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Ray Hudson
and David Sadler
Manufactured in the UK?
Special steels, motor vehicles
and the politics of industrial
decline
IN 1983, for the first time in modern history, the UK recorded a
balance of trade deficit in manufactured goods : one symptom of
decline as an industrial nation . This long-running process was
accelerated and intensified after 1979 as a central element of the
Conservative political programme - reduction of the state sector
- intermingled with another, encouragement to the private sector's
rationalisation and internationalisation of production in the search
for profitable investment opportunities . These have combined
with the ravages of recession and a powerful ideological offensive
to create and shape a much-changed political climate and industrial structure . The contours of this are still shifting but many of
its main features are now clearly established .
Creating this structure has been a political process and
coming to terms with it poses a number of questions to do with
political choices . What was in practice apparent before 1979, but
has since become blindingly obvious, is that public ownership, or
nationalisation, Morrisonian style, is an inadequate mechanism
to ensure the rational organisation of production and the protection of jobs and communities . Public corporations under both
Labour and Conservative administrations have danced to the
tune of the international market (see Beynon et al, 1986) . A
political strategy for ownership that was once thought of as a
mechanism for at least partially insulating investment, output
and jobs within the UK from the anarchy of international markets
has in practice become the principal mechanism through which
Manufactured in the
Steel production in Britain in the post-war period has consistently
teetered on the brink between publicly and privately owned
sectors of manufacturing . Britain's steel industry has been a
central concern to most party political agendas . Partially nationalised under the 1945-51 Labour administration, it was returned
to private ownership by the incoming Conservative government,
only to be partially re-nationalised in 1967 to form the British
Steel Corporation, from which some assets were sold off to the
private sector by the 1970-74 Conservative administration (see
Bryer et al, 1982 ; Ross, 1965 ; McEachern, 1979, 1980) . The
post-1979 Conservative programme has acted selectively once
again to redefine the ownership pattern of the industry . Employment at BSC has been cut from 186,000 to 54,000 whilst whole
market areas have been sold to the private sector through a series
of joint ventures known as the Phoenix companies (see table 1) .
These involve BSC in partnership with international engineering
conglomerates such as GKN and TI, forming hybrid companies as
a prelude to the Conservative party's long-term aim of denationalisation of the remaining core of UK steel . In the process a new
industrial structure has been created which has enabled companies
such as GKN and TI to continue their policy of internationalising
production and moving down-stream in the production chain,
whilst securing for them a supply of steel at their remaining UK
plants . This is how these changes were described by GKN'S
chairman Sir Trevor Holdsworth in his foreword to the company's
annual report for 1985 :
To crystallise the transformation which has taken place in
the composition of the Group's business over the last two
decades, we think it appropriate and timely to propose a
change in the Company name to 'GKN plc' . The names
`Guest', `Keen' and 'Nettlefolds' are historically linked with
businesses in steel, bolts and nuts and fasteners which have
all now ceased to be part of our mainstream strategy ; the
investments which we retain in steel, whilst important, are
in the form of participation in joint ventures . Our principal
business is now the development and manufacture of
component systems and products for the world's vehicle
industries, and our other core activities are in distribution
and industrial services, with a rapidly developing business
in the design and manufacture of defence products .
Whilst companies such as GKN have diversified and invested
overseas, the reorganisation of steel production in the UK since
1979 has not come about as a result of the unaided efforts of the
private sector. In 1985 the House of Commons Public Accounts
Committee examined the first two Phoenix mergers, Allied Steel
UK?
Forging a new
structure of steel
production
57
how many people are not doing a constructive job or who should
not be on the pay roll .' To hasten the return of the company to
profitability, it was to be re-organised into a number of subsidiary
companies, where profits and losses were more readily identifiable :
Presently, the company is managed on a divisional basis :
this will change as quickly as possible subject to the speed
the lawyers will work . A series of subsidiary companies will
be incorporated . These subsidiary companies will be
independent in terms of management, sales, marketing,
accounting and all the other functions applicable to a
manufacturing company . The local management will be
responsible for the assets under their control . . . Each
managing director with the help of others will be obliged to
report each month in writing on the company for which he is
responsible . . . The purpose of this action is to put the
responsibility where it belongs and no more hiding or
excuses behind the curtains of Head Office .
