Bombardier’s supply chain – the wider lessons

September 6, 2011 5:25 pm

Javelin TrainThe Duncan Weldon Economics Matters column

Two month’s ago Canadian owned Bombardier announced 1,400 job losses at it’s Derby plant, following the award of the Thameslink rolling stock contract to German owned Siemens.

At the time there was widespread concern about how this would impact the wider supply chain. Thanks to a survey of 125 UK companies carried out Survation for Unite we now have a better idea. The results make for grim reading.

40.6% of the firms surveyed are now planning to cut jobs, 32% say that awarding the contract to Siemens over Bombardier will substantially impact their sales and 19.2% believe it will substantially hurt their overall growth.

Small and medium sized businesses are being disproportionately affected with 65.6% of surveyed SMEs reporting they don’t supply Siemens against a survey average of 53.6%.

Although the job losses are concentrated in the West Midlands they are widespread and expected in locations as diverse as the North East of England and the South of Wales. This useful map summarises the results.

Against a backdrop of falling manufacturing production generally this is terrible news.

Professor Karel Williams, of Manchester Business School, raises an important point as to why this was allowed to happen in today’s Independent:

“The Thameslink contract was a public procurement contract in the Private Finance Initiative (PFI) style which covered the building of carriages, their maintenance, plus the lease finance. Because the contract “bundled” train building and rolling stock finance together, judgements about which company could build better and cheaper trains were contaminated by the question of who could raise lease financing more cheaply. There never was a level playing field because Siemens had an A+ credit rating against Bombardier’s BB+, giving Siemens a finance cost advantage of maybe £700 million.”

In other words this was never a fair competion.

The full report from Manchester University’s CRESC research centre, released in July, is well worth a read.

The report reminds us of how withered the UK rail supply chain has become by comparison with Germany. In the UK only around 25% of intermediate inputs are sourced domestically against 55% in Germany.

One result of this is that regardless of whether the contract had gone to Siemens or Bombardier much of the actual value (in terms of compenents needed for the rolling stock) would have flowed to Germany – the UK simply lacks the wider supply chain to retain value domestically.

Of course awarding the contract to Siemens, as the Unite research demonstrates, will simply lead to an even greater contraction in the UK supply chain – meaning that in future even more of the value of UK rail contracts ends up in German (or French) GDP rather than our own.

As CRESC ask:

“In the UK who is it that actually believes that the decision to award the contract to Siemens was a good idea? When even the Coalition ministers responsible distance themselves from the decision, the answer is very, very few. Actor Hugh Grant admirably caught the state of national confusion on BBC’s Question time: “I’m sure it makes sense economically” he said, “but it’s just so depressing” (Financial Times, Andrew Hill, 8th July 20113). Large numbers of our politicians and civil servants share Grant’s confusion. They’re depressed too, but like Grant (and with a great deal less excuse) they have also persuaded themselves that “it makes sense economically”.

In this paper we’ve shown that it doesn’t “make sense economically”.”

This wider malaise in UK supply chains can be clearly demonstrated by looking at JCB. 36% of the parts used in a JCB are made in Britain. In 1979 96% of the parts were British made. There too a supply chain has simply died.

It is hardly surprising therefore that JCB’s owner is now calling on the UK government to look once again to the lessons that can be learned in Germany – in terms of banking reform, skills policy and structures.

A fresh look at the ‘German approach’ coupled with a review of PFI and procurement regulations would be a good start to a new industrial agenda.

Comments are closed

Latest

  • Featured Labour must embrace Proportional Representation

    Labour must embrace Proportional Representation

    Britain no longer has a natural party of government. Yesterdays Ashcroft poll giving Labour and the Tories a combined vote share of 59% is an all time record low for the two main parties. In 1951 they secured 98% of the vote between them. Its been downhill ever since. Why and what does it mean for Labour and the future of our politics? Two earthquakes have transformed the political landscape since the era in which only two tribes went to […]

    Read more →
  • News Video The racist European party who will save UKIP £1m a year

    The racist European party who will save UKIP £1m a year

    Last week, UKIP’s grouping in the European Parliament was forced to dissolve after an MEP from Latvia decided to leave, meaning they no longer had members from enough countries to continue. This would have cost UKIP around £1 million a year in public funding. Fortunately, a Polish MEP has agreed to join Farage’s Europe for Free and Direct Democracy group (EFDD), and restore UKIP’s lucrative funding. Unfortunately, it appears he is absolutely awful. New EFDD recruit Robert Iwaszkiewicz has praised […]

    Read more →
  • Comment What will Labour do about this deadly epidemic?

    What will Labour do about this deadly epidemic?

    There’s an epidemic sweeping the world. It destroys families, snuffs out hope and opportunity and hurts those who least deserve a painful death. I’m not talking about Ebola (though that’s an unspeakably horrifying plague), nor am I talking about Malaria or TB (both of which cause a death toll that dwarves Ebola every single year). I’m talking about something that kills every five minutes. Violence against children. Unicef UK have a new report out today (“Children in Danger”) that highlights […]

    Read more →
  • Comment The UKIP Calypso should be number one

    The UKIP Calypso should be number one

    On the 1st March 1945, a reggae legend was born. Two years later, on the 1st March 1947, Mike Read was born. Unfortunately, a birthday is no longer the only thing that connects Mike Read and multiple Grammy-winner Burning Spear. They are now both purveyors of politically charged Afro-Carribean songs about independence. By now, you should all be aware of the new UKIP single. Sung by former Radio One disc jockey Mike Read, it is a rare foray by the […]

    Read more →
  • News What does the new Shadow Europe Minister mean for Labour’s position on free movement

    What does the new Shadow Europe Minister mean for Labour’s position on free movement

    The biggest story of last night’s mini-reshuffle was the return of Pat McFadden to Labour’s frontbenches, as Shadow Europe Minister, four years after he left his post at Shadow Business, Innovation and Skills. While much has been made of his Blairite credentials, what may be more interesting is his position on free movement within the EU. The Labour Party has been talking a lot about “fair movement, not free movement” in the EU – most recently Shadow Immigration minister Dave […]

    Read more →
7ads6x98y