§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones.]
11.55 pm§ Mr. Hal Miller (Bromsgrove and Redditch)By one of the strange coincidences of the arcane process by which subjects emerge for Adjournment debates, it is exactly 12 months to the day, but 25 minutes later, since I last rose to address the House on the subject of the Nissan car plant. While I welcome the presence of my hon. Friend the Under-Secretary of State for Industry as a good west midlands representative, who we are delighted has been given additional responsibilities in heading up a drive for greater innovation in the region, I must tell him that people in the west midlands will be looking with a critical eye at the conditions attaching to the Nissan project to see whether it is likely to prove of benefit to the region or to act to its detriment. That was by no means made clear when I last raised this subject and explains why I have been attempting for the past six weeks since the Secretary of State returned from Japan to have an opportunity to air these issues.
The subject is of importance in the context of our trade balance with Japan and the need for investment in Britain to offset that imbalance so as not to provoke an irresistible demand for limitations on the present open system of trade on which both the Japanese and British economies, but ours markedly more so, are crucially dependent. Whether we welcome the project must depend on the extent to which there will be local content in it. That has not been made clear and, so far as it has been made public, we are given to understand that the initial stage of the project is for the production of about 200,000 per year rising later to perhaps 500,000 cars. To put it in context, that figure of 200,000 cars is roughly equivalent to the current production of the Metro at Longbridge of 4,000 cars per week.
We should bear in mind that there is considerable overcapacity of production in the world and particularly in Europe, where there is an overhang of some 3.5 million vehicles, with the threat of increased installations in Japan but no such increase in the Japanese market. So the supposition must be that this increase in production is intended for export. Because of the various limitations on their exports and because of their comparative manufacturing efficiencies, the most profitable market for the Japanese at the moment is Europe.
Therefore, our attitude must be determined by how much local component content is to go into the vehicle. We have been told that it will be 60 per cent. rising to 80 per cent., but in a comparable co-operative venture in Italy between Nissan and Alfa Romeo the content is to be 80 per cent. from the start, with the Italians providing the power train. I must ask my hon. Friend whether he can divulge to us this evening what the content requirement is to be and whether it is to be weight or by value, which has relevance, especially to makers of components that are light in weight, such as electronics, the manufacturers of which would be arguing for value, while the heavier end would be more interested in the weight content. Attitudes will be dependent upon the definition.
The importance of the project to our components industry is easily understood when it is realised that only 33 per cent. of new registrations of passenger vehicles in 993 Britain in 1982 were built from British components. The gap lies with the assemblers of imported kits, notably Vauxhall and Talbot. That trend is increasing all the time, and only about 36 per cent. of Ford's United Kingdom requirement comes from local sources. The component industry is faced with the need to modernise its production facilities and upgrade its product to be internationally competitive at a time when its market is seriously declining and the prospects are for further decline. The introduction of the Nissan project on the initial scale of the Metro production without safeguards for component makers must represent a serious threat.
In the light of the overcapacity that I have described, we must also ask where the additional vehicles will be sold. The seriousness of the definition of "local content" can perhaps best be illustrated by the fact that a 60 per cent. requirement by value could be met without any British content except a battery and windscreen wiper, and perhaps a little trim, on the basis of ex-works price. That illustrates vividly the importance of a high starting content. The figures that I have given are hard; they are bassd on co-operative production.
If other factors entered into the price equation, such as transfer pricing between a head company and the subsidiary of a group, the distortion would be correspondingly greater and more damaging to Britain. There is a real anxiety and a real reason why component makers are looking to the Government for insistence on an 80 per cent. content from the start. If that is not possible within the negotiation, it should at least be established on a declared timetable from the start. But there are doubts as to whether it should be possible to enforce such a timetable once the operation had begun and public funds had been invested.
The content must be the criterion on which judgment is finally made as to whether the project will bring net benefit in terms of employment to the west midlands. The anxieties are real because, if the project is to go ahead on the basis of the original timetable of 1984–86, by now the Nissan company should have begun homologating the parts—that is, ordering, testing and installing them in production vehicles for assessment. Not only should that process have started, which it has not, but clearly it needs to be undertaken in this country if we are to have any security as to the fairness of the procedure. I very much hope that my hon. Friend can say something about what the agreement contains regarding the homologation of parts and how far ahead of the installation of the factory it should take place, as it is a real cause for concern.
