The Effects of Recession Within the British Car Industry - Case Study Example

The effects of recession within the British car industry . and Section # of The weak economy of any country knows no line of control, charging across the world taking its toll in unemployment and bankruptcies. The weak economy can effect adversely on any nation. British car industry is largely run under foreign ownership and they import their working experience from their parent state. Lord Mendelson said that car industry is can no longer be considered as lame duck. However, because of the recession British government is politically unstable. More must to be done to defend the below par car industry, but sees it as part of a good stable scheme to help the British economy weather global recession. To keep the economy intact automotive jobs needs to be preserve as the car industry employs about one million workers so is key element in keeping Britain's economy floating (Abbiss, 2007). "He also said that we need to argue against this to avoid an irremediable loss of capacity, skills and technology." (Abbiss,2007). Critics within the car industry point out rescue package that jobs provided by stake are not up to the standard. Another reason of British car industry recession is those workers who work for dealerships either selling or servicing cars instead of manufacturing them. Due to recession not only industrial relations environment that has changed but the cars are also getting better day by day. In the past cars like Morris Marina Ital and the ghastly Austin Allegro were the horrible and shocking cars in terms of design and construction. There was a time when car industry had 40 percent of British car market that include car, truck and commercial vehicles manufacturers. The group had a confused but prominent range like Jaguar, Rover and Land Rover and best selling Mini, these models were slow to develop so that they can compete with the international car market. Now with the passage of time cars are getting better in terms of design and construction ,the British made models are now getting appreciation for reliability and customer satisfaction. Before the global economy recession British cars were exported in huge numbers. Few British car manufacturers are now ready to claim that these manufacturers should not be aided by government on the fact that most of the British car industry is in foreign hands, and now British car industry is a victim of its own efficiency. In the beginning of the year factories from Sunderland to Swindon were giving out cars at an amazing rate. But slowly and gradually there was hardly anyone to buy them and the car industry had numbers of unsold cars due to the recession (BBC, 2009). Car manufacturers tried their best to attract their customer through their dealerships but they failed to achieve their goal as no one took advantage of this, and now number of vehicles remained unsold. As a result factory shutdowns increased in the country and the downfall of industry started. However, Nissan saved Sunderland after ship building industry buckled, but not others. The effect of recession on car industry is so much that it's production has fell immensely down from 47.5% to 58.7%(vehicles of private use) and from 56.7% to 59.9%(vehicles of commercial use).Therefore to avoid any further loss the Society of Motor Manufacturers and Traders(SMMT) decided to shutdown Ford Aston Martin and Vauxhall for a short period of time while Toyota is also thinking to pause it's production. SMMT also demanded for an assistance of 2.3billion pound by the government. This decision was taken on 20th February 2009 (Hart, 2008). Then Chief executive of Society of Motor Manufacturers and Traders(SMMT) Paul Everitt said that decline in car industry and it's production and the shutdowns of the industry has shown that it is hard to survive without the assistance of government. The effects of recession on car industry has reach to a critical stage, and due to this job cut down has been started for a depressing year 2009.According to a Survey Nissan is eliminating it's 1200 staff members .Like Nissan other car manufacturers are also eliminating their staff.BMW is taking out it's 850 staff members from it's Mini workforce not only this BMW is also thinking to reduce their production. One of the Car industries Honda has announced it's shut down for four months. On the other the big car industries like Toyota, Bentley, Ford is also facing the same problems and have also announced cut down in production as well as in jobs. In 2009 BMW will eliminate other 1000 staff members due to the continuation of global economic crisis. This elimination will be made through abrasion and through some other departures. BMW claimed that its sales is going down with deliveries down on a parity With the 24percent turn down.BMW is hoping to save its labor costs of 628 million dollars this year. The car industries are in a bound and pause by long years of cheap money that have not been invested on cars that people want in a recession. Vauxhall's main industry that is General Motors in USA has announced that it would eliminate its 47,000 workers all over the world so due to this Vauxhall's UK plant has also cut down its workers. Saab a Swedish car firm is thinking to separate from parent group General Motors and to become an independent company. This type of announcements has created a panic in the car industry workers. Another shocking fact is that UK car market share had dropped from 35 to 16 percent (Hart, 2008). The global economic recession has put everyone on to the edge of their seats. Mainly the British car industry is really in a need of financial assistance so that it could be stable in some sense .This assistance can help them to at least stop eliminating the staff ,and to re open the manufacturing units again . The British cart industry has stuck .The funds is in fact holding back but public anger which is at large seems to be disappearing into the black hole of British banking could be diminished . At this stage this