Motor Industry

– in the House of Commons at 12:00 am on 9th November 1966.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ioan L. Evans.]

11.40 p.m.

Photo of Mr Evan Luard Mr Evan Luard , Oxford

I should like, first, to make clear that in asking for this Adjournment debate this evening I am not primarily concerned with the unhappy labour dispute at present affecting the industry centred in my own constituency of Oxford. I regret as much as anybody this dispute, and that it has not been possible to find a solution to it. I would like to see it brought to an end as soon as possible, and I would welcome any action which the Government may be able to take to this end at an appropriate time, but I am mainly concerned with the problems which have been created for the motor industry as a whole as a result of the Government's measures introduced on 20th July this year.

The first point I want to make is that the difficulties which have been created for the industry are, in my belief, much greater than the Government themselves anticipated when they introduced those measures in July. I think that the evidence for that is given first of all by the fact that the present rate of unemployment in the country as a whole, mainly concentrated in the Midlands and the motor industry areas, is already at the level which the Government anticipated would be the rate at the very worst moment of the present economic difficulties. I think that he would have to be a very great optimist who believed that we had already reached the very worst moment of our difficulties.

It is evidenced, I think, also in the catastrophic drop in the sales of the motor industry which already in August had dropped by 23 per cent. and had then reached the lowest level since December, 1963, and there has certainly been no upturn since that time. Finally, it is evidenced by the considerable degree of redundancy which has been created in this our most important exporting manufacturing industry, including a considerable degree of redundancy in my own constituency of Oxford, where, I believe, at the latest count, it had reached 9 per cent. Admittedly, this includes some only temporarily stopped, but this is some indication of the difficulties which have been created for constituencies of this kind.

I want to try to show what I believe are the reasons why the Government under-estimated the difficulties which were to be created for the motor industry. The main reason, I think, is the fact that the industry was already at the time undergoing very considerable difficulties. Some of those difficulties were of a long-term rather than a short-term nature. The industry was, for example, suffering increasing difficulties in its export markets. The figures which I obtained only a week or two ago from the President of the Board of Trade showed that, in fact, exports of cars from this country during the first nine months of this year were only 440,000 against a figure of 477,000 for the same period of last year and 513,000 for the year before; in other words, a drop of about 15 per cent. in two years.

I think that most of us know what are the reasons for this decline. There is the growth in manufacturing capacity in many foreign countries, the growth of assembly plants and manufacturing under licence. There is the rise of the Japanese motor industry. In particular, there is the increasing interest of American motor firms in the European motor car industry and the benefits which they have had of their superior sales and service capacities, and I think that it is perhaps not a matter of great consolation to many of us that it is the motor firms in this country which are mainly controlled by American firms which have been able to withstand the difficulties in the British motor industry better than any other part of the industry. So there were considerable difficulties before the measures of July.

Next, there was some difficulty in the home market. It may be that this was long-term and cyclical, quite apart from the normal seasonal trend. The motor industry had fairly good years in 1963 and 1964, and not at all a bad year in 1965, and possibly, in any case, it would have had to anticipate some difficulties this year.

Whatever the reason, it is a fact that most motor car firms in the country, though not B.M.C., I regret to say, had already read the signs correctly and, in June and July, before these measures were introduced, were taking steps to cut down their schedules. It does not need much imagination to realise the impact of these very severe measures of July coming on top of this situation.

These measures almost exactly coincided with the normal seasonal decline this year. Normally, it begins about the end of July or the beginning of August, and there is usually a decline in sales in August. Even in a good year, it is normal for motor car workers to be working a certain amount of short time in the autumn and winter months. With these measures on top, the difficulties have been magnified into the proportions of something like a disaster for the industry.

Another reason why these effects have been much worse than anticipated by the Government—and this is one of the major points which I want to raise—is that hire-purchase restrictions and Purchase Tax changes are always likely to have a far more serious effect on the motor car industry than almost any other manufacturer of consumer durables.

The reasons are quite simple. It is clear that the purchaser of a major and very costly item such as a motor car will be far more deterred by a rise in Purchase Tax than will be the purchaser of a less expensive consumer durable. The purchaser of a motor car will almost certainly try to postpone his purchase until the tax situation is more favourable to him. In particular, he will be very much more deterred by the very high deposit rate of 40 per cent. which has now been imposed.

A measure of this kind has a particularly serious effect on the motor car industry, and that alone should give the Government cause to consider whether they should not introduce some more variable form of Purchase Tax and hire-purchase restriction to take account of the varying needs of different industries in this respect.

