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1st October 1983, Page 62
1st October 1983
Page 62
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Page 62, 1st October 1983 — .i.--grfflaracfm3 mufs0)7Z
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Which of the following most accurately describes the problem?

by George Malcolm

g foreign could ur downfall

'ORT operators who eign" might be tempted le their policies if they letall a recently )d report on Britain's )mponent and ry manufacturers d by ICC Business I division of Inter iy Comparisons.

:C analysis, based on its ition of 100 companies' s over a three-year

3 April 1982, reveals declining profit margins, -eturns under continuing 3 and no dramatic in sales per employee. a grim picture, but what has it got to do with the haulier who buys foreign vehicles? The answer is not one of simple patriotism. It is one ,n the long-term — of selflnterest and commonsense,

Britain's motor industry — and the truck manufacturing part of it in particular — a decade or so ago was the country's biggest industry. Many hauliers did roaring business on the back of it. Today, much of that business has gone — for the manufacturing industry, and for the hauliers serving it.

It goes like this: foreign truck purchase (with components made outside Britain), loss of sales to British manufacturer, loss of sales to components' producers, reduction in manufacturers' trade, reduction in traffic for the haulage contractor. Think about it!

So let's have a look at some details contained in this report. First, here is a breakdown of the companies involved which reported three years' figures. There were 95 of them, split up . like this: accessories and replacement component manufacturers — 16; bodywork and trim manufacturers — 19; engine component manufacturers — 13; electrical component manufacturers — 11; general component manufacturers — 9; ancillary component manufacturers — 12; steering suspension and axle component manufacturers — 12; steering suspension and axle component manufacturers — 8; and transmission and transmission component manufacturers — 7. The general component manufacturers with sales of £2bn-plus accounted for nearly half of the total reported sales, while the largest company by far, Lucas Industries, represented just under 29 per cent of the combined report turnover. In fact, the general component sub-sector included five of the largest companies in the report.

Then comes the comment which gave rise to my opening remarks (which, incidentally are mine and not the report's): "There is no doubt that the performance of the UK motor components sector has been horrific and has mirrored, if not led, the decline in industrial output in this country."

It draws attention to the fact that of the companies with figures in each of the three years, 28 earned margins of 7.5 per cent or more in 1979/80, compared with only eight companies in 1981/82. Even more alarming, it adds, was the fact that nearly half the companies covered by the report (43) were making losses in the latest year. "In fact, the losses run up by some companies in the past two years must raise questions as to their survival," the report comments.

Predictably, perhaps, it goes on to point out that as has often been stated in the past, the UK motor components industry grew up with the British manufacturers of vehicles (ie, British Leyland and Ford) and it adds: "It is easy to forget that in the early Seventies, the British manufacturers had the dominant share of the home market and were supplied by a components sector geared to meet that demand. At that time, industry in general was buoyant and demand for commercial vehicles (and hence components) was good," With the sharp jump in the oil price and the subsequent inflationary pressures in the economy, the report explains, demand for both private and commercial vehicles was depressed and by the late Seventies, UK manufacturing industry was suffering badly.

Over the same period, it adds, a concentrated effort by the overseas car manufacturers, particularly the Japanese, to export a high proportion of their output led to a dramatic decline in the UK motor industry. By the 1980/81 period, the deepening recession in the UK, the erosion of the manufacturing base, plus the problems at British Leyland, led to the situation where the overseas manufacturers had over half our home market.

Bearing in mind that the UK motor components sector relied heavily on the UK manufacturers, the decrease in the indigenous manufacturers market share seriously affected the components sector. In fact, the report shows that in the 1981-82 period, the industry actually lost money on over £2bn of sales!

Nine companies listed in the report had sales of over E100rn (four had turnovers greater than £350m). Of these, five companies failed to show any growth in sales at all while only Smiths Industries and A.E. showed 14 per cent and 10 per cent respectively.

The top nine companies in terms of turnover were: Lucas Industries (£1186m); A.E. (£441.1m); Chloride Group (£387.7m); Smith Industries (£367.6m); Automotive Products (£298.1m); BBA Group (£130.6m); Borg-Warner (£111.5m); Quinton Hazell (£111.5m); and Armstrong Equipment (£103.9m).

Of these companies, four made losses in the latest year while only one firm earned what could be considered reasonable margins. This was Smiths Industries and the report comments that Smiths has managed to keep profits hovering around the £25/26m level over the past three years through a combination of good management and diversifying into other industries.

The report says that one of the most encouraging features is that Smiths has managed to keep its total debt to capital employed to around 30 per cent. In terms of financing costs, interest accounts for only 151/2 per cent of pre-interest profits in the latest year.

In its final summary, the says: "The companies in tl report have been hit very by a whole list of factors bi their control. It is far too ea say that a reduction of cap earlier or diversification in other markets and product should have taken place sc but the truth of the matter many companies did this yet they still made losses: industry has reduced in siz through cutting out spare capacity and labour, both and indirect, but if the derr not forthcoming then man companies may not be abl survive for very much long High component quality key factor. The report stres that the component suppli must attempt to improve q and provide an efficient se and good products at the r price if they hope to remaii business and return to pro "Given that the componi industry can do this, then t must hope for an upturn in market to ensure the turnn is not short-lived. There is doubt, however, that it will very long and painful haul some companies might no make it," the report conclu