Motor Industry

Part of the debate – in the House of Commons at 5:32 pm on 12th December 1983.

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Photo of Mr Hilary Miller Mr Hilary Miller , Bromsgrove 5:32 pm, 12th December 1983

The hon. Gentleman knows that BL did not have the engineering resource to bring new models on stream any faster. It was not just a question of the finance. It was impossible to exert financial control until management control had been restored.

It is a pity that a debate on our largest employer, largest manufacturer and largest exporter second only to the oil industry has not attracted a greater attendance. We are not talking about a luxury industry. It is a vital motor of the economy and an essential part of our daily lives, especially when we consider that 93 per cent. of all passenger movements and 90 per cent. of all freight movements take place by road. Therefore, this is an essential industry that supplies an essential need.

I am grateful to my hon. Friend the Member for Birmingham, Northfield (Mr. King) for the terms in which he introduced the motion. He has done a service to the House. He recognised the industry's contribution to the economy and its improved performance, which should give the Government the confidence to take the futher measures that we believe are needed.

Doubt was expressed that the removal of the hire purchase restriction would let in a greater volume of imports, but performance shows that, for the first time for 10 years, the tide of imports has been stemmed, despite the emergence of the Nova on to the market. That stronger market has given confidence to the multinationals to produce a greater proportion of their sales in this country, Vauxhall being a notable example. I am sorry that the hon. Member for Dagenham (Mr. Gould) is no longer in his place, as I wished to take him up on this point.

Nowhere is the motor industry's contribution more important than in the west midlands. I know that my hon. Friend the Member for Northfield will forgive me if I refer specifically to BL, which now employs 100,000 people, 55,000 of whom work in the west midlands. As the hon. Member for Coventry, North-East said, the bad news is that the company lost 100,000 workers in five years because of its lack of competitiveness in terms of price, quality and delivery. The good news is that it has led the way in the adaptation of new technology —the Metro line—and last year recruited 2,000 additional workers. BL spends £2 billion every year with 6,000 United Kingdom suppliers and is now one of our top five exporters. The west midlands, more than any other region, has a unique dependence on manufacturing industry, and on the motor industry in particular.

I hope that the industry's improved performance and significance are welcome to the Government in view of the large tax take that it provides. There is a need to increase confidence in the industry and to provide for an increase in the market so that we can consolidate the gains that we have made. That will enable the industry to continue to supply the taxes that the Government presently enjoy.

There are threats on the horizon, especially in relation to capacity. At present, European car production stands at about 13 million, against sales of about 10 million. We have all seen the pressure on prices, through the discounts that are widely available. Those threats on the horizon are particular to the United Kingdom.

I know of the Minister's experience of the steel industry. Like that industry, the motor industry has already taken the measures that are necessary and has made sacrifices in both production and employment. For example, BL, with its 100,000 workers, has closed 20 factories and productive capacity has been reduced from 1·2 million units to 800,000 units. We strongly believe that the reduction in capacity has been our contribution to the reorganisation, and we look to the Government to ensure that we do not have to suffer additional contraction because EC Governments have not faced the overcapacity that exists among other European competitors.

The hon. Member for Coventry, North-East and my hon. Friend the Member for Northfield mentioned taxation on company cars. The importance of the company car market is shown by the fact that about 60 per cent. of sales are made to the fleet market. A recent survey carried out by the British Institute of Management, which was mentioned in "Heron Drive", estimated that about 2·5 million cars were owned by about 190,000 businesses. Of those businesses, 68 per cent. had more than 88 per cent. of British cars in their fleets. That shows the importance of the company car market to United Kingdom manufacturers.

Earlier I mentioned Vauxhall's increasing confidence. The introduction of additional shifts at an earlier date than expected is a reflection of Vauxhall's success in the company car market. That market is important and can help to increase not only employment and manufacture but investment in Britain. There is a proposal for an additional 15 per cent. tax, on the scale, from April 1984. However, the Government have not drawn any distinction between company cars as tools and as perks. There may be a valid case for taxing the perk and the private use of a company car, but at present that aim is not achieved. Therefore, if hope that consideration will again be given to an assessment being made by the Inland Revenue of the proportion of private as opposed to business use. That would be a much fairer and more realistic approach.

