Transcript After the Budget - Squire Patton Boggs

After the Budget: The current state of
the UK Auto Industry
Hammonds / Birmingham Post Dinner
Professor David Bailey
Coventry University Business School
The economy
 Govt: -3.5%, 1.25% in 2010, above trend 3.5% in
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2011
Frankly, optimistic… past recessions where credit
crunch take longer
Monetary and fiscal stimulus, fragility emphasised
by MPC deciding to inject another 50 billion
Other forecasters IMF, EC, Deloitte more
pessimistic. -4% this year, -1% in 2010.
EC: -4%, just 0.1% in 2010
Public finances and when we do
grow…
 Pub deficit figs can be serviced, but little room for
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manoevre
Govt deficit figs not credible
Govt spending: very limited indeed
SO, govt not a driver… and consumers probably
not either
Need to see more balanced pattern of growth
Depreciation of sterling: TWI of sterling has fallen
by over 25% since its peak – more than what saw
after black wed in 1992
Possibility of a
rebalancing?
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Towards the export sectors (man and services?)
However J curve… recession in key markets
J or L curve – need the capacity in place now
Supporting manufacturing – part –time wage
subsidy
 Danger – loss of manufacturing (-6.2% in 1st
quarter, following contractions of 4.9% and 1.9&
previous two quarters)
 Production levels back to where they were in
1992.
 8.6 – 9 % ma output in 2009 (EEF, BCC)
Auto: An unprecedented
situation
 UK auto output down 6% in 2008: annualised 12%
 2009: 20%+ output fall (1st quarter -57% before)
 Job losses: around 20,000
 Key UK industry: over 800,000 jobs
 Exports 70-80% of UK output – effect of collapse
would be a £10 billion hit on the UK trade position
 Key technologies of the future: hybrid engines,
electric vehicles (cars and commercial vehicles,
lightweight materials).
 Part time working
 Agency staff laid off
 Extended shutdowns
 LDV
 Techtonic plates – uncertainty over GM Vauxhall
 Chunks of the supply chain going under on a
weekly basis
 Credit insurance all but disappeared
Auto Support Package
 Announced in Jan: £2.3 bn package of loans and
loan guarantees; procedures unveiled in early
March
 Too little too late
 “Small Beer” financially – how fits with other
policies?
 Green support useful
The Budget
 Attempt to stimulate demand: car scrappage
scheme but 50 / 50
 Credit insurance measures
What else could be done?
 Support for finance arms (US, France,
Japan…)
 Export support (links to financing arms) ECGD
 Part-time Wage Replacement / Subsidy
Scheme
Wage subsidy…
 FT’s Lombard column:
“if certain industries at the top of their game –
productive by international standards – get
kneecapped by a cyclical demand shock, it makes
sense to protect the human capital they have
painstakingly built up”
BUT… short term, time limited, and any better than
retraining?
Yes – see our MG Rover closure study
ESRC Project on MG Rover
 3 years on: 90% back in work (then), 60%
retrained or taken up education, 12% set up
in new business BUT average drop in real
wages; £5600
 Quality jobs matter
Jaguar Land Rover
 FT’ Lex column: “it is hard to imagine a less
deserving candidate. The luxury carmaker fails the
public interest test on two key grounds. First, its
products are of questionable social utility… The
second reason… Mandelson should refuse to bail
out JLR is that Tata Motors, the Indian company
that paid $2.3bn for it, is capable of doing so itself,
if it wishes”.
 Neil Winton: FT sounds as it “has been reading
class warfare pamphlets over the holidays”
Jaguar Land Rover
 It is NOT asking for a Bail Out – loan or loan guarantee at
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commercial rates
Tata investing heavily already and is itself affected by
downturn and credit crunch
The Green Agenda, e.g. LRX concept car, Limo Green
£800million green R&D programme
Crown Jewels in UK Auto Industry (50% R&D, £400
million a year, 7th bigger spender, 15 worldwide…)
Benefits for government £1.3 billion.
Costs of Inaction are Huge
Some key themes from the recent auto
summit:
Short term Themes:
Consumer credit + finance
Exports
Wage subsidy
Streamlining
Drawdown time frame given application rules
unveiled last week at auto summit
Long term Themes:
Skills
Green technology
Potential future equity stakes by government?
Thanks for listening and I
hope I haven’t given you
indigestion…
[email protected]
[email protected]