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

  • Comment Afghanistan was a waste of life and money. Our politics won’t recover until we recognise that

    Afghanistan was a waste of life and money. Our politics won’t recover until we recognise that

    It’s happened many times before. The union flag is pulled down surrounded by anxious British soldiers. They hope the ‘natives’ they’ve handed power to will hold on to a British-friendly kind of order, but are desperate most of all to get home safely. The plaques recording the lives and deaths of fallen comrades are unscrewed and packed up, and a patch of desert goes back to dust. The British military say they have confidence in the Afghan army to hold […]

    Read more →
  • News Government must pay £1.7 Billion sum to EU, say LabourList readers

    Government must pay £1.7 Billion sum to EU, say LabourList readers

    Last Friday, news broke that the EU had recalculated the UK’s contributions to the supra-national organisation – and many people did not react well to discovering we owe another £1.7 billion. It was an “unnacceptable cash grab”, according to Mark Ferguson and new Shadow Europe Minister Pat McFadden voiced his displeasure at how the EU had gone about presenting the bill. Katharina Klebba, meanwhile, said that although this resembled a “bull-in-a-china shop mentality”, it was up to Labour to do […]

    Read more →
  • Comment Remploy – a year after the last closure

    Remploy – a year after the last closure

    A year ago today the last Remploy factory officially shut its doors. That was a sad day for me and thousands of other working people across the country. Since I left school at 16 I’d worked at Remploy Sheffield, starting out work as a welder and in recent years representing fellow workers as a GMB trade union convenor. For a lot of us at Remploy, the factories offered secure employment, the dignity of work and a workplace that understood our […]

    Read more →
  • News Scotland Miliband tells Scottish Labour: “We face a tough fight but no tougher than the fights we have faced in the past.”

    Miliband tells Scottish Labour: “We face a tough fight but no tougher than the fights we have faced in the past.”

    Ed Miliband is at the Scottish Labour Gala Dinner this evening. The atmosphere in the Scottish party is understandably tense following the resignation of Johann Lamont this week, and a poll today which shows the party are 29 points behind the SNP.  Miliband was speaking after Anas Sarwar – who used this evening’s Gala Dinner to announce that he’s standing down as Deputy Leader of Scottish Labour, triggering a Deputy Leadership election. The Labour leader was seeking to rally the […]

    Read more →
  • Featured Scotland Anas Sarwar steps down as Deputy Leader of Scottish Labour

    Anas Sarwar steps down as Deputy Leader of Scottish Labour

    Anas Sarwar has announced he’ll be stepping down as Scottish Labour leader. Speaking at Scottish Labour’s Gala Dinner, Sarwar – who had previously refused to be drawn on whether he’d resign from his post – told attendees at tonight’s dinner that he was triggering a Deputy Leadership contest that will run alongside the leadership contest, but would stay on as interim leader until December 13th. Before tonight’s dinner, he told the Daily Record: “After thinking about it long and hard over […]

    Read more →