financial assistance is little more than a proposal. No definite timeline is being given for distributing the funds. A request has been made to the Chancellor of the Exchequer Alistair Darling by car makers from Britain to develop the strategy for financial assistance. SMMT (the Society of Motor Manufacturers and Traders) have also briefed Chancellor about exceptional financial challenges Britain car Industry is facing and the possible impact of this crunch on the industry in the near future. Business Secretary Lord Mandelson had announced some financial support measure in January 2009. These measures were highly welcomed by SMMT. However, the point highlighted from SMMT was that there is a need of rapid increase in the pace of this support mechanism as it is very slow in comparison to the expected and desired effects. A few members from SMMT urged also to become part of this support program and its methodology so that these current processes can be accelerated. Bank of England was pressurized by SMMT in a meeting to define the processes for the car companies to have access to the bank supported liquidity schemes. This move is justified by SMMT by saying that car purchasing by consumers and corporate would be encouraged by this move, as both of these sectors are looking to others sources to provide credit to them Now, we shall see the effects of recession at the ends of the spectrum Rolls Royce and Vauxhall. Rolls Royce has made itself a world class company, it is known for its world class engine as well as for the stylish look. Modern Rolls Royce has become one of the important symbols for British manufacturing. But due to recession now it is difficult to repeat its success. Rolls Royce has been transformed from British firm to an international firm in a short period of time. Its network is spread over the globe with more than 40% British employees. This percentage was 7% if we see past two decades back. Its ne engine development, research and development are done abroad. Its production factories are located in different countries which helps the carmaker to keep the labor cost down. This strategy of subsidiaries has been successful due to the foreign government support. However, in current financial crisis as world economy has entered into an exigent period, the company is determined to focus on the reduction of cost. The precise effect of this recession on global economy has not yet been gauged, however financial down slump and delays in programs have been experienced are still about to be experienced in recent future. Rolls Royce programs like Airbus A-380 have suffered delays. The downsizing is very much expected in the current year. About 4 percent of the force globally which is around 1500 to 2000 jobs. However the sales are soaring despite of the recession. The overall market growth is about 3% to 4% annually. However, luxury car sales is soaring by hundred percent per year(Pringle, 2009). This luxury car trend is a norm of British luxury car manufacturers. In 2003, more than 300 cars were and the number last year was 1000. Bentley's experienced considerable rise in their sales which were more than 10,000 cars last year. Independent manufacturer like Aston Martin's sold 40 cars in 1994 and the sales of last year were 7,000 cars and are expect hit 10,000 in 2010(Pringle, 2009). The company stands confident and is considering this phase as the Britain car industry rebirth. On the other hand General Motors which is big partner of Vauxhall's in USA has informed congress that it will not be able to survive their business if it does not get financial assistance in billions of dollars to get away with its liabilities (Hart, 2008). Tony Woodley, joint leader of unite said two billion pounds sounds too be big and good but half of this would be taken up by Vauxhall alone, and remaining amount will be for remaining hundreds of components companies. This is ratio of the support or aid being given by almost every other government in Europe (Hopwood, 1998). Is manufacturing industry in Britain over Certainly its long term turn down seems to have speeded up recently. The end of the Vauxhall car factory in Luton-announced just two weeks before Christmas, and three days before the plant's five-week holiday shutdown--was the most striking in a list of closures which included Coats Viyella and the steel company Corus, where thousands of jobs are believed to go in the major South Wales plant of Llanwern. The past year saw jobs balanced back in much of the car industry, including Ford, Rover. The predictable intelligence of both government and union leaders is that such measures are beyond the control of anyone because they are simply the workings of the market. The only role of government, therefore, is to reduce the blow a little, and to continue to provide encouragement for big business to reside in the country even though there is little proof that this makes any difference. This logic of predictability is extended to opposition to any form of conflict. Efforts to display, let only to occupy the plant, are ridiculed as residues of the past which are fated to attain nothing. The apparently inevitable decline of industry is no more convenient than any natural occurrence--or so we are guide to believe (Iancu, 2009) (CNN, 2008). It is important, to be aware at what is really happening, and what its importance is for working class association. The recent wave of closures is frightening, if forecast of a recession in the US economy are right, may be the introduction to a much more severe crisis. However, it is vital not to jump to too many terminations all at once. It is true that after an extended period of comparative stability the car and steel industries in particular have rapidly run into problem because of worldwide overcapacity. Too many cars are being produced for the market to maintain. The car industry in Britain and elsewhere has frequently gone for rationalizing, job losses and 'rationalization' over the last two decades. The outcome has been greater contest and more job losses. The