This restructuring was formally announced in July 1985 and
incorporated changes in the pattern of collective bargaining
arrangements . Ten subsidiary companies each with their own
industrial relations procedures, were to be established, sweeping
away site-based shop steward representation . The two major
sites - Atlas and River Don - were inherited from Firth Brown
and BSc respectively . At the Atlas site five of the new companies
were located but a position of full-time union representative was
to be abolished . ISTC convenor Ronnie Ward recognised the role
played by the new managing director appointed by Mr Kenny :
The first thing he did was to say he doesn't believe in
redundancies, then within weeks he announced two
hundred of what he doesn't believe in . Then he withdrew a
pay offer, terminated the works joint health and safety
committee, and placed two convenors in the `jobs at risk'
category on a redundancy exercise . We approached
management with a request for a replacement part-time
convenor . They said no, and they weren't even interested in
alternative ways of funding the job . It was clear to us then
that this was an attack on the trade union organisation and
not a financial exercise.
After a secret ballot at the Atlas site produced a clear majority
in favour of strike action against these changes, the works came
to a standstill . Taking its tradition of moderation to new extremes,
the ISTC national executive instructed its members to return to
work after indications from the Department of Trade and Industry
that a l Om funding package for the group was being placed in
59
Manufactured in the
1985 . The new company employs 10,000 people at three works in
south Yorkshire and one in north Wales . It is dependent for over
50% of its sales by volume on the motor vehicle industry . Roy
Bishop, ISTC Divisional Officer for south Yorkshire, appreciates
the close relationship between Sheffield steel and the motor
component industry, especially in the West Midlands :
It's only now that people are beginning to realise how closely
connected Sheffield and Birmingham were . Alright, we
used to say Birmingham was the workshop of the world, but
we didn't realise they were using so much of our steel .
This market for special steels has been particularly adversely
affected by recent developments in the motor vehicle industry.
Trading patterns in motor vehicles are indicative of the strength
or weakness of an economy . Japanese global exports, for example,
increased from virtually zero in 1963 to overtake the total of the
four dominant European exporters of the UK, France, West
Germany and Italy in 1980 . By contrast in 1985, the UK's trade
deficit in completed cars and commercial vehicles was 3,200m .
The UK car market is a relatively small one in global terms .
1985 sales amounted to 1 .8 million units against l lm in the USA
and 3 .1m in Japan . Domestic production is further lessened by
import penetration - 58% in the UK against 2% in Japan and 26%
in the USA (table 2) . UK production in 1985 amounted to 1 .05m
units . Motor vehicle production is overwhelmingly an international operation, dominated by a few major multinational
corporations . The UK is strongly integrated into this system of
production and trade, as the recent official opening of the Nissan
factory at Washington emphasised (see Garrahan, 1986) . The
Japanese switch to assembly within Europe and the us presents
new conditions for steel and component producers . Historically
the proportion of components exported from Japan (expressed in
relation to the comparable steel volume exported in cars and
commercial vehicles) has been much lower than that from Europe
and North America . Increased emphasis on overseas assembly
operations by Japanese car manufacturers will tend initially to
increase this proportion . It will decrease again only when and if
local sourcing of vehicle components is introduced .
Within the UK, investigation of the top ten selling cars in
1985 reveals the extent to which cars and components are produced and sourced on an international basis (see table 3) . The
percentage of vehicles imported ranges from nil in the case of the
Austin Metro, Montego and Maestro to 100% of Vauxhall Novas,
64% of Ford Orions, 42% of Ford Escorts, 38% of Ford Fiestas
and Vauxhall Astras, 36% of Vauxhall Cavaliers and 32% of Ford
Sierras . Even the'UK-built' cars incorporate an array of compon-
UK?
61
likely future trends in the average size and weight of motor cars .
