Car crash politics: why motor industry matters to Brown

The West Midlands is home to much of Britain’s struggling automotive sector – and also to many of Labour’s tightest marginal seats. Andy McSmith tests the mood

If you are an independent-minded businessman who likes to run things your own way, one thing you do not need now is to be heavily in debt to the banks. There is a horror story circulating among all manufacturers servicing the car industry in the West Midlands about one of their number who is grappling with a heavy overdraft.

The firm, which doesn’t want to be identified, now has a senior employee from the bank camped permanently on their premises, dispensing advice, at a costof £150 an hour. The bank says this serves their client’s interest. It says the bank official is not a “snoop” but part of a “support team” – but that’s not how others see it.

Phil Yates, managing director of Sorion Electronics in the Ladywood area of Birmingham, is one of the struggling firm’s suppliers, and would be happier if the hefty bank fees were spent on buying software instead.

“When a firm is already in debt they don’t need the bank adding to it,” Mr Yates insisted. “The banks are changing the rules because they’ve been hit by someone else and they have to recover the money they have lost by getting it from firms that are still trading.”

At the time of the last census, in 2001, one fifth of the working population of the West Midlands were employed in the factories and workshops that dot the region. About one manufacturing job in seven in the whole of England is concentrated in this one part of the country. Figures of that accuracy are not available today, but there’s no doubt that, in recent years, the number has dropped by tens of thousands. And things have recently become a lot worse. About a thousand people in the West Midlands have lost their jobs each week since the credit crunch began. A disproportionately high number were in the small manufacturing firms which supply the car industry. According to the Birmingham Chamber of Commerce, another business goes bust “almost every day”.

Sorion is one of the survivors, even though 90 per cent of its business comes from motor manufacturing. Prospects looked grim late last year but have been revived by a big order from the US for the complicated electronic gadgetry that is now fitted in the passenger seats of top-of-the-range cars.

But Unite, Britain’s main manufacturing trade union, is warning that there are far too many of these small firms either shedding staff or going out of business, and the number will accelerate if, as feared, one of the major car manufacturers goes under.

Apart from the huge variety of industrial skills that could be permanently lost, there’s the personal hardship of those turned out of work with little prospect of finding another job in manufacturing and very little redundancy pay. Unlike the main car manufacturers, the small firms can’t afford generous pay-offs and some long-serving staff are collecting as little as £7,000. The Unite union’s national officer for the motor industry, Roger Maddison, spent yesterday trying to secure better redundancy terms for 550 employees sacked by the engineering firm GKN. He warned: “While the car industry contracts, the components industry is going to suffer even more. Our job used to be mainly about negotiating better pay. Now all our members want is job security. But how do you give them that?”

It’s not just the attitudes of the banks that make manufacturers nervous. So much work is outsourced that at any time the profusion of small firms living off the car industry owe one another millions. So if one goes out of business the effect is felt all along the chain. One supplier recently set up a new department with four staff working full time checking on the financial state of the other firms with which it trades.

This is also a particular problem for EC Williams, a long-established family firm in Birmingham who classify themselves as “fourth-tier” suppliers – meaning that they make metal parts for the firms that supply other firms, who supply yet other firms who supply components for the car makers. Until recently half their work came along this long chain. Now, turnover is down to 30 per cent of what it was and little more than a quarter of that comes from the motor industry.

“If my customer’s customer goes bump then all of the credit I have extended to my customer is at risk,” EC Williams’ managing director, Henrick Skouby, said. “We have £480,000 worth out at the moment. We need a cheaper and safer way of insuring it, because if a customer goes bust, I’ll get back about a penny in the pound and not this side of Christmas.”

One good reason for the Government to focus carefully on these problems is the large number of vulnerable Labour seats in the region – the opinion polls suggest that 10 West Midland Labour MPs will be replaced at the next election by Conservatives. One of the most vulnerable is the Home Secretary, Jacqui Smith. She represents Redditch, just outside Birmingham, which is home to many car workers at MG Rover’s Longbridge plant. In 2005 she scraped home with a majority of 2,716. A swing of less than 3.5 per cent to the Conservatives would eject her from office. Even so, her position is safer than that of Lynda Waltho, Labour MP for Stourbridge, whose majority is only 407.

John Sloyan is managing director of AE Harris, a small engineering firm in Birmingham, which 10 years ago had 175 employees but now has 40. The firm has been trying to diversify, which requires investment in new equipment. Normally that would attract government support. Mr Sloyan was turned down by local government agencies, and his appeal to Peter Mandelson at the Department of Business three months ago has received no answer. “You would think that in today’s environment, when manufacturing is on its knees, the Government would be keener than ever to make this sort of grant,” he said.

“I have no doubt Labour will suffer in this recession, big time. It’s not their fault – its global. But the way they are presenting themselves to the public is being very poorly managed.”

Car slowdown: How the area has suffered

As car industries from Detroit to Tokyo are sent reeling, in the UK the West Midlands is taking the worst of the blow. This week BMW laid off 850 at its Mini factory in Cowley, Oxfordshire. A day later, GKN, the biggest component maker, said it would axe 564 UK jobs. Its four factories – two in Birmingham, one in Walsall, one in Telford – are all already working on reduced hours. In Birmingham, two of Jaguar Land-Rover’s three UK factories have borne the brunt of cuts in which 500 left voluntarily before Christmas. In Graydon, Warwickshire, Aston Martin cut 600 positions, around a third of the workforce, in December. The major carmakers are just the most visible sign of devastation. The UK motor industry supports 200,000 jobs, of which 75,000 work for component firms. Some 50,000 of those are based in the West Midlands, and all are suffering.

Sarah Arnott