News - Midlands
Automotive Review
Perhaps every so often, just before they go to bed, everyone working in auto-components should say a little prayer of thanks to John Towers.
Admittedly there was little gratitude in evidence among hundreds of MG Rover dealers and suppliers when, last month, they were told by receivers that their chances of seeing any of the £3120m they are due was "negligible or nil".
But pundits feel that, whatever the shortcomings of Towers and his colleagues at the ill-named Phoenix Venture Holdings, they gave the Midlands auto-components sector a vital five year lifeline, time in which it could invest, diversify and survive.
"Some suppliers were taken by surprise, particularly as a deal between MG Rover and the Chinese seemed so close," says David Malpass, senior operations manager at Accelerate, the public-private sector initiative supporting the region's automotive industry. "But following the crisis in 2000, when BMW bailed out, most Rover suppliers were shocked into diversifying and finding other carmakers to supply, or looking beyond the automotive industry altogether. Many people didn't give Phoenix 18 months, never mind five years."
Keith Lewis of industry body the Society of Motor Manufacturers and Traders (SMMT) adds: "Although there were still some companies with large exposure to Rover, most had spent the last four years or so spreading their risks and diversifying."
Admittedly most headlines in the Midlands' auto-components industry over the past few months have been poor. In one swipe, MG Rover's collapse - the first major European carmaker to fail since 1959 - has effectively removed £3600m worth of trade from the sector.
At last month's creditors' meeting in Birmingham receivers PricewaterhouseCoopers (PwC) confirmed that most of the nine serious bidders for MG Rover's assets want just parts of the company, which has few assets. Even if it were revived, MG Rover would be a fraction of its former size.
Already many components firms have made substantial cutbacks: Stadco has closed its body parts plant in Coventry; Triplex, which supplied Rover with gears, brake discs and wheel hubs, has closed its Peterborough plant; more than a hundred staff have been cut from Warwick-based Wagon, which supplied small assembly parts and steel stampings to Longbridge; a similar number of posts have been slated to go from RDS Automotive in Tipton.
Most observers believe the cutbacks will continue as the pain of MG Rover's collapse is passed down the food chain to smaller suppliers, less able to take the hit.
And if MG Rover's collapse was not enough, this summer sees the closure of Jaguar's Browns Lane plant in Coventry, with the loss of more than 1,000 jobs. The marque has also seen a sharp drop in sales at the start of this year, due mainly to the strength of sterling against the US dollar.
Less than a year ago Land Rover's Solihull plant was threatened with closure too, although that has been averted and it will produce a new model from next year. However the Ford-owned company has temporarily scaled back production because MG Rover has taken with it Powertrain, which made many of Land Rover's engines.
Meanwhile, concerns are being raised about the future of Peugeot's Ryton factory in Coventry, where two shifts have been axed in the past year with the loss of 1,500 jobs. Many are concerned that the plant may not last even to 2010, the date to which its French owners have so far committed themselves.
Yet most observers of the auto-components industry remain upbeat about its long-term prospects because, despite all the bad publicity, the UK car business is doing rather well.
According to the SMMT vehicle production in the UK last year reached 1,856,043, up some 41,034 on the same figures in 2000 and getting perilously close to the 1.9m figures the UK achieved in the late 1980s.
The reason most people do not realise this, says Prof Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff Business School, is that because so many British-built cars carry names like Honda, Opel, Toyota and Nissan, the assumption is that they are foreign-built as well as foreign-owned.
He adds: "Britishness went out of the automotive industry as far back as the early 1980s when Rover got into bed with Honda. The irony is that now the industry is no longer owned by the British it is in better shape than it has been for years. The quality of the British product is excellent.
"Although most drivers have stopped buying British brands, they're still probably driving British-made cars. Fortunately, so do many other parts of the world: we now export almost 1.2 million cars. Seven out of ten cars made in Britain find their way overseas."
Kevin Honey, the Ernst & Young partner responsible for the group's automotive work in the region, adds: "Britain is one of the world's biggest producers of luxury-end cars with names like Rolls-Royce, Aston Martin, Bentley, Mini and Jaguar. These are real value-added names, and that feeds down into the components sector.
