Wales is being vigorously promoted – with some success – by The Welsh Development Agency as a good location, within the UK, for automotive components manufacture. The Welsh automotive industry cluster is the largest of any British region without any vehicle assembly operations and includes operations from Bosch, Calsonic, TRW, Meritor and Magna. Toyota and Ford also have major engine making facilities in Wales. This article by Professor Garel Rhys, of the Cardiff University Business School’s Centre for Automotive Industry Research (CAIR), takes a look at the Welsh auto industry cluster’s success story.

The world auto market is a hard taskmaster but the ending of car making by General Motors in the Vauxhall plant at Luton should not be taken as a sign of the total meltdown of the motor industry in Britain. Clearly coming hot on the heels of BMW‘s retreat from Rover, the long drawn out closure of Ford’s car assembly at Dagenham, and the debate over the possible transfer of Micra production from Nissan UK to Renault France, this was one of a series of blows coming after a decade of climbing production and record exports.

“Even with a weak euro the UK can still be a good place to make vehicles “

However, the particular problems of these companies should not be translated into a general malaise. Even with a weak euro the UK can still be a good place to make vehicles and to place new investment in vehicle and component making. Similarly in Wales, the expansion of Ford, Toyota and Calsonic rather than the impending closure of Valeo is testimony to this.

The closure of Dagenham and Luton removes a capacity potential of 460,000 cars on a two-shift basis, however, the expansion of Jaguar, Land Rover, Peugeot, Nissan, Honda, Toyota and BMW-MINI, together with the consolidation of Rover, and the continuation of Vauxhall car production on Merseyside and other vehicles in Luton, and the plans for Bentley and Rolls Royce leaves enough productive potential to comfortably make 2.3 million cars a year. This potential can still be turned into reality and provide a solid base for the auto sector in Wales. The doom-mongers are all too quick to forget this. So, the way Wales has coped with the challenges facing the UK automotive sector in 2000-1 shows how robust the sector is.

To suggest that the closure of Dagenham and the Luton car plants, together with the disruption to Rover means that automotive production has had its day in the UK in general and Wales in particular is not tenable. Or that it would be better if organisations like the WDA looked at newer technologies and encouraged this investment on the grounds that the automotive industry was outdated. Nobody with an understanding of the cutting edge of the auto industry in terms of product and production development, systems and information technology (IT) usage, including business-to-business and business-to-consumer ‘E’ commerce, and hence the way it makes a mockery of the ‘old’ economy-‘new’ economy division, would hold such views. Automotive component and system manufacture in particular is appropriate to high wage, high productivity, low unit cost economies. The dominance of Japan, Germany, France, Italy and the USA in world automotive affairs is no accident. Those countries, which are at higher levels of economic development than the UK, play host to the automotive industry because of their efficiency. So to develop its automotive sector the Welsh economy cannot stand still but must become a centre of world-class performance by improving productivity and product quality. This is well understood and is being done.

“The Welsh automotive sector remains the largest of any British region without any vehicle assembly operations”

The Welsh automotive sector remains the largest of any British region without any vehicle assembly operations, and is larger in employment terms than that in the East Midlands or the North East where the Japanese are carmakers. The “disadvantage” of not having vehicle makers as a major impact on local economic activity via their own efforts and the knock-on effects is in fact a strength. The Welsh automotive sector is not dependent on any one vehicle maker or any one market. Its activities are widespread and therefore risks are spread. This was apparent in 2000-1 when major job losses were occurring in the UK car plants, but in Wales the disappointments such as the announced closure of Valeo and the downsizing of Corus have been offset by major expansion by Ford and Toyota, and by a steady flow of inward investment. Furthermore, the expansion of plants elsewhere in the UK, such as Honda in Swindon, creates extra business for Welsh-based suppliers.

The component making and material supplier basis of the automotive sector in Wales is based upon 150 companies of which 40 have the features of tier one supplier, 70 are second tier and the rest are further down the supply chain. These include some of the global leaders in the sector such as Bosch from Europe, Calsonic from Japan and TRW, Visteon, Meritor and Magna from North America. In addition Corus in Wales remains highly dependent on the steel demands of the auto industry.

