of them work very hard for low wages. A sophisticated and expensive vehicle is way beyond their dreams and current capacity. They would like the chance to buy a simpler, cheaper more rugged vehicle suitable for their pockets and local conditions. The Indian industry is now experimenting with just such a product.
In the west are millions of workers with cars, who are now finding it difficult to take out the loans to buy more modern and better specified replacements. When people fear for their jobs they rein in spending on cars. When banks are stretched, cutting down the car loans is an easy option for them.
The industrial renaissance of post war Germany in part revolved around production of the Beetle. A simple relatively cheap car became a popular icon, because it was affordable and reliable. Asia needs several such products to lead the expansion of domestic demand for cars. Is the west’s industry going to come up with something, or is it going to ignore that opportunity, watching the switch of leadership from western to eastern car companies?
Come to think of it, some smaller more fuel efficient cheaper products could go down well in the West as well. Many retired people, unhappy with the attack on their savings, might be persuaded to buy a realistically priced run about from some of their savings before government policy destroys more of its value.
The industry has to rethink its strategy. The Western regulators also have to take on board that their many requirements have been adding cost and weight to Western vehicles, putting them out of reach of many people round the world who would like to buy a car.
UK government policy is to cut private sector living standards for many, by increasing taxes, increasing borrowing from private sector savers, and slashing interest rates on money saved. That means we will not be able to buy so many cars.
February 20, 2009
John,
My first car was one of the earliest Mk3 ford ecorts – the first front wheel drive version. I remember it well.
I recently got into one of the new ford fiestas and it was probably as big inside as my old escort, yet this is the model range down from the escort equivalent, the focus.
I have also noticed that escort sized cars now sell less than fiesta sized cars, which are now the best sellers. The truth of course is that fiesta sized cars are now escort sized!
The reason though, that we do not make cheap cars anymore in the EU is that the EU have imposed all sorts of rules and restrictions on what a car has to be. There is also the NCAP safety rating scheme which leads manufacturers to build in expensive items – the latest is external airbags to reduce injury to pedestrians, no bad thing, but expensive – and where failure to get at least 4 stars usually results in calls for the vehicle to be banned.
Tata should be applauded for their efforts to build a cheap, rugged, reliable car for sale at less than $1,000. I doubt we will ever see one in Europe though. European manufacturers do have a choice though. They can strip out extraneous and expensive extras which make cars heavier. Making them lighter means the same performance can be achieved from a smaller engine, which is again lighter. Colin Chapman called it “adding lightness”.
Hmmmm – there’s a thought. Perhaps the Government could do the same with teh delivery of public services?
February 20, 2009
What a waste of energy
Whilst buying a new car is attractive to many millions of people, ANY government should know that it is clearly wrong to base much of the economy on what amounts to an unnecessary waste of money for people and businesses, a growing danger to the environment, a debt trap, a needless waste of natural resources and a culture of today I am king in my shiny new motor regardless of others. Yes of course people make their own choices and I wouldn’t want that to change. So in a sense, we are all to blame for all of the above problems not least the burden of financial debt it brings to most individuals. ( I have no problem with someone who wants and buys a new 4×4 or a Jag as it’s up to him/her ), yet I do have a problem when a government pats itself on the back for all the money it has spent and all the extra it has done for our schools and hospitals, when it knows that the revenue it so freely used, was on the back of popular desire and personal indebtedness which could only ever be continued if people continued to be able to afford it.
There is of course also an issue of burning up continuous natural resources just to throw in a junk yard in a few years, whilst failing to feed the national grid with energy whilst simultaneously saying “we want to cut emissions”. There is undoubtedly a growing problem with a lack of revenue as a direct result now of lack of demand for new cars. Further, there still remains a dire problem for employment as there’s no point making products when there’s little or no demand, and putting money into the industry just to maintain jobs and skills isn’t solving any of these problems.
Right now, the government should be calling all car manufacturers together in a bid to find answers and to deliver a policy of combining all talents within the motor industry to produce hybrid vehicles. This should be done under a co-operative scheme in which the taxpayers are fully engaged. i.e. WE should be a shareholder in a new UK motor co-op which will deliver a range of hybrid vehicles from the very factories which are now engaged in making junk.
