Professor Lord Bhattacharyya, chairman of WMG, the industrial research and education group based at the University of Warwick, analyses the West Midlands manufacturing and automotive sector.
It’s proved a challenging start to 2016 for the West Midlands’ four leading businesses – Jaguar Land Rover, Rolls-Royce Aerospace, GKN and JCB. Indeed, the manufacturing industry has been facing a number of difficulties – the crisis in the commodities sector, falling oil prices, a decline in the previous rapid growth in the Chinese market and fallout from the West’s troubled relationship with Russia.
But investment levels and improved efficiency should go towards another year of progress. After all, the West Midlands’ export surplus with China was £2.76bn in 2014. It was the only region running such a surplus, sending out £5.3bn worth of goods, up 32%, and importing just £2.5bn. And UK car sales rose 6.3% during 2015 to reach an all-time high of 2.63 million units, with JLR registering 100,787 vehicles, up from 82,845 a year earlier. JLR global vehicle sales were up 5% to 487,065.
Quite a success story. For the Big Four, though, it’s been a mixed picture. Rolls-Royce Aerospace has been conducting a review of its business which it said was likely to involve job losses among its 2,000 senior managers. It had previously announced 3,600 job cuts across the group. The company said it had been badly affected by a decline in its main aircraft engine business, with profits from supplying spare parts and servicing having fallen significantly. In addition, sales of engines for corporate jets had declined sharply. And the low price of oil had taken a heavy toll on the marine engine business, largely because of falling demand from offshore energy companies. Even so, Rolls-Royce is an icon and it will again be highly profitable and a world class company.
Demand for JCB equipment has been tumbling in China, Brazil, Russia and parts of Europe. Even strong growth in the UK and North America softened towards the end of 2015 due to a fall in market confidence that pushed oil prices and commodity prices to post-crash lows. Only union agreement on short-time working was sufficient to stave off compulsory job losses.
GKN maintained progress, reporting 2% organic growth, “in spite of the tougher economic environment”. Military aerospace and agricultural equipment were in decline, though other markets remained robust.
Jaguar Land Rover is on the front foot bolstered by heavy investment and new models, despite sales issues in China. The company, with its main West Midlands sites in Solihull and Castle Bromwich, and others in Whitley, Gaydon and Halewood in Liverpool, employs 35,000 people globally, and supports more than 210,000 UK jobs through the supply chain, dealer network and wider economy.
JLR is investing more than ever before in new technologies and facilities. In the financial year to the end of March 2016 the business will have spent over £3.5bn on research and development and product design, launching 12 major new products. The company’s strategy will see 50 new and current model upgrades over the next five years.
At WMG, we are a significant technology partner of JLR and its commitment to advanced research, technology and innovation will continue to pay dividends. Up to 28,000 jobs are expected to be created in the supply chain over the next five years, according to the Society of Motor Manufacturers and Traders – for every new job in a vehicle plant, on average between three and five are created in the wider economy.
The SMMT estimates British car production is set to reach a record two million vehicles annually by 2020 – a 33% increase on the current 1.5 million. Automotive Council figures also reveal that 41% of the average UK-built vehicle is now locally-sourced – up from 36% in 2011.
And it’s reckoned that up to 80% of the components that go into any car being built in the UK could be produced here, meaning the potential for supply chain growth could be as high as £4bn.
We are already seeing major examples of components companies moving forward, such as Brose, Sertec and Hadley Group to name just three. The new £35m Brose factory in Coventry will double UK production capacity. Over 300 people have been recruited to work in the new centre, which will produce more than half a million lightweight rear seat systems for JLR every year. This latest recruitment drive means the mechatronic systems and electric motors specialist now employs 900 people locally.
The site in Colliery Lane, Exhall will be home to the entire seating systems operation with the window regulator side of the business housed at its existing site in Courtaulds Way, near Coventry centre. This puts the German family-owned company in an ideal position to complete existing contracts with JLR, Nissan and Toyota, whilst also looking to secure work on new model platforms.