Over the decade 1980-90 the manufacturers predicted decreases
in average weight of 9% in Western Europe, 15% in Japan, 17%
in Latin America and 26% in North America - only there did
manufacturers anticipate continued increased demand for smaller
cars . In other parts of the world the main cause of forecast vehicle
weight reduction was the use of lighter materials .
In the mid to late 1970s the pressure on manufacturers to
increase fuel efficiency was so great that vehicle designers considered substitution of lighter materials for steel even if this
meant increasing overall production costs . Today, with fuel
efficiency less of an urgent issue, cost reduction is generally
regarded as a prerequisite for material substitution . The greatest
physical advantage of steel remains its strength and rigidity for
weight . Aluminium is light and corrosion-resistant and in certain
alloy forms has good strength for weight ratios, but is expensive
and difficult to weld . Its main use has been in the casting of
complex parts where it has substituted for iron and non-ferrous
materials rather than steel . Plastics afford greater design freedom,
are corrosion-resistant and often easy to form . However, in their
unreinforced state they have low strength and poor heat resistance,
which is a handicap in the engine area . In their reinforced form
they have found some body applications .
It is not only plastics which are increasingly competitive
against steel . In 1984 GKN announced the successful completion
of tests on a glass fibre and expoxy resin composite (having
discarded carbon fibre) as an alternative to the production of
conventional steel springs used in commercial vehicles . The new
materials produced 50% weight savings and GKN embarked on a
6 .4m investment programme to instal a new plant at Sankey
near Telford capable of making 500,000 springs a year (for a
world market of some 20m commercial vehicle springs annually) .
Production was so automated that only 100 jobs were created . In
1986 GKN also announced that it was to develop and produce
plastic composite suspension systems for cars, up to 70% lighter
than conventional systems, to be commercially available within
five years .
In reponse steel producers have been active in devising a
range of improved quality steels in an attempt to maintain market
shares . A recent development has been dual-phased steel which
combines excellent formability with high strength . There is also a
marked trend towards increased use of galvanised or coated sheet
to offer better corrosion resistance from lighter panels . Increased
sales of four-wheel drive vehicles also raise requirements for
high-grade steel due to the greater engineering involved .
When asked by the iisi in 1983, European manufacturers
63
Manufactured in the
UK?
65
75% by value of all parts used . One of the larger assemblers has
168 primary suppliers, which depend upon 5,500 secondary
sub-contractors, which in turn depend upon 36,000 tertiary
sub-contractors . These, collectively, are the companies now being
encouraged to start overseas production . At the same time their
internationalisation has opened up the prospect of a (limited)
number of joint ventures within Japan by European companies .
SKF of Sweden, for example, established such a venture in 1986
with Koyo Seiko to produce and sell automotive bearings in
Japan . The main shareholder in Koyo Seiko, with a stake of 20%
is Toyota, Japan's largest car manufacturer . Similarly, GKN has
established a company with Mitsubishi Steel Manufacturing to
sell in Japan new composite springs for commercial vehicles
manufactured at GKN Sankey, with the further option of introducing production in Japan later .
The UK motor component industry has been slow to recognise
these trends . The major components suppliers include Lucas,
Chloride, AE, Smith Industries, Armstrong Equipment, Jonas
Woodhead and Unipart . Mr Alan Morris, formerly product
planning manager at Ford, has commented that `many of them
seem to be just sitting around waiting to go out of business' . 5
Whether or not these companies do go out of business (taking
with them more jobs in the UK steel industry if they do) is
dependent upon a number of political decisions to do with the
international production and trade of motor vehicles, components
and steel . In other European countries different production and
trade policies have been adopted towards special steels, sometimes
with contrasting results .