By doing so, we will create an internal motor market and stand a far better chance of being a main motor exporter of hybrid’s to the world and that is our real chance of making a strong economic recovery. By being the FIRST to do this we will be years ahead of global competition. We will utilise the skills we have already, we will send a message to environmentalists that we mean BUSINESS in both senses of the word.
I suggested this about 6 months ago.
I now suggest we name the first line of hybrid’s “Recovery”.
February 20, 2009
Interesting though process here, but manufacturing cars and the car parts suppliers have kept millions of people in work here for many years.
Those workers then spend their wages on other products as well as cars which keeps other forms of business going, they also pay tax as do the manufacturters and the buyers of those cars.
Car manufacturers are not silly, whilst they all want greater market share most have geared their production to historic sales. Of course they now have overcapacity as we are not in normal times.
Completely agree about regulation forcing the cost upwards, but that is to a degree a choice. as there is nothing to stop you buying a low spec car (providing it still meets with EU regulation performance).
With regard to hybred’s. At the moment the development is still in its early stages although fast moving forward.
The most talked about car being probably the Totota Prius, unfortunately this car does not appear to be as good as is suggested on ecconomy, and when Battery replacement, and end of life recycling costs are added in it appears to have a far, far less green effect than many have suggested.
For city dwellers the electric G Wizz is promoted, I have actually spoken to a salesman about this car (simply out of interest at an exhibition) I am informed that its running costs are low if you discount certain costs, replacement batteries I was told are about £2,500 about every 5 years.
A single charge will take you about 40-50 miles if you do not use lights, heaters, radio wipers, etc.
It will recharge in a number of hours (so do not run out on the journey)
Whilst this seems idealy suited to city travel (its light, its small and its cheap to purchase) most city streets contain terrace housing so can you imagine all G wizz cars lined up in the road with a spagetti of extension cables running out of the houses over pavements to charge them up.
Clearly eventually charging posts could be installed, but it would be a brave Company indeed who would cable up the city of London so that you could charge up electric cars when hydrogen may take its place.
The g wizz by the way I think scores very low all car safety tests, so is regarded/classed as a buggy.
The existing Car manufactures have made great strides in moving forward with increasing miles to the gallon, increasing safety, and reduction of emmissions. They should be let alone to get on with it, but under constantly but sensible improving regulation.
We all know that cars depreciate in value, its a choice people make as to what they buy beit new or secondhand.
Some of us live outside cities where Public transport is nothing more than a joke, so a car is essential for family life, but clearly if you are on your own, then a bike powered or not may be sufficient.
The problem with Governnments is that they interfere, if the majority of cars ran on something else other than petrol or diesel then they would tax that fuel to make up for the loss of tax, or they would make up another form of tax (road charging).
LPG is an alternative but you need to do about 60,000 miles before the investment/conversion is paid for, and until you get into credit.
As for the Government taking a share of any car industry forget it. When has the Government run anything in an effective way, remember British Leyland.
February 20, 2009
You might want to look here http://lrx.landrover.com/index.html – it’s already happening!
February 20, 2009
spot on!
February 20, 2009
You should insist people on mobilility allowance buy small British made cars.
February 20, 2009
Why should anyone be entitled to a car from a mobility allowance?
February 20, 2009
Brian, John asked who will buy our cars? As the public sector seems determined to spend our taxes without change in the current climate I was simply suggesting that if they are going to carry on doing so they should be forced to buy British. I neither support mobility cars (some for the children of people who can’t even drive to use) nor necessarily object to mobility vehicles for those most in need.
February 20, 2009
To get them about.
Problem is the criteria is not tight enough over which cars you can buy under this scheme.
Newspapers published a so called scam last year where mobility holders were purchasuing new Range Rovers, Ferraris, Mercedes etc. and then selling them on without even driving them.
Mobility holders do not appear to pay VAT, so the profit motive is clear epecially on models with a waiting list.
The rules simply need to be tightened in a sensible way.