Wales is well situated to supply not only the UK but also the European and global vehicle plants. The availability of good quality labour, communications, and transport reinforced by good industrial relations and organisations geared to meet the needs of the sector, has meant a continuous flow of new investment by new and existing companies. That by the two vehicle makers Toyota and Ford whose engine making facilities make Wales one of Europe’s major power-train manufacturing centres is particularly noteworthy but no more than examples of a larger success story.

The Toyota operation is expanding to a level where 500,000 engines a year will be made. Eventually, when the new product cycle permits this will justify the use of maximum volume state of the art technology based upon transfer lines rather than CNC machine tools. The position of Ford is even more considerable.

Since 1999, Ford’s engine plant at Bridgend has been the focus of new developments in investment and job creation. Firstly, Ford took the opportunity to rationalise its European engine production and Bridgend became the sole producer of Zetec petrol engines used in the company’s volume selling cars. This took potential production to 700,000 Zetec engines as well as 55,000 Jaguar engines. The previous maximum output had been 500,000 a year. In 2001 further developments occurred around Jaguar engines. A new range was announced which would eventually be produced at a rate of 325,000 a year. This took Bridgend’s planned output to over one million units a year. This, together with the new diesel engine at Dagenham will take UK output to over two million, around one quarter of the Ford Group’s annual global engine production.

Furthermore, it was clear that new Land Rovers for North America would need new engines, which could also be made in Bridgend. Total Jaguar and Land Rover engine production could exceed 500,000 units making Bridgend not only a major supplier to Ford but also the Premier Automotive Group’s (Pag) subsidiaries such as Jaguar, Land Rover and possibly Aston Martin. In addition Ford in Wales is at the forefront of training and the spread of best practice into other companies. In short, Ford’s influence is quantitative as well as qualitative, and is a high profile ambassador for the Welsh economy.

The position of Wales as a centre of automotive engine production was reinforced by expansion at Toyota’s Deeside engine factory. Expansion of Toyota’s European car production in the UK and France and the introduction of diesel engines alongside petrol engines could take total production to almost 500,000 engines in 2003. As a result total employment in Welsh engine making will increase by 250 to 600 a year at Deeside and at Bridgend by 600 to 2,400.

The suitability of Wales as an export centre will be safeguarded by almost 100% of the Bridgend engines produced for Ford and Mazda cars being exported with only the PAG engines being supplied to UK plants. In addition Toyota engines will be exported as well as engine parts to South America, South Africa, France and Turkey all amounting to over 50% of production.

High quality and high productivity allows such plants to prosper whatever the exchange rate and the UK’s relationship to the euro. Within the Welsh manufacturing sector productivity in the best automotive plants and allied suppliers is good, but the average is still not good enough. The gross value added per head at £33,000 is below the UK average of £35,300 and compares badly with the North East’s £40,000. The net capital expenditure per head of £6,000 is £1,500 below the UK average. This must be improved if the Welsh automotive sector is to survive and prosper. These issues are being addressed.

If Welsh based firms are to meet successfully the increased competition, a strong pound and industrial restructuring they must be efficient enough to make themselves indispensable. Even then structural over-capacity may produce closures. This is why only one of two integrated steel strip mills in Wales will remain open. Hence, the importance of achieving world class performance.

To this end the Welsh Automotive FORUM, which represents the majority of vehicle suppliers in Wales is an important factor. The Forum sees the education and training of the workforce as paramount if Wales is to compete in world markets for product and investment. The Accelerate Wales programme is a Forum initiative, supported by the National Assembly and managed by the WDA. This is to improve the efficiency and effectiveness of the Welsh supply chain. The Forum has identified almost £200 million of business that could be created by Welsh automotive linked firms switching orders to Welsh based suppliers. This focussed approach to finding Welsh suppliers shows other sectors what can be done.

In the modern motor industry operating in open and free markets there is a nowhere for the inefficient to hide. The automotive sector in Wales is part of a massive, and still growing world industry. The opportunities for further Welsh growth are many, but will only be realised if the sector continues to improve its performance in terms of product, cost and delivery. In addition, as a supply based industry, it must do its utmost to place its future in supplying those vehicle firms most likely to succeed.

Professor Garel Rhys OBE
Director of the Centre for Automotive Industry Research
Cardiff University Business School
and Chairman, Welsh Automotive Forum