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

  • News Labour MP urges fellow MPs to back bill to curb zero hours contracts tomorrow

    Labour MP urges fellow MPs to back bill to curb zero hours contracts tomorrow

    Tomorrow Clive Efford’s, isn’t the only Private Members Bill that’ll have it’s second reading in the Commons. Another will be the Zero Hours Contract Bill, put forward by Labour MP Ian Mearns. The bill aims to limit the use of zero hours contacts – much in line with Miliband’s speech last week. Mearns has written to his colleagues, urging all who are present for Clive Efford’s NHS bill to stay afterwards and support his bill. He points out that since […]

    Read more →
  • News Scotland Labour to vote against Tory-backed devolution motion

    Labour to vote against Tory-backed devolution motion

    Today, as campaigners and voters are out in force in Rochester and Strood for the by-election, a vote will take place in the House of Commons on the motion brought forward by Tory MP Dominic Raab. The motion is about devolution following the Scottish referendum – it proposes a review of the Barnett formula, and says it will ‘address the West Lothian question’. Although the motion is co-signed by Labour MPs such as Frank Field, Kate Hoey and John Cryer […]

    Read more →
  • News Video This is how Boris Johnson speaks to those who dare to question him

    This is how Boris Johnson speaks to those who dare to question him

    Earlier this week, the Guardian reported that Boris Johnson was considering 90% funding cuts to youth and education schemes. Understandably, Labour Assembly Members wanted to question the Mayor on this, so Andrew Dismore put him on the spot. Boris did not take it well… This man wants to be Prime Minister. He’ll have to get much better at being scrutinised than this…

    Read more →
  • Comment Unlike under this government, there will be no targets for benefit sanctions under Labour

    Unlike under this government, there will be no targets for benefit sanctions under Labour

    This post is written by Rachel Reeves and Stephen Timms This week’s report from Oxfam, Child Poverty Action Group (CPAG), the Church of England and The Trussell Trust makes shocking reading for anyone who believes our welfare state is there to ensure nobody in our society falls into extreme want or deprivation. The Trussell Trust has previously reported that 913,138 people were given three days emergency food and support in 2013-14 – more than ten times as many as in 2009-10. This […]

    Read more →
  • News London PPCs ask Tories and Lib Dems to support NHS bill tomorrow

    London PPCs ask Tories and Lib Dems to support NHS bill tomorrow

    The private members bill, put forward by Clive Efford, which hopes to “halt the rush to privatisation and put patients rather than profits at the heart of our NHS” will be voted on by MPs tomorrow in the House of Commons. Ahead of this vote, the 38 Labour parliamentary candidates in London seats  have written an open letter (the full text of which can be found below) asking the Tory and Lib Dem MPs holding the seats they’re hoping to […]

    Read more →