Driving up production but queries hang over buyers

This year should be a good one for UK vehicle production, as planned investments by the big manufacturers and improvements to the supply chain come on stream.

However, lurking in the wings is the shadow of overproduction. UK production increased by 10% year-on-year for the period January to October 1996, to 1,407,515 units. The final figure for the year is expected to be 1,532,084. This year production is expected to increase to 1.6 million units, says the Society of Motor Manufacturers & Traders (SMMT), on the back of increased exports.

The rise in production and investment to increase capacity by the vehicle manufacturers does not add up when set against predictions of a sluggish European market in 1997 and a downward revision in the growth potential of the Asia-Pacific region.

According to consultancy JD Power-LMC, European car sales will stall this year, with growth forecast at only 2% across the region. France and Italy, whose markets have been artificially boosted by government incentives, are expected to suffer most.

In the UK, the SMMT has forecast a rise in sales to 2.1 million for 1997, though there is a fear that the general election may be followed by a tight economic regime, squeezing sales.

The hoped-for boom in the Asia-Pacific region is also looking less prodigious. The Economist Intelligence Unit has predicted that car sales in the region will grow from 3 million this year to 5.2 million in 2005, half the previous estimated growth rate. This will mean overproduction in the region, with an inevitable increase in exports. Proton, Daewoo, Hyundai and Samsung of Korea are all looking to increase their presence in Europe.

Last year confirmed the continued attractiveness of Britain for investment. Vauxhall announced planned spending of £300 million at Ellesmere Port to upgrade its capacity. In December it confirmed 100 jobs would be created at Luton based IBC Vehicles, which will get investment of £180million, in joint venture with Renault to develop vans for production early next century. Rover said in December it would recruit another 100 specialist engineers, to be based at its £25 million design and engineering centre at Gaydon in Warwickshire, to develop an expanded range including the new Mini.

Moving production of the Mini engine from Longbridge to South America was softened by news of a £450 million engine plant in the UK to build 400,000 engines for Rover and BMW. This will avoid redundancies at Longbridge and create up to 6,000 jobs.

Ford confirmed it would invest £366 million to increase Jaguar’s capacity by 35,000 a year, creating 1,360 jobs and safeguarding a further 3,200. Most of the investment will be at Castle Bromwich to build the new smaller Jaguar, the X200. The XK8, launched last year, was well received and is expected to take sales to a new peak this year.

Ford’s Halewood plant is in line for heavy investment, including a supplier park.

Honda said it would create 250 jobs at its Swindon plant in line with plans to increase annual output from 100,000 cars to 150,000 by the end of 1998.

Nissan is investing £70 million at its Sunderland plant to produce 20,000 Primera estate cars a year by 1998.

Peugeot’s Coventry plant, which makes the 306, is to benefit from an estimated £100 million of improvements over the coming year in an effort to increase capacity and possibly pave the way for the plant to produce the new 206, due for launch in 1998.

Lotus, the sports car and engineering concern acquired by Malaysia’s Proton, plans increased production of the Elise, new models and a fenced-off Proton centre to help safeguard its engineering consultancy business.

Commercial vehicle sales slumped at the end of last year after an artificial peak in sales to beat the 1 October deadline for new European emission regulations. Truck makers expect a poor 1997, with sales between 45,000 and 50,000. Sales of light and medium vans – up to Transit size – were up 4.8% in the year to December, a figure that conceals a disproportionate 17% increase in imports. This segment is forecast to grow by 4% next year.

The UK components industry, which has come in for much criticism over recent years for low productivity and poor quality, is beginning to turn the corner, spurred by the efforts of the Japanese transplant manufacturers.

Further help will come from the SMMT Industry Forum, whose pilot project involving 10 second and third-tier suppliers gets under way this week.

And in the West Midlands, 3,000 suppliers should benefit from the West Midlands Manufacturing Challenge, a private-sector initiative in which large firms pass on advice to smaller ones.

It is not all good news, with the announcement of 1,500 redundancies at Lucas in December. But this should make the company better able to compete in an ever more competitive marketplace.

Anthony Gould