February 20, 2009
more people have to be persuaded to live without a car
it is simply not an essential, not even for me on the sound of sleat
it is not something desired; it is something to try to avoid
people have to start to see the light; there is life without owning a car
i walk 5 miles each day; most folk cant; they wonder why
road rage is everywhere; we wonder why; some know why
how to improve one health radically; 2 simple moves; get shot of the tv and the car; the results work well
February 20, 2009
This is an excellent example of how the nanny State distorts markets. According to Bloomberg the Tata Nano could not be sold in the West because it would “violate emissions and safety regulations in the U.S., Japan and Europe”. Many Western consumers might have found it to be an ideal runabout, but won’t get the chance. Western manufacturers are geared up to produce elaborate and expensive cars that few people will buy in current conditions. However, if they wanted to switch production to build a Nano-type vehicle they would be prevented, by the State, from selling to their core market.
February 22, 2009
Next car for you Robert.
http://www.youtube.com/watch?v=rcBoVgyKjH8
http://en.wikipedia.org/wiki/Unsafe_at_Any_Speed
Junk like this is for the birds. Not even cheap when you think how much a quality car would be second hand and how much the Chinese one would loose in depreciation. The Tato Nano is for the third world not advanced countries, and like the G-Wiz beyond the pale. I would rather walk.
The same people who support this race to the bottom will be the same ones calling for the banning of motorbikes as they are ‘dangerous’. Approve of this for nine grand rob? 30+ mpg by the way.
http://www.youtube.com/watch?v=e20G96Bmfd0
The answer efficient car transport will probably lie in ultra efficient engines allowing most of the power to get the the road instead of being lost through the radiator, not hydrogen or hybrid cars like the Honda Prius. How green and fuel efficient is this car in the real world? All that weight and only seventy BHP. Must be slow?
February 20, 2009
“The Western regulators also have to take on board that their many requirements have been adding cost and weight to Western vehicles, putting them out of reach of many people round the world who would like to buy a car.”
This is the intention behind the regulation. The free market results in key costs not being reflected in the price sset – i.e., the costs of the damage done to the environment by cars. So the govt identifies what these costs are and adds them to the price of the vehicle.
What is staggering is a govt that does all this and then expresses shock and horror at the impact it has on the car industry – e.g., “ooh look car prices have gone up, demand has fallen and no one is buying cars. Why’s that then Gordon?” “Dunno Darling. Must be Thatcher’s fault. Always is.”
For some time this impact was hidden because of the easy credit created by govts (i.e., central bank low interest rates) but as we know that party has now come to an end. And their policy response? Well now is not the time (apparrently) to reduce environmental regulation. Rather, we need to increase that particular burden so we can come out of this recession even greener. Unfortunately such policies will merely lengthen the duration of the downturn. Maybe they will change their minds when the social unrest and the scary political results of that unrest start to rear their ugly heads. Lets see.
February 20, 2009
The western regulatory regime is what is making these over complicated cars the only ones we can buy. One of the effects of this has been that there are enormous barriers to entry to our car market which is why there hasn’t been a brand new British or American car company to achieve major market share since the 1930s. All the new ones for 2 generations have been from the far east. This puts us in a cleft stick. If we reduced regulations the far eastern ones, whose home markets are less restricive, would have an advantage. If we don’t our manufacturers will never improve.
At least the fall in the £ should benefit car makers in fact in other circumstances it would be a glorious oppertunity.
We can at least try to prevent government making it worse – every “environmental expert” is now calling for any support to car manufacturers to come with strings demanding that they switch over to all sorts of “green” placebos – always, of course, with the assurance that this will increase sales. If we can’t improve things at least we should strive to prevent commercial decisions being taken out of the hands of managers & given to the Luddites.
February 20, 2009
Lost, lost, lost. It is possible that there were enough cars in stock at the end of 2008 to meet the real demand for 2009, and even into 2010. The British car industry is largely a collection of subsidiaries and offshoots of global companies based in other tax jurisdictions, apart from a few remnants of small scale or specialist vehicles. Consequently, it is much more vulnerable, both for the reasons you give, and arising from the organisation and financing of the world car industry, to a major and continuing downturn. There is not going to be anybody coming along to start a new car firm of any size anywhere in the UK or revive any of the existing ones.