There is yet another reason why these measures have had a more serious effect than was anticipated. Measures of this kind and the drop in production which results from them have a particularly serious effect on any industry which is highly capitalised and has heavy facilities of the kind that the motor industry does. An industry of this kind is not producing efficiently or effectively if it is producing below its normal capacity. Therefore, the effect or the motor industry today, when in addition to having restricted export markets it has had its home market curtailed considerably, is that it is producing at a highly uneconomic level. That is another reason why these measures have had an excessive effect on our industry.

One of the effects of this is that the unit costs of each car are raised and, far from it being more easy for the industry to export cars, as the Government believe to some extent, it becomes more difficult for our most important exporting industry to export its product than it was before.

Those are the main reasons why the Government underestimated the impact that these measures would have on the motor car industry, and I want to say something about the steps which I should like the Government to take now to remedy the situation which they themselves have created.

First, I hope that as soon as possible they will relax the hire-purchase restrictions which they have imposed on the industry and so relieve the calamitous effect that the restrictions have had, particularly on the important home sales of the industry.

Secondly, I hope that they will get right away from the system by which they impose a uniform rate of Purchase Tax or hire-purchase restrictions on a very wide range of products having entirely different needs and requirements in that respect. In any future crisis of this kind, I hope that there will be special consideration for the motor industry because of the particularly harsh impact of hire-purchase restrictions on an industry of this kind with very expensive products.

Thirdly, I hope that the Government will give serious consideration to the introduction of a system by which there are regular seasonal variations in both Purchase Tax and hire-purchase restrictions, if necessary, to counter the normal cyclical seasonal variations in this industry, which has the serious effect that we know, the difficulty of maintaining full regular production throughout the year.

Finally, I hope that the Government will seek to draw up a long-term plan for this industry which will make it much more possible than it has been up to now for the manufacturers to be sure of a level of production which they will be able to maintain in the future, and make it easier for both employers and employees to be able to calculate the long-term labour needs of this industry, because one of the great difficulties at the moment is that with these perpetual variations in demand, partly deliberately introduced by the Government, it is difficult to calculate long-term labour needs. I hope that in any future crisis variations in Purchase Tax and in hire-purchase restrictions will only be made with due regard to this national plan for the industry and to the levels of production which have been laid down in advance.

I have no doubt that there remains a prosperous and, indeed, brilliant future for this major industry, but I do not believe that that future will be realised unless the Government take it on themselves to create the circumstances in which that future can come to pass.

11.52 p.m.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

Both my hon. Friend the Member for Oxford (Mr. Luard) and I are concerned about the co-ordination of the mechanism by which a Government approach problems like my hon. Friend's at Oxford or mine at Bathgate. We are not criticising individual civil servants. We are not criticising individual ministries. I thnk that probably both of us believe that when a problem is clearly devoted to one Ministry or another the Civil Service tackles it rather well.

What we are concerned about is a problem such as that at Oxford or at Bathgate, where the solution can only be found in terms of very many Whitehall Departments, and it is at this point, where a new kind of problem arises, that we become very concerned about coordination of the Civil Service in the face of a desperate situation.

11.53 p.m.

Photo of Mr Peter Shore Mr Peter Shore , Stepney

I am grateful to my hon. Friend the Member for Oxford (Mr. Luard) for raising this very important subject in the House today. He speaks with knowledge and close acquaintance with the motor car industry, which is, of course, such an important factor in the life and work of his constituency. He has, I think—and I am grateful to him for it—spoken much more widely about the problems of the industry as a whole, rather than dwelt on what I am sure are his great and natural constituency anxieties following the redundancies in the Cowley works, in Oxford.

Before I turn to the main subject of my reply, I should like for a moment to take up the point made by my hon. Friend the Member for West Lothian (Mr. Dalyell), who also has a keen constituency interest in the motor car industry. I have heard my hon. Friend before on this point about the need for co-ordinating the work of Government Departments to deal with complex problems which arise when a major industry is experiencing a period of great difficulty and redundancy, as the motor car industry is doing today.

I would only say to my hon. Friend that his points are well taken, and that there has been, and no doubt there will be further developed, a great deal of co-ordination between the Government Departments concerned with all the manifold aspects of production, employment, the bringing of new work into areas, and so on, but my hon. Friend is right to stress this point.

I should like, first, to give a brief survey of the recent background to, and the present state of, the motor car industry, and then to take up the arguments which were so strongly deployed by my hon. Friend the Member for Oxford.