Coleshill-headquartered Sertec continues to grow having created more than 300 jobs in 2015, increasing turnover beyond £200m for the first time in its history. Sertec specialises in a range of steel and aluminium manipulation and assembly processes including transfer and progression presswork, tube manipulation, wire forming, deep drawing, welded and self-piercing riveted components.
The 1,200-strong business, which has five manufacturing sites in the Midlands, plus a tooling operation in China, says it’s experienced significant demand from clients, the largest of which is JLR. The company, established in 1962, has developed a particular expertise in aluminium weld technology and has invested heavily in robotic plant and equipment for the lightweight platforms for customers’ vehicles.
Smethwick’s Hadley Group, the UK’s largest cold roll formed sections manufacturer, has pushed on, recently acquiring Holland’s Overeem to strengthen its global reach and support growth in the automotive sector. Overeem, which was founded 85 years ago, has more than 60 employees and a turnover of £11.2m. Hadley Group itself employs around 550 people worldwide, with premises in Dubai, Germany, Thailand and a small office in France. It has revenues of more than £100m and reported profits of £6.5m in the financial year to April 30, 2015.
But back to JLR on which so much of this supply chain advance depends. In 2015, JLR announced plans to double the size of its engine plant in Wolverhampton as part of a £450m expansion. Total investment there has now topped £1bn, with the latest injection expected to create “several hundred” jobs, extending the site by 2.1 million sq ft.
The facility makes JLR’s low emission Ingenium engine, initially launched in the Jaguar XE in April 2015 and also used in the Discovery Sport model. JLR plans a £1bn manufacturing facility in the city of Nitra, western Slovakia. The factory will have an initial capacity of 150,000 vehicles and construction will commence this year. It will eventually employ around 2,800 people and make a range of all-new aluminium vehicles. The first cars are expected to roll off the production line in late 2018.
JLR has also agreed a manufacturing partnership with Magna Steyr, an operating unit of Magna International, which will see it produce vehicles at a plant in Graz, Austria. And it is to build a new facility on a former RAF airfield in Warwickshire. JLR bought the 200-acre Honiley Airfield in Fen End, Wroxall, in 2014 where it currently runs heritage driving experiences. It’s planning to construct a 191,600 sq ft vehicle operations building on the land, housing workshops, paint booths and offices.
JLR also unveiled plans to double its advanced engineering and design centre at Whitley. And in March last year the group also completed the acquisition of an additional 62 acres, adding the equivalent of 30 football pitches to the facility. It’s now holding consultations with Coventry City Council on proposals which could result in a new campus development. JLR is expected to occupy half of the site, while the remaining space will be filled by tier one suppliers.
Meanwhile, a new £150m National Automotive Innovation Centre (NAIC) will open at the University of Warwick in spring 2017. The aim of all this is for JLR to produce one million cars by the end of the decade.
In terms of models, 2016 will see JLR’s first 4x4, a sports utility vehicle crossover, to be built at the Land Rover factory in Solihull. Named the F-PACE, it’s designed to appeal to both dads and mums on the school run, and will go up against the Porsche Macan and the BMW X4.
The most notable model in 2015 was definitely the new baby Jag, the XE. It marked the Jaguar brand’s return to the compact executive car segment, probably the most competitive sector worldwide, where the likes of the BMW 3 Series, Audi A4 and Mercedes C-Class traditionally hold sway. It was launched as a result of around £1.5bn worth of investment in a new factory within Land Rover’s Solihull plant. The XE is arguably the group’s most important model ever and has seen the creation of 1,700 jobs, while the F-PACE will add another 1,300.
For the year to 31 March, 2015, JLR sold 462,209 vehicles around the world, generating revenue of £21.8bn, £2.4bn up on the previous year. Pre-tax profit rose to £2.6bn, up £113m. And across the whole of 2015, JLR produced more than 500,000 cars and commercial vehicles at its three UK car factories.
In the past five years, Jaguar Land Rover has tripled its turnover and doubled its workforce, which is all great news for a sector transformed for the better.