February 20, 2009
Undoubtedly there is going to be a big shakeout of car making capacity. UK car plants which are subsidiaries of the multi-national producers are vulnerable to rationalisation out of existence – unless the timely devaluation of the pound has saved them for the time being. Equally big risks will arise from potential disruption of the supply chain – now international and just-in-time – through bankruptcies. The failure of national governments to get their own domestic economies functioning again is another significant risk to the industry. On this score the UK appears to be especially vulnerable.
I do not share the views expressed above, by some, of the inherent evil of motor transport. It is indispensable to life as we know it for the transport of both goods and people. It is also extremely competitive with the public transport alternatives – where they exist. Nor do I support the demonisation of certain classes of vehicles on the basis of ignorance and/or prejudice. 4 x 4s come into this category. Many versions offer comparable fuel economy to cars; and they are capable of doing jobs and going places that cars are not suited for.
February 20, 2009
The recession wasn’t caused by a shortage of cars so why on earth the government thinks building yet more of them to stand unsold in a field will do any good at all is quite beyond me.
Since we’re rapidly heading towards a third world standard of living on current policy I quite agree that we need third world design regulations – otherwise we won’t be able to afford cars at all. And as usual, John, you’re spot on – we need to export cars and we can only do that if we build cars others want to buy.
February 20, 2009
i actually want car credit companies like GMAC to crash because they were part of the problem that created the current international financial problem, i really hope they dont get saved by state aid
car trends are changing all on their own with market forces
the regulators however impose crazy incentives, for instance the CO2 tax bands put all the emphasis on the exaust gas making the car manufacturers put in less reliable technology to meet this over simplified goal, for instance MMT/CVT gearboxes in autos are largely driven by this. BUT having a gearbox that needs extensive repairs in its life is in itself bad for the environment. So the pressures applied by the regulators are far from being balanced or in the right places. The diesel exaust gates are similar failure points which make the car superficially low in emmissions but increase its overall carbon footprint by making it more unreliable.
consumers in the west are going for small cars, the diesel panda and the like are BIG success stories. (engine made in india by the way). however nobody builds these in the UK or even europe anymore really its not cost effective.
and cars are like everything else we pay for extra safety, the whole outsourcing movement talking work and moving it to india (for instance) only works because they have lower health and saftey regimes to fund
and with many current 3rd world countries churning out grads our position in the world is much more under threat than you think
but while i can afford it i wont be driving a car which fails out safety regs many thanks
and to those who think cars are a big evil im sorry youre wrong, you are clearly not part of the wealth creating part of the economy
February 20, 2009
Although I’m a keen pedestrian, the significance of cars here isn’t as means of transport but as ways of Britain’s getting out of its economic depression. We should be prepared to make and sell anything the world wants to try to earn some money overseas, unless we want to try to be self-sufficient in everything. For as long as we want or need to import anything (raw materials for manufacture, French wine, American soap-operas), we must export something to pay for it. What else does the world want? Whatever it is, can Britain make it better and/or cheaper than India or China?
February 20, 2009
Can anyone name me one wholly British car manufacturer? TVR? Morgan? Is Aston Martin still British? If they still exist they are specialists in a niche market.
The fundamental problem with ‘the UK car industry’ is that they are really a car parts assembly industry with foreign owners. How many CEOs or Union spokesmen drive the cars made/assembled by their workers?
We’re bailing out foreign companies to benefit British workers when foreign companies blatantly blackmail us – ‘give us the money or we’ll lay off your workers’.
We have gone from being a healthy trading nation to a nation that imports – whether it’s car parts, food or people and we are no longer a ‘Nation of Shopkeepers’. We want less dole, more coal, as they used to say. I feel the government has hung us out to dry on the Maginot Line when the subversives were already within.
I can’t see the next Conservative Government doing anything much to raise the country – “the same path by a different route” is what DC has said. Idealistically we would need to go back to the late-50s and take a different path but that’s never going to happen. State or Revolution?
February 20, 2009
Let’s get this straight then.
