State of British Motor Industry - LRB

[Peter Grace]

Interesting article in the London Review of Books on the state of the British Motor Industry:

"In recent months, car production in Britain has dropped by 59 per cent compared to the same period last year, and the Sunday Times reported in March that 105,000 cars ‘worth an estimated £1 billion are now stockpiled at the Royal Portbury docks near Bristol’... Honda has halted production at Swindon for four months. Bentley has done the same in Crewe. Nissan is cutting 1200 jobs in Sunderland; Mini have announced large-scale redundancies; Toyota has introduced a 10 per cent cut to basic pay; Jaguar Land Rover have instituted a pay freeze."

What is happening at Bristol?

[Peter Grace]

This might help:

LRB · Andrew O’Hagan: A Car of One’s Own

[406Special]

It's not just a tough market here but global as well for new cars and
their associated manufacturers and supply chain partners. I spoke to
a former shift leader at Honda UK (Swindon) last week and he'd been
there fore 15 years, taking redundancy last January when offered the
option.

One thing he said which I find hard to believe is that a Civic costs
less than £2500 to make, including labour. As an example he said a
complete wheel (alloy) and tyre ready to offer up to the car on the
production line is less than £4.50 cost to Honda. If these costs
exclude overhead, marketing, after-sales warranty, then surely
there's still enough margin to offer cars at significantly lower
prices to get more sales. I guess another issue is whether the life
cycle of ownership will reduce to maintain/increase demand or whether
people will simply keep the car longer and lower the cost of
ownership further. Certainly the cost of ownership after purchase is
quite high, given depreciation, fuel, taxes, service and parts.

You may or not know it but the British government is offering tax
payers money to fund £1k discounts for new car sales as long as you
trade in your 10+ year old car (must have owned it more than a year
to stop people buying bangers). The manufacturers are expected to
match the £1k from the Government thus giving a total discount of
£2k. On a small car like a Citroen, Renault, Peugeot, Mazda, Toyota
or say Honda, this represents a significant saving on an average
price of £12-14k range.

I just decided to not buy a new or near new car, but rather one that
was up to 10 years old but with low-ish mileage and good service
record. Most modern cars are well built and able to be used for 150k
miles without issue as long as they are serviced properly and have
stuff like suspension bushes and shock absorbers replaced, clutches
done and normal items fixed when appropriate. I only wanted
something that could be used for trips not involving 4x4 expeditions,
Bristol days out (mostly daily grind stuff) and which was cheap to
own/run for a year or three, but also practical, but not a slug to
drive or uncomfortable. Many choices out there, but finally bought
an 8 year old Alfa 156 Sportwagon 2.4 JTD with low-wish miles for its
age (average less than 9k p.a.) with FSH and well cared for
condition. Does more than 45mpg so far, is very brisk, pretty
comfortable and has no noticeable faults or things not working. Even
has near new tyres, working climate control, fully taxed and no
scratches or history of accidents. The gutsy diesel is only 140bhp
but runs more than 310Nm of torque. Latest 159 has 210bhp and close
to 410Nm from 20v version of same engine. Plenty of fun. Even if I
lose half its value in 2 years of ownership, it will cost me about
22p per mile inclusive of depreciation, fuel, insurance, tax,
service, tyres and about 15% aside for parts. That's about a quarter
of what most people pay for average new cars over 3 years. My wife's
Saab 93 which we bought new early last year (a demo model with £5k
off list) will, over three years, cost a minimum of 40p a mile based
on 20k p.a. The higher the mileage the lower the cost of ownership.
Some higher spec cars cost north of £1 to £1.50 a mile to own due to
depreciation and high running costs.

As a consequence of the auto industry meltdown due to oversupply and
the current economic state, many second hand car prices have begun to
rise here in the UK. Good cars with low miles, FSH and high spec
which were out of reach say 2-5 years ago, represent value to anyone
wanting to buy a replacement vehicle. They are being bought at 1/2
or less of new and represent good value against the equivalent new
car of the same make/model.

Not just in the auto industry, but in the apparel industry, some of
the companies here which do design and outsource manufacturing
(usually far east and China), are suffering. One or two I know
personally, who have decent management and brand strength are down to
4 day weeks and are losing market share. It's a time for strong well
run companies with good brands, plenty of cash and flexibility to
ride the wave to better times. I think the "small is beautiful"
phrase is coming into its own, which augers well for the likes of
Bristol, Morgan, Lotus, Noble and a few others. At least Bristol
haven't expanded the range to include a large SUV or gone down size
to create a Bristol 106 or 111, heaven forbid. I think they should
do more 411 S6's and re-skin the Blenheim into something classically
beautiful and consider a more efficient and economical drive train
from say a BMW 635d as an eco/modern option. I think with that
approach they would have two year waiting list even at never more
than 3 a week!

Clyde

[Rubbond]

I'm afraid yourex-Honda friend has no idea about the prices. There is no
way anyone could supply a wheel and tyre unit at GBP 4.50.
Maybe he got the decimal point wrong? Pop along to your local Quick Fit,
divide their price by at most 2, and thats about what Honda will be paying.
And that's just the tyre.
OEM suppliers earn nothing on tyres, even a loss, and also earn very little
in the replacement market to compensate.
As to the alloy wheel, Aluminium alloy is currently at rock bottom prices of
about GBP 725/MT, (pure Aluminium is more expensive) so at say 10 kg that's
GBP 7.25 just for the metal itself. Two years ago the price was double that,
and you would need to add at least GBP 15 to get to the finished cost price
for the wheel. So I guess he did get the decimal point wrong.
Most people don't realise by the way that so-called light alloy wheels are
hardly any lighter than pressed steel.
I have Land Rovers, and their alloys might be a bit over-engineered for
off-road use, but they are extremely heavy when you have to change one!
You can check out metal prices at the London Metal Exchange on www.lme.com.
Have fun,
Andrew.

[Peter Grace]

I seem to remember hearing that the average car in New Zealand costs the dealer about a third what it costs the consumer to buy. Given that these cars are imported, and that the importer makes a mark-up too, that would suggest that Clyde's finished cost to the manufacturer can't be too far off.

What interested me was that (particularly with Bentley) the impression was given that they already have an inventory, and need no new cars made, or that they are prepared to stop production and wait for the waiting lists to catch up again. As a Bristol owner at the bottom of the food chain, I would not know the answer to this. Maybe Bristol can wait it out.

Surely even an aerospace billionaire has to bring on debt when purchasing a car company, and surely even a small producer of cars has an overhead. If I read it right recently, they have only sold a handful of Fighters. Unless the Blenheim is a bread and butter product, I imagine even a car company with a waiting list is not enjoying the recession. I would have thought, even if three cars a week is enough to keep them busy over the winter, they are hoping things will right themselves quickly.