Europe Report

Production of Jaguars, like the XJ in Halewood, could move outside of the U. K. if the country fails to adopt the euro.

The U.K. was due to hear on June 9 whether or not the conditions were right for the country’s entry into the European single currency. Whatever the verdict — and the signs are that there will be enough doubt for Chancellor (Treasury Secretary) Gordon Brown to delay any decision — there is little doubt that serious questions remain over the viability of building cars and their components outside the eurozone.

The Warwick Manufacturing Group, which advises Ford subsidiaries Land Rover and Jaguar on such issues as supply chain management, suggests that up to 10,000 supplier jobs are at risk if Britain stays outside the euro.

The warning follows that of Nick Scheele, Ford’s president and chief operating officer, that “any unnecessary delaying in adopting the euro is detrimental to U.K. manufacturing and the many companies that need a stable and competitive landscape.”

Scheele wants the U.K. in the euro by 2006, otherwise he warns of the need to consider a major restructuring of European operations.

Scheele’s words echo those of Carlos Ghosn, Nissan’s chief executive, who said last November at the launch of the U.K.-built Micra that Nissan would have to look very carefully at future investment for further new models (the Almera is due next for replacement) if Britain failed to sign up for the euro.

The irony of this is that the Nissan plant in Sunderland, in the northeast of England, is on the doorstep of Prime Minister Tony Blair’s Sedgefield constituency — and Blair is very pro-euro.

Sunderland employs 5,000 directly and is Europe’s most efficient car plant. But on May 12, in London to kick-off centenary celebrations for subsidiary Vauxhall, GM Chairman and Chief Executive Rick Wagoner pledged the company’s future to the U.K.

“This is a major market for GM and we will continue to build where we sell. We have great confidence in the British market and in our employees here,” he adds.

“There is an issue over Britain’s entry into the euro, but currency fluctuations are only one of a broad range of factors you have to take into account when considering your manufacturing options. In the U.K., the pound against the euro has been up and down but the economic conditions have been generally very good for us.

“Other manufacturers have come out more forcibly on this subject but maybe our global footprint is better then most. The lows in one region are countered by highs in others,” says Wagoner. “Joining the euro would take some uncertainty off the table but it has nothing to do with do-or-die decisions.”

Although Vauxhall stopped manufacturing at its Luton plant last year as part of pan-European capacity reduction, it still makes the Astra, Vectra and V-6 engines at Ellesmere Port on the River Mersey near Liverpool in England’s northwest. Wagoner confirmed that the next Astra would be built there, too.

Toyota, which builds Corolla and Avensis in the U.K. and Honda (Civic and CR-V) have always maintained a diplomatic silence on the issue but are known, off-the-record at least, to generally support the U.K. joining the euro.

The problem for Ford though is that its spending in sterling on European components is relatively high at around 34 percent. At Jaguar that shoots up to 63 percent and for Land Rover the figure is 61 percent. That could mean switching more spending into the eurozone; good news for suppliers already there and bad news for those stuck with billing in sterling.

It might even mean switching some production of Jaguar — which made heavy losses last year — and even Land Rover to other Ford plants. That though is unlikely according to some analysts. A Jaguar wouldn’t be a Jaguar if it wasn’t built in Britain and the complexity of Land Rover production, especially the new Range Rover, would make the value of any move highly dubious.

But there is one glimmer of hope for all suppliers. The Bank of England expects the U.K. economy to improve in the second half of the year, especially for exporters. Why? Well, the pound has been hitting new lows against the euro since early May making it cheaper to export.

Britain can’t play a ‘wait and see’ game forever; decisions on a new European constitution have to be taken and when that is eventually adopted, Britain must embrace Europe more wholeheartedly or forever be left straddling the Atlantic divide.

Before all that happens though, Sweden will have voted in its referendum on joining the euro. This is due in September and latest polls show 50 percent against and only 34 percent in favor of joining.

Sweden’s Prime Minister Goran Persson is, like Blair, in favor of the euro. If he can persuade the Swedes to change their minds, then Blair might take some encouragement.

This article was provided exclusively to Automotive Industries by Interchange, a U.K.-based automotive business agency and consultancy servicing media and corporate clients. Anthony Lewis is a partner in Interchange and can be contacted via e-mail at ajlewis@compuserve.com.