Since the onset of recession in 1974 crude steel production has
fallen generally in the major industrialised countries, whilst in
the global market over-supply has become increasingly apparent
as developing countries continue to expand their steel producing
capacity . Over this period, though, total special steels production
has tended to rise as individual steel companies have restructured
and moved into higher value-added products . This process is not
confined to the industrialised economies - some newlyindustrialising countries such as Brazil and Spain have also been
increasing their special steels output . In the UK, as table 5 shows,
alloy steel production has slumped dramatically in comparison
with other countries . Marginal growth in stainless steel output
has not been sufficient to compensate for this decline . Combining
alloy and stainless steel output in the period 1975-84, the UK was
overtaken by countries as diverse as Brazil, Italy, Spain and
Sweden . This is sharply indicative of the UK's changed position
in the international political and economic order following a
C 6 C
32-E
International
trends in the
production of
special steels
Manufactured in the
UK?
67
69
Manufactured in the
crisis in the coal industry in the 1960s, no such measures were
taken . Not surprisingly, the imposition of production quotas
under the powers of the Commission has proved among the most
contentious aspects of the past few years of steel's continuing
decline . It has served to strain already fraught relations between
steel companies, member state governments and the Commission .
Originally the measures were scheduled to terminate in 1985 .
That they are still partially in force illustrates both the continuing
problems in steel production, and the negotiation of a number of
compromises between the (sometimes reluctant) partners . These
are essential in understanding the context for the future of the UK
steel industry .
Under the terms of the crisis regime, state support for steel
companies has been permitted only in the context of specific
restructuring plans aimed at reducing capacity and restoring
profitability . In theory this gives the Commission the power to
determine the capacity level of individual steel companies, to
back up its allocation of production quotas for each quarter . It
can levy fines on any company which exceeds these quotas . In
practice this power is mediated by the role of respective national
governments . Competing national interests and the trade-offs
which governents are prepared to make with regard to other
issues have been significant influences on the distribution of steel
closures within the EC .
These moves have been made against a background of continuing, even worsening problems of over-capacity in the
European steel industry . In July 1985 the Commission called for
a further 27m tonnes of crude steel capacity to be cut by the end
of the decade . 6 In October 1986 it re-evaluated even these objectives and concluded that `there is still a structural imbalance
between supply and demand and, in view of the restructuring
already undertaken, it might be necessary to introduce changes
in the configuration of the industry going well beyond the envisaged capacity reductions' . 7
Under these circumstances it proved impossible to end the
quota system after 1985, as originally inteded . The European
Commission is keen to push through a phasing-out of controls as
`proof that its system of regulation is satisfactorily resolving the
crisis in the industry . The West German government, which had
initially opposed introduction of the quota system, emerged in
favour of its continuation . To remove quotas, it argued, would
invite a price-war with the state-subsidised competitors pitched
against the big, private, West German steel companies . Other
countries are more concerned to secure an increase in their quota
within the existing system . At the end of October 1985 therefore
temporary agreement was reached in the form of a classic com-
UK?
71
72
Manufactured in the
zero trade balance with the rest of the Community during 1986,
but `this balance should be positive for Spain in 1990' . 8 In other
words Spain is keen to ensure an export market for its steel
industry both within and outside the Community .
There is a further aspect to the EC steel quota regime, one
which has received relatively little attention to date . In 1980 the
West German government only agreed to the quota system provided certain special steels were exempted from the proposals .
Since then quotas have been applied to particular products regardless of the quality of steel . Recently, though, the Commission has
recognised a need to take account of steel grade as well as product
form in its regulation of the European industry . In 1985 it noted
that `the refinement of manufacturing technology in melting
shops and rolling mills that has taken place over the last few years
has made it possible to obtain "ordinary" steels very similar to,
but not as expensive as, "special" steels' . 9 Because the division
between ordinary and special steels is becoming hazier, the crisis
in bulk steel will be transmitted to the special steels sector . The
Commission report concluded that `analysis of the capacities in
the principal subsectrs of the special steel industry shows indeed
a certain risk of over-capacity in the coming years .'
This imposition of quotas since 1980 on the basis of product
rather than grade has left companies free to move up-market into
special steels production in the search for greater sales and profit .
In other words existing special steels producers have been
squeezed from two directions in that competitors are emerging
from amongst the regulated bulk steel producers whilst their
market is not regulated on a basis which gives respect to the grade
of steel they produce . As the quota system limps on after 1985 the
Commission has only just begun to recognise this problem .