Motor car production reached its peak in 1964, when we produced more than 1,860,000 motor cars. In 1965, as my hon. Friend said, production was lower, although it was still at the high figure of more than 1,720,000. This year, before the July measures, production was running at just about the same level as in the corresponding period of 1965. With exports of complete vehicles the story is broadly the same. Nineteen hundred and sixty-four was a record year, with 680,000 vehicles; 1965 saw a decline of 7½ per cent., and this year so far there has been a similar decline compared with the same months of 1965.

As the House will recall, various measures were taken in 1965 to reduce domestic demand and in the spring of this year bank credits were limited to 5 per cent. above the 1965 level. Then came the July measures which, apart from the 7 per cent. Bank Rate, raised hire purchase deposits from 25 per cent. to 40 per cent., shortened the period of repayment from 27 to 24 months and increased Purchase Tax from 25 per cent. to 27½ per cent. These measures had, of course, a sharp effect on the industry. During the third quarter new registrations were 10 per cent. lower than in the same quarter in 1965 and hire purchase contracts on new cars were 19 per cent. down. The provisional figures for October were worse.

While much of this must be attributed to the July measures, the full effects are difficult to gauge at the present time. There have been a number of strikes, notably those of the car delivery workers at Longbridge and at the radiator factory in Oxford, which have dislocated production and have led to heavy temporary unemployment and to short-time.

The third quarter of the year, as my hon. Friend pointed out, is traditionally a period when there is a sharp fall in demand and this autumn, even without the July measures, it might well have been accentuated owing to an element of anticipatory buying in the first part of the year. There is some reason to believe that the real economic impact of the July measures may have been reinforced in the short-term by their psychological effect on consumer buying generally. However, allowing for these facts the following picture emerges.

Production this year will be about 6 per cent. lower than last year. Looking to 1967, on current policies, we expect domestic demand to pick up over the present depressed level, but total sales are likely to be lower than in 1966. Exports are always difficult to predict, but we expect the 1966 level to be maintained and that of commercial vehicles and parts and components to be increased.

As for employment, the firms have already reappraised their plans for 1966–67 and the main redundancies have already been declared. The House will know that these amounted to about 12,000 men at B.M.C. and Rootes, accounting for 4½ per cent. of the 262,000 men employed by the seven motor car manufacturing companies. Apart from the current discussions at Rootes, Coventry, we know of no further plans for large-scale redundancies.

So much for the broad picture of me industry. I now turn to the two main lines of criticism expressed by my hon. Friend—first, that the effects of these measures have resulted in excessive redundancies. These redundancies, painful and repugnant as they are, are not to be considered as purely short-term. They are not to be considered as the effects of measures which, as soon as demand picks up again, will result in the men being sucked back into the industry.

The point mainly concerns the British Motor Corporation. We discussed its employment prospects with that firm in great detail. Its labour force was geared to a substantial increase in production. In the event, in 1964–65 and in 1965–66—both before the July measures—the actual achievement was well below planned production. There are many reasons for this, but, again before the July measures, B.M.C. had had to undertake a radical review of its production plan for 1966–67.

Inevitably, therefore, in the late summer of this year, it was overstaffed in relation to foreseeable demand. Nor could this situation be expected to change, given quite favourable assumptions about future Government policy and production prospects. As the management has made clear, it is satisfied that the reduced labour force is adequate for foreseeable needs and is indeed capable of coping, without reinforcement, with a significant increase in production.

No doubt, longer-term factors lie behind this: the introduction of more productive equipment and perhaps new methods of assessing labour requirements. This should not come as a great surprise to those who recall that the motor manufacturers, in their contribution to the National Plan, envisaged a growth of production by 1970 of not less than 36 per cent., with only a 6 per cent. increase in the 1964 labour force——

Photo of Mr John Horner Mr John Horner , Oldbury and Halesowen

Perhaps my hon. Friend can help me in this. My recollection is that Sir George Harriman, the Chairman of B.M.C, has said in a public statement that the 12,000 men made redundant ought not to look for re-employment in the "foreseeable future". During the discussions that my hon. Friend's Department has had with B.M.C, does "foreseeable" extend to next year or the year after, or is it to go on indefinitely, with no hope of re-employment for these men?

Photo of Mr Peter Shore Mr Peter Shore , Stepney

I cannot give a completely clear answer to that. As far ahead as the motor manufacturers can see, they are satisfied that they will not be needing the men who have been made redundant during the past few weeks.

