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Can the older auto industry locations survive?

Several years ago I had occasion to visit a manufacturer of commercial vehicle brakes in their factory outside Bristol in the UK. The factory was visibly old, in parts verging on the decrepit. It transpired that the factory had, between 1907 and 1957, been the home of Douglas motorcycles, albeit with gaps in production during the 1914-18 and 1939-45 wars.

It is a relatively common story across the older automotive industry production locations. Underneath the corporate turmoil, the mergers and acquisitions, the restructuring and shifts in product portfolios, there is a surprising degree of continuity.

Fast forward now to June 2010, and the announcement by the East Midlands Development Agency (EMDA) that the burgeoning Chinese OEM Changan Automobile is to establish a UK research and development centre in Nottingham, thereby creating up to 200 jobs.

It is pertinent to ask why Changan Automobile should want to invest in such a facility in the UK, or indeed anywhere outside China

It is pertinent to ask why Changan Automobile should want to invest in such a facility in the UK, or indeed anywhere outside China. Its domestic base has a large supply of engineering talent, generally speaking at rather lower cost than people in the older auto industry locations. Moreover, many of the leading global component suppliers have significant operations in China, and are increasingly used to working with Chinese OEMs.

As was seen in the case of the Tata Nano, it is entirely possible for an OEM from outside the older auto industry locations to work with such suppliers, and indeed to develop innovations that would not have been found elsewhere. Moreover, while such investments as this by Changan Automobile may be seen as politically expedient in terms of smoothing market entry as the Japanese OEMs have done to such good effect in North America and Europe, at present Changan Automobile does not have a market presence.

The answer probably resides in the dense network of auto industry related companies in the region, bound together by a deep pool of skilled and experienced labour. There is richness and diversity to this human and physical capital that cannot be easily and rapidly replicated in other locations, even though actual production may accelerate surprisingly quickly. This characteristic richness is particularly important for innovation, which in turn is vital to long-term competitiveness in the auto industry. Changan Automobile clearly understands this fundamental truth.

All of which brings the story back to Douglas Motorcycles and the factory near Bristol. To be sure, it might have been better if the original factory business had continued to prosper and flourish like a UK version of Honda. But the underlying fabric that supported Douglas Motorcycles, and that is a key element of those mature industrial regions that apparently face relentless decline, is also the principle reason why the hollowing out of manufacturing is far from inevitable. This is even more the case as the automotive industry embarks upon a radical transformation into new technologies and new business models suited to the low-carbon era.

The answer probably resides in the dense network of auto industry related companies in the region, bound together by a deep pool of skilled and experienced labour

Perhaps not every older region will succeed in participating in this transformation, but there is every prospect that some will continue to be leading hubs for the automotive industry no matter what happens in China, India or any other emergent production location.

Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com’s sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.