Another factor relating to the critical nature of the 80 per cent. content is that Government-funded BL has recently announced agreement with Honda to increase the United Kingdom content of the Acclaim model to 74 per cent. and has undertaken to look for additional local sourcing on top of that figure. It was reported in the Financial Times, whose widely respected correspondent, Mr. Kenneth Gooding, wrote recently on the subject, that BL is looking in the new deal with Honda for the XX car for a local content of 80 per cent. If Nissan is allowed to establish here on the basis of 60 per cent., there is little chance that Honda would be content to abide by the higher requirement which apparently has recently been agreed.
The decision on the matter is of direct relevance also to the success of future products from BL and the take of that company from our component makers. Of the production of 200,000 cars by Nissan, one half was 994 intended to be exported, but I do not see how that condition could effectively be administered or insisted upon. I note that present expectations are that if the 50 per cent. export requirement were met, there would be a loss of market share to both Ford and BL of about 2 per cent. and of 1 per cent. to Vauxhall and another 1 per cent. to the others.
§ Mr. John Spellar (Birmingham, Northfield)With regard to both exports and sales, and also as to import requirements, once Nissan is established here what sanctions can the Department of Industry use to enforce any of these arrangements?
§ Mr. MillerThe hon. Gentleman will have heard me say earlier that it would be difficult to enforce anything once the public funds had been invested in the project. That is why the conditions need to be established and accepted before the project goes further. Hon. Members have a right to know what the conditions will be.
A project that meets the criteria on content that I have set out, introduces into this country new management techniques involving both men and materials and, in particular, achieves the reduction in the inventory that is so striking a feature of Japanese production, should be welcomed. It should be welcomed in the west midlands, where the Minister has recently assumed responsibility for spearheading the innovation drive. It will inevitably be regarded in the midlands as a test case of the Government's intentions towards the region.
The measures announced by my right hon. Friend the Secretary of State on Monday during the debate on the Budget were welcome as a first step towards dealing with the problems of the region but we want to know to what extent flesh is to be put on those bones. If the Nissan project is to be welcomed, why should it not be welcomed in the west midlands? Why should not the English Industrial Estates Corporation be allowed to provide the site and the buildings in the west midlands on terms as favourable as elsewhere in the country? Otherwise, we shall once more see new production, new methods, new machinery established in another part of the country, detracting from our possibilities, in the same way as a computer firm, established in the west midlands, has recently been diverted to Scotland because of the grant system. We have a great need in the west midlands for exactly that sort of production. I hope that my hon. Friend will realise that it is in no narrow nationalist frame of mind that I raise these questions once more tonight. They are of vital concern and need a clear response.
§ The Under-Secretary of State for Industry (Mr. John Butcher)I congratulate my hon. Friend the Member for Bromsgrove and Redditch (Mr. Miller) on his uncanny sense of timing in achieving the selection of the Adjournment debate tonight on the anniversary of the very day on which he last raised the subject. There must be some significance in that. The more fey among us may be able to advise me how this has happened. I also congratulate my hon. Friends the Members for Birmingham, Yardley (Mr. Bevan) and for Hereford (Mr. Shepherd) on maintaining their constituency interest in this matter.
My hon. Friend the Member for Bromsgrove and Redditch has been tenacious in his support of the interests 995 of the west midlands and of its greatest industry. It is therefore understandable that he should take a close interest in this project. As a fellow west midlands Member with a personal and ministerial interest in the future of the motor industry, I am glad to have the opportunity to explain again how the Government see the Nissan project both nationally and in relation to the west midlands. It may be helpful to begin with some general remarks about the motor industry in the United Kingdom in partial response to my hon. Friend and as background to what I shall say about Nissan.
The Government recognise that the motor industry is a major and vital part of our manufacturing base. The west midlands is still its heart. The Government are determined to see that the west midlands car assembly and component industry is given the chance to fight back in reconquering our domestic markets and establishing a better presence in international markets. Great progress has been made recently by BL and a great tonic for automotive engineers in the west midlands and across the country would be a continuation of the 20 per cent.-plus market share currently achieved by BL. It may be difficult to maintain the magnificent level of the 25 per cent. figure reached recently by BL but we have great hopes that this figure marks the beginning of a new trend and that the company has begun the long march back into its traditional market areas and into the justified affections of the motoring public.