My point, therefore, is that the redundancies which have been declared are not a temporary shake-out. They represent a longer-term reappraisal of the firm's labour needs. Hon. Members will have noted that other car firms faced with the same economic problems, but who have been able to take a different view about production prospects, have retained their labour even where this has meant the introduction of short-time working.

The second criticism I want to answer is basic and concerns the effects of the July measures on the economics of the motor industry. The major aim of the July measures was rapidly and substantially to strengthen our balance of payments by cutting domestic demand and redeploying productive resources. An important part of this policy was to cut consumer expenditure, through the medium of hire purchase, by £160 million a year. The aim was, directly, to reduce imports and, indirectly, to promote exports, by reducing home demand on our export industries.

While most hon. Members would accept that, over a broad range of industry—including capital goods of all kinds—cuts in domestic demand, whatever their other disadvantages, release capacity for export, there is considerable doubt whether these measures have the same effect on mass production industries, of which the motor car industry is a leading example.

The point made is that, if total production falls far below capacity, overhead costs remain, unit costs rise and it becomes increasingly difficult to remain price-competitive in export markets. Perhaps at the back of my hon. Friend's mind there is the fearful memory of the export debacle of 1961. This is an argument which should not be lightly dismissed; it deserves and is getting close and detailed study. Yet I am sure that the House will agree that, while a strong and growing home market can provide a base for a strong assault on the export market, there is no certain correlation between the two. In our post-war experience, periods of rapidly rising home demand have been accompanied by quite modest increases in exports, while periods of restriction at home have coincided with a rapid growth in car exports. Whatever the answer may be, there are two points which I want to make which, I hope, will give some grounds for confidence about our export prospects.

First, although a sudden and dramatic diversion of car production to exports is not possible, the prospects this year and next for world trade in vehicles are good. Again, an increasing part of the total of our vehicle exports now consists of parts and components, the production of which is geared to the export rather than to the home market. Today, they have reached about £200 million a year, nearly a third of our total exports, and there is every prospect of continued growth.

Secondly, the argument against cutting home demand is convincing only if we were to assume that there is no scope for an increase in exports of British cars. This is not so. Of course, there are great difficulties to be surmounted, particularly in the Common Market as the common external tariff falls into place. But it should be remembered that over 80 per cent. of our car exports are directed elsewhere and, as we all know, quality, service and design, as well as price, are major factors in car sales.

It would be wrong to accept that there is a fixed, immovable ratio between home and export sales or that there is some absolute limit to our total exports. Such a view is contradicted by the recent history of our own car industry, which has, over the past 10 years, seen exports of complete vehicles fall from over 50 per cent. to 38 per cent. of total production. It is contradicted when we look at the individual export performances of different British car firms, ranging, as they do from 30 per cent. to 50 per cent. of production. It is contradicted again when we look at the experiences of other car industries in Europe and, in particular, Germany, which now exports 55 per cent. of its total output.

I am confident that the British car industry has the will, the capacity and the engineering excellence to raise its exports. The key is costs, and here I am sure that there is room for improvement. The Government's contribution, contrary to what has been suggested, has not been wholly negative. While I would not wish to exaggerate their impact, the export rebate scheme, the special refunds to manufacturing industry under the S.E.T. and the severe restraint on incomes now being exercised are all contributing to cost reduction.

Whatever may be said about the immediate future, the prospects for the industry are sound. It is, after all, one of our healthy growth industries—competitive, modern and highly efficient. It is the world's second largest exporter of cars and the largest exporter of commercial vehicles.

Inevitably, there is little that I can say about the duration of the present measures—much as I should like to oblige. The Chancellor of the Exchequer has already told the industry that there can be no question of relaxing hire purchase until the balance-of-payments position is right. This must be accepted. When the balance of payments has been secured, we shall all look forward to some easing in the home market. But we do not intend to repeat the errors of the past, when periods of tough restraint were followed, as in 1958 and again in 1962, by deliberately fostered domestic booms. Our aim will be to create conditions in which the industry can look forward to a reasonably steady growth without the violent oscillations of the past. I accept that this is vital.

In all this, the policy of the Government will be to assist the industry to develop both its production and its markets. Although the motor car industry is virile and technologically developed, there are areas in which the help and co-operation of the Government will be needed. These include assistance in the expansion of exports, co-operation in the development of producer-user relationships as between manufacturers and the suppliers of components and the development of technical co-operation in research, development and in production techniques.

My hon. Friend can be certain that the Government, and the Ministry of Technology in particular, will be keeping in very close touch with the industry and will be exploring every possible way in which they can help it to further success.

Question put and agreed to.

Adjourned accordingly at nine minutes past Twelve o'clock.