1. Ecomentalist legislation is making cars for europe/us too complicated and expensive. Agreed
2. Car market purely fuelled by cheap credit. Agreed
3. Third world wants cars. Agreed
4. UK too expensive a place to build cheap cars. Agreed
5. Market forces work. Government inspired asset and capital allocation doesn’t. Agreed
6. You cannot go from Mondeo product to say LR Defender production overnight. Agreed.
Ever think that UK car industry doomed?
Well yes and no. Cars are aspirational as well as utilitarian. Building aspirational cars is not a bad thing, and it is easier to sell to people with money than those without money. So why not work harder at exporting what we do well, Jaguar/Landrover for example?
If you want to build low cost utility cars then you’ve got to have serious capital investment and, as we are finding out. lower employment costs.
At the same time we have to defend our free market manufacturers from the manufacturers like Renault and Japanese companies working within mercantilist regimes.
It’s a conundrum.
PS. It has always annoyed me that we did not properly develop the Land Rover utility vehicle and hence lost huge markets to the Toyota Land Cruiser and its cousins. The Defender is still a vehicle that could win in export markets – if properly re-engineered.
February 20, 2009
Paul! noone is a ‘keen pedestrian’. It Is not human nature, but there more to life than cars (motorbikes) and girls?
February 20, 2009
Of course there’s a market for small cheap cars. There is also a market for big expensive ones. British companies like Jaguar Land Rover have excelled at serving the latter. At the moment the whole world motor industry is suffering in the recession.
With Western wage levels being much higher than those in the developing world, it will always be near impossible to compete on price with cheap cars made in the Far East. So why not concentrate on what we do best – the other end of the market?
Land Rover’s fastest growing markets are Russia and China, and Russia is their third biggest market, closing fast on the second biggest (the US). So it simply is not the case that people in developing countries only want cheap cars. Wealthy people everywhere in the world want great top of the range cars, and there is nothing wrong with making a living selling them to those people!
February 21, 2009
I agree with the first part of your analysis, but I’m not sure about the conclusion. The sales of expert luxury cars will be low for some time. Jaguar and Land Rovers sales aren’t going to recover soon (ever); I’m not sure what we’ll keep of value if the Government bails out JLR.
But, while the global market may shift to high volume, more basic cars, why will any be built here? The reason western manufacturing have shifted to the luxury end is because that’s where our competitive advantages are; engineering and technology. For cheap, simple cars; you need cheap workers. Even better if these cheap workers are in the country’s you intend to sell most of the cars.
UK engineers may help on some of the design; though given the number of graduates in China and India, I’m not sure. But we’re not going to make many.
The UK is going to have to find other things its good at doing apart from finance. I don’t think its cars.
February 21, 2009
Why don’t we hear the EU and Westminster politicians expressing pleasure that the car manufacturers cannot sell cars ? They have taxed – and increase fuel duty on 1 April – to help the environment we are told, yet go silent when car sales collapse.
Aren’t they secretly pleased to have collapsed such a major industry ? doesn’t the post-industrial society they boasted of now afford opportunities in counselling, estate agency, and pop music – the new “weightless economy” ?
Surely the recycling of cars by buying second-hand and patching and mending is more energy-efficient and less wasteful of capital ? Treating cars as consumer-goods rather than producer-goods has been a curse; how many bankers were getting new company cars every year as they changed jobs ?
February 21, 2009
Cars rot away. They break down. They will not last for ever. After 3 years they need an MOT every year. So we have a temporary stalled sales blip. I suspect that few people are keen on buying anything that has payments attached. Certainly if I was a Labour MP and had to pay for my own car ( LOL ) I’d be thinking twice. So cars, houses and the like will have sluggish sales for a while. But before long the car sales will recover. Cars rot away.
We have had a lot of creative finance methods for cars for years. Balloon payments, leasing, even equity release schemes. It may not be a bad thing if those creative debt based sales methods are abandoned. I never got it why anyone would want to “rent” their own car.
Eventually people will have to buy cars again. And if that means saving up, the frankly less than massive sums required before buying, then hard though the crash landing is, it is long overdue.
One other point, however, if British and other EU production is geared towards big vehicles, will the public ever want to buy those again when their trust in the government not to retrospectively hike the taxes on them has been shattered?