"In many parts of the world it you want to show you've made it you drive a Jag, or a Bentley, or Land Rover. If you're wealthy in China or India you're probably driving a Midlands-made car."
Arguably the components industry is the auto industry. Car manufacturers might be better described as assemblers, who put together complex units supplied by a web of tier one companies, which in turn bring in components from smaller tier two and three suppliers. Components account for about 40 per cent of a car's added value.
Similarly, the West Midlands is the UK components industry. About 40 per cent of tier one units are produced in the region, and the figure rises to more than 50 per cent at tiers two and three.
This is more than just wishful thinking: for example InStaffs, Staffordshire's inward investment body, is awaiting decisions by at least half a dozen Japanese, American and European component firms that are considering setting up in the region to supply a new production line at Toyota's plant at Burnaston, near Derby. They are set to follow in the path of groups like Spanish-owned Maier and FI, which have set up in Burntwood and the Dove Valley respectively.
Component manufacturers have benefited from car manufacturers' tendency to pass ever more responsibility down the supply chain. Increasingly, first tier suppliers bring complete, easy-to-install modules, rather than parts, to the assembly line.
Says Honey: "That's putting more responsibility on manufacturers in tiers two and three, who are expected to produce higher added value components, as well as asking them for greater quality and providing more R&D. It's expensive for tier one manufacturers to keep tooling and carry out design, so it makes sense for them to pass the burden - and some of the profitability - down the line."
Accelerate's Malpass adds: "Manufacturers increasingly need to look at where value is added in a car, and that's in the touchy-feely elements that come from component suppliers. What makes them sell are things like styling, aircon, satnav, mobile phone compatibility, and airbags. People spend far more time in their cars and they want style, safety, comfort, communication and entertainment.
"If you produce quality computer-controlled mirrors you have it made. If you make widgets you have problems. Even small companies making bog-standard components need to really think about how they add value. Car manufacturers and top tier suppliers are pushing responsibility for complex components, including R&D, further down the chain."
So despite all the gloom about Rover, Peugeot et al, all auto-component suppliers in the Midlands need do is sit back and wait for the good times to roll in, no? If only it were that simple. Unfortunately much of Britain's components industry is stuck firmly at the cheaper, widget and washer end of the supply chain. This area is increasingly coming under pressure from overseas competition.
Tony Parr is managing director of Birmingham's AP Smith (see facing panel), which makes complex pressings for much of the automotive industry. He says: "On simpler work you can't compete with places like India or China on price. In terms of labour costs and margins they have too much of an edge. The only place we can beat them is on technological capacity, so that's where we're directing our efforts."
As if to underline this the most likely outcome, at the time of writing, for Rover's engine-making Powertrain business is to be acquired by Shanghai Automotive Industry Corporation (SAIC).
If this happens then SAIC, which already owns the intellectual property rights to two Rover models, will almost certainly start looking to home-grown suppliers in preference to Midlands-made components.
Indeed, the Chinese have already started making other bold in-roads into the UK market. Asmico Technologies - one of China's largest independent automotive components producers - is in the process of setting up a European office at MIRA, the heart of UK automotive research in Hinckley, Leicestershire. The company has 13 plants in China, making everything from piston rings and camshafts, to cylinder blocks and brake components.
Chief executive Jack Perkowski says: "Asmico will be attractive to European companies that want to source in China because it will eliminate language and time zone barriers."
And Asmico is not likely to be the last Chinese player to set up in the Midlands. Leicester Shire Promotions, which secured the inward investment deal, is looking forward to attracting other Chinese firms to invest in the region.
Although we may make more cars, the amount of British componentry in UK vehicles is falling rapidly, typically from 75 per cent in the 1980s to less than 60 per cent today. Among some manufacturers it is as low as 20 per cent. Or, as one pundit put it: "the loss of 100,000 Rovers is equivalent to the loss of 300,000 Toyotas to the components sector."
This could be further aggravated by the fact that, like car manufacturers, few top tier component firms in the UK are British-owned. What all pundits agree on is that, if the Midlands' auto-components industry is to flourish, companies have to consider three options: going upmarket, going international, or going into other industries.