Commercial travellers have made representations about the 18,000-mile limit not being realistic for salesmen in urban areas and about the way in which their expenses are treated for tax purposes. The present tax is widely regarded as unfair. It is bitterly resented by many of those who would otherwise be the Government's strongest supporters. It is already having an effect that can be quantified. Smaller engines have been put into larger cars, such as the Sierra, Carlton and Ambassador, to try to get them within the 1800 cc band. That is having a bad effect on their export potential. In Europe, the break point for the same band is 2·8 litres.

A higher band car, such as a Rolls-Royce, is uniquely discriminated against because there are no other models in its range. Most people, other than the most privileged, cannot afford a Rolls-Royce or a Jaguar, unless it is a company car. Very few retired people run around in such vehicles, because they cannot afford to service them. Larger cars are the most profitable for the companies. They are also the vehicles in which new technology represents a lower proportion of the final cost, so they are used as test beds. Such cars also represent the most solidly British part of company fleets. Therefore, I urge the Department and the Treasury to reconsider that point, bearing in mind the commitment of my hon. Friend the Minister to the privatisation of Jaguar. That company's sales will be severely affected if such discrimination continues.

The hon. Member for Coventry, North-East mentioned the threat of block exemption. Under article 85 of the treaty of Rome, selective franchise agreements are not permitted, and it is necessary to apply for an exemption. Firms have been applying for individual exemptions to protect their positions. In the motor industry, an exemption has been granted only to BMW. That was in 1974.

At the latest date, there were 3,715 agreements outstanding, upon which no ruling had yet been made. Indeed, only 29 agreements out of 169 applications per year have been granted in other industries.

A block exemption is obviously a sensible answer. The legal certainty that it should convey would be most welcome, but the Commission's proposals so far do not, regrettably, confer that certainty. The only certainty is that the agreements are likely to operate to the disadvantage of the motor industry not only in Britain but in other European manufacturing countries.

The 12 per cent. price criterion and the full model availability criterion are causing the trouble. The 12 per cent. price criterion has been ameliorated in the modifications introduced by the Commission in response to representations, in that the 12 per cent. differential will have to be the rule for more than six months before it becomes effective. Price controls imposed within 12 months will be ignored. However, the criterion still takes no account of the position in Belgium, where price controls have existed for years. The Belgian price will thus inevitably become the standard price throughout the EC.

As the Belgian market accounts for only 4 per cent. of sales, there has obviously been marginal pricing. Consequently, EC manufacturers will have to withdraw from that market. However, that will not prevent the Japanese and east European prices still being the reference prices throughout the other EC markets. The only result can be a reduction in both sales volume and profitability at a time when European manufacturers need to invest heavily in new technology in order to compete with the Japanese. Therefore, there is a real threat.

The alternative may be for the companies to take over the dealers, so that they can get out of that difficulty with the franchises. I cannot believe that the Government want a repetition of what happened with petrol companies owning the distributive outlets and all the anti-competitive measures to which that leads. However, I hope that my hon. Friend the Minister will be able to say something about that, because, from the manufacturers' point of view, the only other solution would be to take over the outlets.

I should like to make a passing reference to the Nissan problem. Views have been expressed about the local content that would be required. I am happy to say that I have ministerial written assurances that the content will start not below 60 per cent. and will rise to 80 per cent. A written assurance was given to me in a letter sent earlier this year. I should be grateful if my hon. Friend the Minister would confirm whether that is the Government's intention in the negotiations, regardless of the eventual scale of operation.

The industry is not a luxury; it is essential to the economy. It has made considerable improvements that have begun to bear fruit in the past year. We need to maintain confidence and investment in Britain's industry at a time of overcapacity in Europe and in the rest of the world. The realisation of the Government's aim to benefit by returning BL to the private sector is largely dependent on the measures that the Government take on the industry's behalf in resisting additional increases in company car taxation and the block exemption clauses of the EC.