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 Analysis shows where the Greens are the biggest threat to Labour

    Analysis shows where the Greens are the biggest threat to Labour

    The polls have recently shown a rising level of support for the Greens. This poses a big threat to Labour. With the general election fast approaching, Rob Ford, who’s a senior lecturer at the University of Manchester and co-author of Revolt on the Right, has analysed exactly where the threat from the Greens is at its highest. He’s identified 22 seats with the highest amount of people who could move from voting Labour to Green, including current Labour-held seats such as […]

    Read more →
  • News Scotland Labour commit to Home Rule Bill within first 100 days of government

    Labour commit to Home Rule Bill within first 100 days of government

    Margaret Currant, Shadow Scottish Secretary, has today announced that within 100 days of coming into Government, Labour would lay Scotland’s Home Rule Bill in the House of Commons. As well as pledging to do this, Curran has also outlined other devolution priorities. They include: A full review of how Westminster and Scottish Governments can best work together for Scottish people. Bring together Scotland’s council leaders from all parties to decide on a strategy for working together on areas of UK […]

    Read more →
  • Comment Meet Nigel Farage: what UKIP really think about the NHS

    Meet Nigel Farage: what UKIP really think about the NHS

    The fact that UKIP is more Tory than the Tories has been often stated. Nowhere is it more clear that this statement is accurate than on health policy. The General Election will in part be a fight save the NHS. Not just from the Tories, but from UKIP as well. David Cameron’s Tories may have pushed our health service to the brink, but Nigel Farage has never even bothered to hide the fact that he is a cheerleader for increased privatisation, including through charging patients for basic care. Nigel Farage has today defended his Party Secretary who advocates privatisation of […]

    Read more →
  • News Ukip General Secretary compares the NHS to Hitler’s bunker

    Ukip General Secretary compares the NHS to Hitler’s bunker

    Ukip’s General Secretary, Matthew Richardson has called the NHS “the biggest waste of money in the UK”, the Sunday Mirror has uncovered. Richardson was speaking to right-wing activists in Washington DC, and went on to compare the NHS to Nazi Germany. He said “A number I couldn’t possibly imagine when I was younger is now the amount of money that is owed by my country… of course, at the heart of this, the Reichstag bunker of socialism, is the National […]

    Read more →
  • Featured Scotland “The best deal for Scotland is a People’s ScotRail” – Murphy announces rail plans

    “The best deal for Scotland is a People’s ScotRail” – Murphy announces rail plans

    Jim Murphy has announced his preference for a non-profit organisation, People’s Scotrail, running Scotland’s railways. The Scottish Parliament will gain extra powers – devolved through the Smith Agreement – that include allowing a non-profit organisation to bid to run Scotland’s railways. Murphy has backed this idea. This comes after the SNP awarded the contract to a firm run by the Dutch Government – despite Scottish Labour calling for a halt to the ScotRail franchising process until the Scottish Government had more powers post-Smith Commission. Jim […]

    Read more →