I need not remind the House, any of my hon. Friends or the hon. Member for Birmingham, Northfield (Mr. Spellar) that, under the present Administration, assistance of £1.23 billion has gone into BL. We have seen a second manifestation of the success of this aid in the production of the Maestro, which has received endorsement at the highest level of the Government. I should not neglect to mention—it would be unsuitable not to mention—the fact that there are other manufacturers in the United Kingdom. We hope that General Motors, Ford and Talbot will continue to be successful and increase their market share from their British plants and with their British-based models.
They, too, have made determined efforts over the past three years to bring British plants up to European levels of efficiency, and in many cases this has been achieved by the joint endeavours of management and work force. Provided that these improvements are maintained, there is a real prospect of reducing the far too high proportion of our vehicle needs which are met by imports and of reestablishing our export capabilities.
Vauxhall's recent decision to expand substantially the volume of cars produced in the United Kingdom—a vote of confidence in the United Kingdom as a manufacturing location—and the increasing proportion of Sierras which Ford plans to build here should help stabilise import penetration in cars during 1983 and bring it down below the appalling figure of 58 per cent. recorded last year.
While giving credit where it is due, we must at the same time recognise that the industry still faces severe difficulties. Its search for efficiency has taken place over a period when the automotive sector worldwide has suffered a prolonged and deep recession. The world's manufacturers produced 5 million fewer vehicles in 1981 than in 1979 and 1982 figures will unfortunately but doubtless show a further decline. For United Kingdom 996 manufacturers, particularly the traditionally strong exporters of commercial vehicles and components, this has meant significantly reduced volumes, as their markets grew smaller, and fierce competition for the business available.
For many companies therefore it has been a period of major readjustment, a process of sometimes painful rationalisation and reorganisation, which may not yet be complete. Even now the pace of recovery in world markets is still uncertain. What is important is that the industry should make every effort to ensure that, as the markets recover, it is in a position to match the competition. This will require continuing investment in new plant, products and processes. While this is a task for companies themselves, the Government are ready to help wherever they can.
Already, under its Support for Innovation programme, my Department is contributing towards research and development expenditure by the automotive and related industries, totalling around £150 million over the next few years. These are projects—for which up to one-third support is available—which will help bring on the new products and processes which will influence competitiveness in the second half of the 1980s.
A particular problem of which all of us in the Chamber tonight have no doubt been apprised by component suppliers in the west midlands area is the gap between the first stages of research and development and taking a product to market. I would commend to the House the remarks made by my right hon. Friend the Secretary of State in his contribution to the Budget debate:
I am extending the support for the innovation programme by an innovation-linked investment scheme, to which we are allocating about £40 million. Projects will be eligible for investment support under the scheme, either when development work is being supported by the Department of Industry or if it would have been eligible for such support had the firm applied. This addition will help to fill a gap and will bring products out of the backroom and into the showroom."—[Official Report, 21 March 1983; Vol. 39, c. 556.]My right hon. Friend, his colleagues and I will have to fine-tune this proposition, but I hope that my hon. Friend finds some reassurance there. I hope he agrees with my analysis that it is this gap that our friends in the industry in the west midlands have constantly referred to, and we seek to use this policy to help them drive through that gap and out into the market.There are in addition other forms of selective assistance available, including, as my right hon. Friend the Secretary of State mentioned in another part of that Budget speech, the re-launch of the small engineering firms investment scheme—SEFIS 2—with £100 million over three years. It is worth noting that the west midlands gets about twice as much SEFIS support per head of population as the national average.
There is a long way to go before our motor industry is fully competitive. I cannot emphasise too strongly that it is the companies, not the Government, who can make reality of the hopes of revival, though we obviously do what we can to help. I believe that there is now, however, a real prospect of a substantial and viable motor manufacturing sector in the United Kingdom for years to come. As I shall explain, the Government's view is that Nissan's coming here, on the right terms—I emphasise to my hon. Friend, on the right terms—would make a major, indeed unique, contribution to that objective.
§ Mr. John SpellarPerhaps the Minister will explain, first, how bringing an extra 200,000 capacity into the country will assist British companies' viability. Secondly, even after the terms are negotiated and the company is established here, what mechanism is there in the Department of Industry to enforce those terms?