Perhaps the incoming Conservative administration should bindingly promise that no retrospective taxes will be levied. As well as privatising (the BBC -ed) dismantling the surveillance society, guaranteeing our free speech tradition, etc, etc.
February 21, 2009
How about reducing VAT on environmentally friendly cars to 5% ? By doing that & ending VED on such cars entirely while changing capital allowances so that they favor research & development into green technology you could pave a green path out of recession. Having ISA’s that only invest funds in environmentally sound enterprises would provide the resources for green businesses to flourish. Investments in green businesses could be exempt from Capital Gains Tax.
Meanwhile VAT on domestic fuel & power should increase to 17.5% and it should be extended to water & sewage to conserve supplies. Road fuel duties should rise by 8% p/a in real terms with the money ear-marked to finance making the transport system carbon neutral. This means more public subsidy for low emissions providers to expand while all property deals worth under £500,000 should be stamp duty free -rising to £1 million if they meet energy efficient criteria.
Plastic bags ought to face a 10p tax to stop wild-life being harmed to reduce litter and by having fewer of them less CO2 is around. Recycling needs to be ended so that low carbon incinerators ( that smell no worse than bonfires ) can burn all our household rubbish and thus supply 20% of our energy needs ( as they do in Denmark). This means energy security from a safe domestic supply that will not cost a bomb like wind etc and will not be a terrorist target like a nuclear power station.
Councils could just sell our rubbish to the power companies meaning that the Council Tax could be less & services better funded thanks to this new income stream.
Under the last Tory government the fuel duty escalator did produce lower carbon emissions and it could do so again as money does impact on behavior. Landfill tax however has just lead to fly-tipping and more litter as much that is set aside for recycling just gets landfilled anyway. The Landfill Tax should go as it has failed while the Climate Change Levy needs to rise to fund making Capital Allowances not only more generous but very biased towards environmentally sound research & development .
Aviation fuel needs taxing at the same rate as road fuel with the £9 billion raised funding as many essential new roads and high speed rail links as that money can buy. Why do we give the aviation industry such a big subsidy when the money could fund plugging the obvious gaps in our transport infrastructure that past Tory & Labor governments neglected ?
The aim of all this is to ensure that we move to a low carbon economy – the money from the plastic bag charge could fund green regeneration of our deprived inner -cities. We need a responsible policy on car usage that makes the industry greener so that it makes more fuel efficient cars and ensures that rather than just hammering the motorist that car users have the choice of low emission vehicles and a better public transport system.
It does stand to reason that if cars are using less fuel then the higher fuel duty will be less of a problem for motorists – by being green they could pay less in motoring taxation ( less VAT on the car purchase & no VED ) while having better buses , trains and roads too. I think that the right batch of carrots & sticks can revive our economy by getting consumers & business to make green choices ( i.e. fewer people working in the production of plastic bags & more employed in the production of low carbon energy produced from rubbish incineration ). This certainly applies to the car industry.
February 22, 2009
the easiest way of reducing carbon from transport remains staggering the working day, so that there is less congenstion in the system
if you offered employers tax incentives to stagger the start of working days from say 7 until 10 am in 15 minute increments randomly instead of having the vast majority of our workforces in inner cities starting at 9 am that would do a tremendous amount of good for emmissions on the congested roads and the over crowding on the trains
easy low tech solutions remain the best !!!!
February 24, 2009
“Road fuel duties should rise by 8% p/a in real terms with the money ear-marked to finance making the transport system carbon neutral.”
The most stupid suggestion that is routinely trotted out. How can any idiot government depend on tax revenue from fuel that they do not joe public to use?
If you drive motorists off the road, you will not have any EXTRA cash – in fact the tax revenue DECREASES. Witness current falling tax revenues.
Where will all the subsidies for Public Transport come from then? HIGHER fares and HIGHER Taxes elsewhere.
Blair used to waffle that he would have to cut spending on Schools/Hospitals if we did not pay higher motoring taxes – and was never challenged on the vapiditry of such a statement.
For too long governments of all political hues (under the guise of the “environment”) have used the motorist as a Golden Goose which will keep on laying.
Well they have shot it.