contact of the restructure has already hit Vauxhall but this is not an exclusively UK phenomenon-take an example of the Jaguar corporation is also experiencing major changes but has no plants in the UK (sky news, 2009). General Motors demand for US government aid to a surprising 27.4billion- only months after receiving billions in loans. And the car makers opened astonish new plans for immense job losses and strong reorganization to survive the extending recession. Vauxhall owner General Motors offered a survival plan that calls for a total of 47,000 job losses around the world and closing five more US factories .The largest work strength reduction proclaimed by a US company in the economic render down. Vauxhall currently employs 2,000 people at its Ellesmere Port plant (Massey, 2009). The gloomy reports came as the United Auto Workers union said it had reached an uncertain agreement with GM, Jaguar and Ford on agreement changes. Compromises with the union and debt-holders were a circumstance of the government bailout. GM said it could need up to 21billion from the assets Department, up from an earlier approximation of 12.7billion. That includes 9.4 billion the company has already received. The world's largest car maker has made it clear that it could run out of money by March without any assistance and new funds, and wanted 1.4 billion in this month and another 1.8billion in April. GM chairman said "We have a bundle of work to do; we're still going at this with a great sense of importance." (BBC, 2009). GM's appeal contains a credit line of 5.3billion to be used if the decline is more distinct than expected. But the firm declared it could be beneficial in two years and pay its loans back by 2017 (International Business Times, 2009). The company appeared into three bankruptcy situations, all of which would cost the government more than 21billion, GM chief operating officer Fritz Henderson said. The most horrible situation would cost 70billion because GM's profits would drop strictly, he said. Although not much is known about whether people would purchase cars from a bankrupt car manufacturer, some study suggests that sales fall off a rock face. GM requested 3.5billion in new loans ahead of the 2.8billion it received in December 1.4billion more than expected. Treasury secretary Timothy either, who will direct an Obama government task force evaluating the plans, said his team would analyze the companies' plans and to ask for the full range of input from across the administration. Ford, which rented billions from private sources earlier than credit markets squeezed, has said it can make it through 2009 without government aid. GM plans to trim down the number of models they offer. GM lifted the possibility that its Saturn brand could be staged out and said its Swedish based Saab auxiliary could file bankruptcy this month. The GM job cuts include 10,000 compensated and 37,000 blue-collar positions, totaling to 19% of its present global workforce of 244,500. Jobs outside the US account for 26,000 of the diminutions. The cuts would probably take place by the end of the year, and more would follow. The new plan has the US workforce waning from about 92,000 hourly and compensated employees at the end of last year to 72,000 by 2012 (International Business Times, 2009). Car factory production final conclusions are made years and decades before with lots of arguments and with new cars still in the tube, raw materials, parts and even whole new plants prepared and yet to be paid for, car makers can't slice costs fast enough to match their falling profits. Well there are the jobs; the UK automotive division employs over 850,000, which accounts for 6.2 per cent of UK manufacturing employment. Then there's the trade; automotive activity accounts for 11 per cent of UK manufactured exports, and 13 per cent of manufactured imports. And the money; automotive manufacturing revenue is worth 51billion a year to the UK economy. Like the huge three US car makers and the European Commission, the UK Government is in discussion with Britain's Society of Motor Manufacturers and Traders about possible finance packages for the industry and consumers, to see them through the present crisis, which is a good sign of hope (International Business Times, 2009). References Abbiss, R. (2007). Rolls-Royce from the Inside: The Humour, The Myths, The Truths. Tempus. BBC. (2009). Rolls-Royce bullish in recession. BBC. China Daily. (2009, Fabruary 26). Battered British auto industry sends out SOS. Retrieved March 7, 2009, from China Daily: http://www.chinadaily.com.cn CNN. (2008, November 28). How billions failed to fix UK's car industry. Retrieved March 6, 2009, from CNN: http://edition.cnn.com Field, H. P. (2009). Brand Immortality: How Brands Can Live Long and Prosper . Kogan Page. Hart, R. M. (2008). Recession Storming: Thriving in Downturns through Superior Marketing, Pricing and Product Strategies. CreateSpace. Hopwood, B. (1998). Whatever Happened to the British Motorcycle Industry Haynes Publisher. Iancu, M. (2009, February 2009). Sales Drop, Ford and Vauxhall Increase UK Car Prices. Retrieved March 6, 2009, from autoevolution: http://www.autoevolution.com International Business Times. (2009, March 4). British luxury car makers defy recession. Retrieved March 7, 2009, from International Business Times: http://www.it.ibtimes.com Massey, R. (2009, January 12). thisismoney.co.uk. Retrieved March 2009, 5, from Vauxhall tells story: http://www.thisismoney.co.uk Nolan, H. (2009, March 2). Rolls Royce-Driving Realtors Are Recession's Littlest Victims. Retrieved March 6, 2009, from GAWKER: http://www.gawker.com Pringle, H. (2009). Brand Immortality: How Brands Can Live Long and Prosper. Kogan Page. sky news. (2009, January 12). Vauxhall Company has rejected its report. Retrieved March 5, 2009, from Sky News-Website of the Year: http:www.//news.sky.com Wilson, A. (2009, February 13). Rolls-Royce ready for recession with strong cash reserves. Retrieved March 5, 2009, from telegraph.co.uk: http://www.telegraph.co.uk Read More