§ Mr. ButcherIf the hon. Gentleman will bear with me, I shall try to reach those points as quickly as I can.
I come now to the main subject of the debate tonight—the prospective Nissan investment. A year ago, in the equivalent debate, my hon. Friend the Minister of State, Treasury, then Under-Secretary of State for Industry, set out for the House how the Government saw the Nissan project. Now, one year later, I am glad to have the opportunity to do so again. I make no apology to the House for going over some of the same ground as my hon. Friend did. I do so for two reasons—first, because our overall attitude to Nissan's project is much the same as it was then, and, frankly, because it is in the nature of talks that cover matters of commercial confidentiality that there is not much that I can say to the House on the details of our discussions with the company.
My hon. Friend outlined last year the general reasons why the Government welcomed inward investment and specifically inward investment from Japan. I should like to run through once again why we have welcomed the prospect of a fully-integrated manufacturing operation in the United Kingdom from Japan's second largest motor manufacturer. In particular, I shall explain why we should welcome such a project, despite suggestions from some quarters that it could impede the recovery of present United Kingdom motor manufacturers, including BL. This is an argument which the Government have thought about carefully, but we do not think it valid. On the contrary, we believe that the right Nissan project will be of considerable benefit to the British and European motor industries.
Our industry's doubts about Japanese investment in the United Kingdom are understandable enough. It has had first-hand experience of the competitive strength of Japanese vehicles, in third markets and in Europe and the United Kingdom. Its fear is that allowing a Japanese company to build cars in the United Kingdom could, under certain circumstances, simply provide another route, as my hon. Friend said, for Japanese products to displace its own, avoiding the voluntary restraint exercised by the Japanese industry on direct exports since 1975.
The Government attach importance to the inter-industry talks between the SMMT and JAMA, and would not be prepared to see them undermined by a simple assembly operation in the United Kingdom. We are well aware of the risk that a certain type of investment by a Japanese manufacturer might not benefit the United Kingdom. However, it has always been understood that Nissan's project would amount to a fully integrated manufacturing operation, with high local content. We do not see this as a threat to the United Kingdom motor industry, but rather as an opportunity. Let me explain, in the few minutes that are left, why we take this view.
998 Nissan is the leading Japanese exporter of cars into the United Kingdom, where Datsun cars have become well established. It is the fourth largest motor manufacturer in the world. Its competitive strength, like that of other Japanese vehicle manufacturers, is immense. Previous Japanese investors in the United Kingdom have shown that Japanese management practices and manufacturing techniques do not work only in Japan. They can establish, and have established, highly successful and competitive operations in the United Kingdom with British work forces. These companies have become a part of British industry, as their European and United States predecessors in inward investment have done. There is no doubt that Nissan would be an efficient and highly competent vehicle producer based in the United Kingdom, where the "demonstration effect" of its practices and its competitive edge would provide a valuable stimulus to British industry.
Existing car manufacturers and assemblers are unlikely positively to welcome further competition in the European car market, whether from Nissan or from anyone else, but that is a very different thing from saying that Nissan's coming would not be good for the vehicle manufacturing and assembly industry in the United Kingdom. The question is whether the British industry, including Nissan, would be a stronger or a weaker industry.
This is where the component factor comes in. If a Japanese manufacturer was displacing other domestic manufacturers' sales with cars which had a much lower local content, the net effect on the domestic component industry could be negative, even allowing for displacement of imports and for direct exports. That is why the Government have always insisted on, and Nissan has always proposed, high local content. As my right hon. Friend the Secretary of State for Employment, then Minister for Industry, explained in his original announcement on 29 January 1981, the company's objective would be to produce at 80 per cent. local content, after a build-up from 60 per cent.
I listened carefully to what my hon. Friend said about the difficulty of raising the local content after the event, so to speak. I should like to respond to that matter in greater detail. We do not want a kit assembly operation. We want the engine to be built in that manufacturing facility. The Government would not welcome an assembly operation, or a kit operation from Nissan or anyone else, if that were proposed. This high local commitment will bring new business to the component industry, if we handle the negotiations correctly. It will also bring it valuable new relationships with a sophisticated and demanding customer.
The Question having been proposed after Ten o' clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at twenty-five minutes past Twelve o'clock.