As car manufacturers have increasingly become multinational in their components sourcing policies, so Midlands suppliers are becoming aware of the possibilities both of selling and producing overseas.
One Midlands firm that has seized the opportunity of expanding overseas is Derby-based EPM Technology, which supplies composite components to up-market marques. Last year it formed a joint venture with a company in India which will make products designed in the Midlands.
Founder Graham Mulholland says: "The problem is that the components industry still has too many firms that think supplying the factory down the road is enough and will last forever.
"There are simply too many firms effectively doing nothing but collecting orders and not thinking either big enough or thinking internationally."
Other components groups are looking not just beyond the UK and Europe, but beyond the automotive industry. The experience of Rover has convinced many that they should not be over-reliant on a single industry, never mind a single customer.
For example, five years ago almost 90 per cent of Redditch-based Machined Component Systems' turnover was dedicated to the automotive sector. Now that is down to half as the group has moved into the healthcare and stairlift industries. Sales director Warren Gray said the company's experience in automotive was more of an asset than a hindrance when it approached Stannah Stairlifts, now one of its biggest customers. He adds: "When we started talking about manufacturing concepts like kaizen and just-in-time - things we in automotive take for granted - they were blown away. This was something entirely new and exciting for them."
However, Prof Rhys warns: "It's far easier to talk about diversifying than actually achieving it. A lot of thinking in this area is pure pie in the sky. Getting into new markets is not easy. Many component manufacturers are highly specialised and there are problems in finding new applications for their products and processes. Just as importantly they often lack the contacts in other industries. It's not impossible, but it is difficult."
Most pundits agree that, within a few years, we will see a Midlands auto-components sector with far fewer firms. However, those firms that prosper will tend to be far higher up the food chain, producing far more sophisticated value-added products, and providing components to a far wider range of car marques, both at home and across the world.
Says Honey: "The pressure at the top of the components food chain is intense, and that's bound to lead to further consolidation. It's the larger suppliers, or those providing quality niche products, who will cope best."
Adds Malpass. "The ones that will survive are those that really invest in research, processes and markets - many do not have the resources to achieve that. Those companies who get it right have a future and will thrive. The weaker will die."
Admittedly there was little gratitude in evidence among hundreds of MG Rover dealers and suppliers when, last month, they were told by receivers that their chances of seeing any of the £3120m they are due was "negligible or nil".
But pundits feel that, whatever the shortcomings of Towers and his colleagues at the ill-named Phoenix Venture Holdings, they gave the Midlands auto-components sector a vital five year lifeline, time in which it could invest, diversify and survive.
"Some suppliers were taken by surprise, particularly as a deal between MG Rover and the Chinese seemed so close," says David Malpass, senior operations manager at Accelerate, the public-private sector initiative supporting the region's automotive industry. "But following the crisis in 2000, when BMW bailed out, most Rover suppliers were shocked into diversifying and finding other carmakers to supply, or looking beyond the automotive industry altogether. Many people didn't give Phoenix 18 months, never mind five years."
Keith Lewis of industry body the Society of Motor Manufacturers and Traders (SMMT) adds: "Although there were still some companies with large exposure to Rover, most had spent the last four years or so spreading their risks and diversifying."
Admittedly most headlines in the Midlands' auto-components industry over the past few months have been poor. In one swipe, MG Rover's collapse - the first major European carmaker to fail since 1959 - has effectively removed £3600m worth of trade from the sector.
At last month's creditors' meeting in Birmingham receivers PricewaterhouseCoopers (PwC) confirmed that most of the nine serious bidders for MG Rover's assets want just parts of the company, which has few assets. Even if it were revived, MG Rover would be a fraction of its former size.
Already many components firms have made substantial cutbacks: Stadco has closed its body parts plant in Coventry; Triplex, which supplied Rover with gears, brake discs and wheel hubs, has closed its Peterborough plant; more than a hundred staff have been cut from Warwick-based Wagon, which supplied small assembly parts and steel stampings to Longbridge; a similar number of posts have been slated to go from RDS Automotive in Tipton.
Most observers believe the cutbacks will continue as the pain of MG Rover's collapse is passed down the food chain to smaller suppliers, less able to take the hit.
