The recent announcement by Bentley that its Crewe headquarters is to become the centre of excellence for the Volkswagen Group for all W12 engine production from the end of 2014 onwards served to further underline the strength of the UK’s engine manufacturing sector. In this month’s management briefing, Calum MacRae considers this burgeoning sector and its prospects. Part 1 looks at the state of the sector currently.

The promotion of the UK as a centre of excellence for engine manufacturing has its roots in Ford’s ending of vehicle manufacturing at Dagenham in 2002. At the time there was a widespread fear that the UK’s auto sector would suffer a “hollowing out” – hot on the heels of Ford’s announcement came a decision from GM to stop building the Vectra (the Insignia’s D-segment predecessor at Luton) – while the pressure of low-wage competition from East Europe, MG Rover’s subsequent travails and PSA’s closure of Ryton seemed to confirm fears over the UK’s auto sector.

Ford’s promise to turn its Dagenham plant into a global centre for diesel production and subsequent investments in capacity at its Bridgend engine plant were widely seen as “throwing the UK a bone” or compensation for the vehicle plant’s closure. Since then the bone has flourished and some meat has been added to it with the recent success of UK’s vehicle manufacturing sector. In recent times, vehicle manufacturing in the UK has had the happy knack of being the production base for a succession of hit products – Qashqai, Mini, Evoque etc. – that have tapped into the global appetite for premium brands or crossovers/SUVs or both in the case of Land Rover’s success.

However, recent vehicle manufacturing success stories should not deflect from the importance of engine manufacturing to the UK’s auto sector. After all, engines contribute anything between 25-40% of a vehicle’s bill of material, and their manufacture is important in sustaining and supporting the wider automotive value chain.

Indeed, any automotive FDI policy worth the paper it is written on has some stipulation regarding engine or powertrain manufacture to avoid an abundance of low value-added “screwdriver” plants. Witness the rewriting of Russia’s Decree 166 in February 2011 which changed the vehicle assembly rule – any manufacturer desiring the 300-350k output licence requires Russian-made powertrains in 30% of output to achieve the 60% localised content requirement.

Further, in March 2011, the Indian authorities changed their rules on CKD kits hiking the 10% customs duty to 30%, close to the 60% of a completely built unit, but allowing the duty to stay at 10% if powertrain components are produced locally. Also, the Chinese authorities have always made it clear that any vehicle manufacturing joint-venture will always require an accompanying investment in engine manufacture. As well as a set requirement for minimum registered capital of US$75 million, any joint venture in China hoping for approval has to set aside US$75 million for engine production and US$1.5 million for an R&D centre.

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So the importance of engine manufacture in underpinning a country’s automotive sector is clear, but how is UK’s engine manufacturing faring? In 2013, according to the SMMT, UK engine production rose 2.3% to 2,553,316 units the best total since 2008, with volume output exceeding that of cars but growth was behind the car sector’s 3.1% increase.

Ford has been true to its word on supporting engine manufacture in the UK – its plants at Bridgend and Dagenham contributed just over 50% of the total with the plants building 589k and 691k respectively. Importantly, both figures exclude output for JLR of the AJ126 V6 and AJ133 V8 at Bridgend and the 2.2L Puma diesel and 3.0L Lion diesel at Dagenham. The SMMT reported total output for Bridgend and Dagenham in 2013 and we have derived a figure for JLR output based on the figures Ford gave just-auto for the plants – giving Dagenham just short of 100,000 units and Bridgend output boosted to just over 150,000 units by the introduction of the AJ126.

After Ford’s plants, the next most significant location for engine manufacture in the UK is BMW’s Hams Hall plant in Warwickshire. Hams Hall produced 408,000 engines in 2013, close to its record of 434,000 in 2011. What is almost certain is that in the near-term the plant’s 2011 record will be broken with the plant recently adding production of BMW’s new B family of 3-cylinder petrol engines. This addition supplements production of the last generation Mini’s Prince/EP engines and 2.0L NG4 petrol engine.

Toyota’s plant at Deeside has not performed as strongly in recent years as it has historically. A combination of lower demand for the engines it produces, the vehicle plant at Burnaston operating below peak levels and competition from other Toyota engine sites in Europe have all served to lower production there and have kept production below the peak of 580k recorded in 2004.

Full details of the UK’s 2013 engine output are given in the table below.

Owner/operator Plant 2013
BMW Hams Hall 408,060
Ford Bridgend 588,862
Ford Dagenham 691,075
Honda Swindon 139,741
JLR [1] Bridgend 152,211
JLR [1] Dagenham 96,323
Nissan Washington 266,130
Toyota Deeside 200,418
VW Crewe 10,496
[1] Legacy production by Ford; JLR not owner/operator

Source: SMMT/just-auto analysis

Coming up in Part 2, future planned investments