It is important to recognise also that the EC could pursue
alternative policies towards steel . Even the most cursory comparison of EC policies towards agriculture and steel unambiguously
confirms this . There is a glaring contrast between its policies to
cut back steel production and employment with scant regard for
the strategic economic and localised social costs of doing so, and
its policies to prop up employment and sustain over-production
in agriculture at virtually any cost . Over 70% of all Community
spending is on agriculture, mostly to pay for surplus food mountains and lakes . While we would not wish to defend the irrationality of the CAP, the enormous difference between policy positions
towards agriculture and steel does emphasise the importance of
political choices in shaping patterns of production and trade .
Why not an EC policy to sustain production and jobs in steel?
uK?
73
76
1.
Chairman's address to the senior management of Sheffield Forgemasters at Sheffield on Tuesday 26 February 1985 .
2.
Quoted in Financial Times, 9 January 1986 .
3.
Quoted in Financial Times, 14 May 1987 .
4 . Rotherham and Wolverhampton Review, house journal of United
Engineering Steels, August 1986 .
5.
Quoted in Financial Times, 16 August 1985 .
6.
General Objectives Steel 1990 COM(85) 450, 31 July 1985 .
Report from the Commission to the Council on the General Objec7.
tives Steel 1990 COM(86) 515, 7 October 1986 .
8.
General Objectives Steel 1990 : position of the Spanish and Portuguese authorities COM(85) 774, 18 December 1985 .
9.
General Objectives Steel 1990 .
Notes
References
77
Table
BSC joint
Company
Shareholdings
Products
50%Bsc
50%GKN
(BSC also has
50%Bsc
50% Johnson
Bsc
BSC 75%
TI 25%
Seamless tube
Bsc 25%
TI 75%
Bsc 25%
Light sections
BSC 50%
Source :
NEDO,
1986
Forgings
Firth Brown
(BSC also holds 50% of 13% unsecured loan stock)
40%
Bright Bar
40%
(Bsc also holds floating rate subordinated loan notes 1993 -43%)
GKN
Camparo 75%
(BSC also holds 100% of unsecured loan stock)
GKN 50%
Engineering steels
Closed die forgings
Table 2 Home produced market share of selected countries' car sales, 1985
USA
Japan
West Germany
UK
France
Italy
Total market
m units
Domestic production
imports
11 .0
74
98
69
42
63
60
26
2
31
58
37
40
3 .1
2 .4
1 .8
1 .8
1 .7
9
Table 3
il
11
t UK content of
British-built units $Components of UK-built crs by country of origin
Model
*Total
UK sales
Percentage
imported
Ford Escort
125,571
41 .96
85
Vauxhall
Cavalier
110,621
35 .88
47 .5
UK: glass, wheels, tyres, paint, steering wheels, soft trim, minor engine parts (e.g .
filters), steel for bodies
Other : 1 .6, 1 .8 engines, estate car panels (Australia); 1 .3 engine (W . Germany) ;
manual gearboxes (Japan), automatics (France)
Ford Fiesta
103,874
38 .35
62 .1
Austin/
MG Metro
100,143
Nil
97
UK:
Ford Sierra
83,807
32 .43
74 .47
UK :
Austin/
MG Montego
61,463
Nil
95
Vauxhall Astra
60,656
38
52 .5
Ford Orion
53,761
63 .58
83 .2
Vauxhall Nova
52,924
N/A
N/A
Austin/
MG Maestro
47,947
95
100
Nil
UK:
all except glass (Belgium), oil coolers (us), and alternators (France)
UK
Et
f''2
n
A
N
N
n
n
1980
millions
1985
1990
World sales
28 .8
31 .9
34 .9
10 .1
10 .3
10 .6
11 .2
11 .5
12 .3
9 .9
7 .2
12 .2
9 .3
12 .9
8 .8
Japan : sales
production
2 .9
7 .0
3 .1
7 .6
3 .4
8 .1