And if MG Rover's collapse was not enough, this summer sees the closure of Jaguar's Browns Lane plant in Coventry, with the loss of more than 1,000 jobs. The marque has also seen a sharp drop in sales at the start of this year, due mainly to the strength of sterling against the US dollar.
Less than a year ago Land Rover's Solihull plant was threatened with closure too, although that has been averted and it will produce a new model from next year. However the Ford-owned company has temporarily scaled back production because MG Rover has taken with it Powertrain, which made many of Land Rover's engines.
Meanwhile, concerns are being raised about the future of Peugeot's Ryton factory in Coventry, where two shifts have been axed in the past year with the loss of 1,500 jobs. Many are concerned that the plant may not last even to 2010, the date to which its French owners have so far committed themselves.
Yet most observers of the auto-components industry remain upbeat about its long-term prospects because, despite all the bad publicity, the UK car business is doing rather well.
According to the SMMT vehicle production in the UK last year reached 1,856,043, up some 41,034 on the same figures in 2000 and getting perilously close to the 1.9m figures the UK achieved in the late 1980s.
The reason most people do not realise this, says Prof Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff Business School, is that because so many British-built cars carry names like Honda, Opel, Toyota and Nissan, the assumption is that they are foreign-built as well as foreign-owned.
He adds: "Britishness went out of the automotive industry as far back as the early 1980s when Rover got into bed with Honda. The irony is that now the industry is no longer owned by the British it is in better shape than it has been for years. The quality of the British product is excellent.
"Although most drivers have stopped buying British brands, they're still probably driving British-made cars. Fortunately, so do many other parts of the world: we now export almost 1.2 million cars. Seven out of ten cars made in Britain find their way overseas."
Kevin Honey, the Ernst & Young partner responsible for the group's automotive work in the region, adds: "Britain is one of the world's biggest producers of luxury-end cars with names like Rolls-Royce, Aston Martin, Bentley, Mini and Jaguar. These are real value-added names, and that feeds down into the components sector.
"In many parts of the world it you want to show you've made it you drive a Jag, or a Bentley, or Land Rover. If you're wealthy in China or India you're probably driving a Midlands-made car."
Arguably the components industry is the auto industry. Car manufacturers might be better described as assemblers, who put together complex units supplied by a web of tier one companies, which in turn bring in components from smaller tier two and three suppliers. Components account for about 40 per cent of a car's added value.
Similarly, the West Midlands is the UK components industry. About 40 per cent of tier one units are produced in the region, and the figure rises to more than 50 per cent at tiers two and three.
This is more than just wishful thinking: for example InStaffs, Staffordshire's inward investment body, is awaiting decisions by at least half a dozen Japanese, American and European component firms that are considering setting up in the region to supply a new production line at Toyota's plant at Burnaston, near Derby. They are set to follow in the path of groups like Spanish-owned Maier and FI, which have set up in Burntwood and the Dove Valley respectively.
Component manufacturers have benefited from car manufacturers' tendency to pass ever more responsibility down the supply chain. Increasingly, first tier suppliers bring complete, easy-to-install modules, rather than parts, to the assembly line.
Says Honey: "That's putting more responsibility on manufacturers in tiers two and three, who are expected to produce higher added value components, as well as asking them for greater quality and providing more R&D. It's expensive for tier one manufacturers to keep tooling and carry out design, so it makes sense for them to pass the burden - and some of the profitability - down the line."
Accelerate's Malpass adds: "Manufacturers increasingly need to look at where value is added in a car, and that's in the touchy-feely elements that come from component suppliers. What makes them sell are things like styling, aircon, satnav, mobile phone compatibility, and airbags. People spend far more time in their cars and they want style, safety, comfort, communication and entertainment.
"If you produce quality computer-controlled mirrors you have it made. If you make widgets you have problems. Even small companies making bog-standard components need to really think about how they add value. Car manufacturers and top tier suppliers are pushing responsibility for complex components, including R&D, further down the chain."
So despite all the gloom about Rover, Peugeot et al, all auto-component suppliers in the Midlands need do is sit back and wait for the good times to roll in, no? If only it were that simple. Unfortunately much of Britain's components industry is stuck firmly at the cheaper, widget and washer end of the supply chain. This area is increasingly coming under pressure from overseas competition.
Tony Parr is managing director of Birmingham's AP Smith (see facing panel), which makes complex pressings for much of the automotive industry. He says: "On simpler work you can't compete with places like India or China on price. In terms of labour costs and margins they have too much of an edge. The only place we can beat them is on technological capacity, so that's where we're directing our efforts."
As if to underline this the most likely outcome, at the time of writing, for Rover's engine-making Powertrain business is to be acquired by Shanghai Automotive Industry Corporation (SAIC).
If this happens then SAIC, which already owns the intellectual property rights to two Rover models, will almost certainly start looking to home-grown suppliers in preference to Midlands-made components.
Indeed, the Chinese have already started making other bold in-roads into the UK market. Asmico Technologies - one of China's largest independent automotive components producers - is in the process of setting up a European office at MIRA, the heart of UK automotive research in Hinckley, Leicestershire. The company has 13 plants in China, making everything from piston rings and camshafts, to cylinder blocks and brake components.
Chief executive Jack Perkowski says: "Asmico will be attractive to European companies that want to source in China because it will eliminate language and time zone barriers."
And Asmico is not likely to be the last Chinese player to set up in the Midlands. Leicester Shire Promotions, which secured the inward investment deal, is looking forward to attracting other Chinese firms to invest in the region.
Although we may make more cars, the amount of British componentry in UK vehicles is falling rapidly, typically from 75 per cent in the 1980s to less than 60 per cent today. Among some manufacturers it is as low as 20 per cent. Or, as one pundit put it: "the loss of 100,000 Rovers is equivalent to the loss of 300,000 Toyotas to the components sector."
This could be further aggravated by the fact that, like car manufacturers, few top tier component firms in the UK are British-owned. What all pundits agree on is that, if the Midlands' auto-components industry is to flourish, companies have to consider three options: going upmarket, going international, or going into other industries.
As car manufacturers have increasingly become multinational in their components sourcing policies, so Midlands suppliers are becoming aware of the possibilities both of selling and producing overseas.
One Midlands firm that has seized the opportunity of expanding overseas is Derby-based EPM Technology, which supplies composite components to up-market marques. Last year it formed a joint venture with a company in India which will make products designed in the Midlands.
Founder Graham Mulholland says: "The problem is that the components industry still has too many firms that think supplying the factory down the road is enough and will last forever.
"There are simply too many firms effectively doing nothing but collecting orders and not thinking either big enough or thinking internationally."
Other components groups are looking not just beyond the UK and Europe, but beyond the automotive industry. The experience of Rover has convinced many that they should not be over-reliant on a single industry, never mind a single customer.
For example, five years ago almost 90 per cent of Redditch-based Machined Component Systems' turnover was dedicated to the automotive sector. Now that is down to half as the group has moved into the healthcare and stairlift industries. Sales director Warren Gray said the company's experience in automotive was more of an asset than a hindrance when it approached Stannah Stairlifts, now one of its biggest customers. He adds: "When we started talking about manufacturing concepts like kaizen and just-in-time - things we in automotive take for granted - they were blown away. This was something entirely new and exciting for them."
However, Prof Rhys warns: "It's far easier to talk about diversifying than actually achieving it. A lot of thinking in this area is pure pie in the sky. Getting into new markets is not easy. Many component manufacturers are highly specialised and there are problems in finding new applications for their products and processes. Just as importantly they often lack the contacts in other industries. It's not impossible, but it is difficult."
Most pundits agree that, within a few years, we will see a Midlands auto-components sector with far fewer firms. However, those firms that prosper will tend to be far higher up the food chain, producing far more sophisticated value-added products, and providing components to a far wider range of car marques, both at home and across the world.
Says Honey: "The pressure at the top of the components food chain is intense, and that's bound to lead to further consolidation. It's the larger suppliers, or those providing quality niche products, who will cope best."
Adds Malpass. "The ones that will survive are those that really invest in research, processes and markets - many do not have the resources to achieve that. Those companies who get it right have a future and will thrive. The weaker will die."