An advanced manufacturing hub designed to grow the automotive supply chain in Birmingham is one of six new economic zones chosen by the city to receive multimillion pound investments.
The Advanced Manufacturing hub is the first of the zones to be marketed to investors, and has plots available for immediate development.
The Government is focusing its efforts on the automotive, aerospace and life science sectors as part of its long-term industrial strategy announced by Business Secretary Vince Cable two weeks ago.
With Jaguar Land Rover reaping the rewards of popular new models such as the Evoque and BMW increasing production at its engine factory, the Government and local council are seeking to keep more value in the UK by building up the supply chain.
Around 30% of all vehicles produced in the UK could be stamped with a ‘Made in Birmingham’ logo and today’s announcement coincides with figures from the Society of Motor Manufacturers and Traders that put the sector on course to break all-time manufacturing records by the end of 2015.
The confidence is fuelled by multi-billion pound investments committed to the country over the past 18 months that will see production expanded, new models introduced and thousands more people employed.
Dr Ralf Speth, CEO of Jaguar Land Rover, which plans to increase production from 300,000 units per year to 500,000 in the next few years, commented that British skills and attitudes had contributed to the decision to locate a new engine factory in the West Midlands and that it was working with UK suppliers to increase the contribution of locally manufactured of parts to the company.
To encourage relocation and expansion of tier one and two automotive companies to the region, £15million has already been spent on securing the land and planning consent, with another £5million being spent on the surrounding infrastructure.
Waheed Nazir, director of regeneration at Birmingham City Council, told The Manufacturer that establishing the hub will be a “big order that will take between 10 to 15 years to build and occupy.”
The site’s development has been fast tracked because of a higher than expected demand from manufacturers after JLR’s large investment in the region (including a £370m upgrade of its UK facilities that was announced earlier this month) brought confidence to a once insecure UK automotive sector.
“Companies have got premises they haven’t invested in for years but now need to increase capacity and improve processes to meet contracts secured with JLR and other companies,” said Mr Nazir.
Birmingham City Council projects that the hub will create 3,000 jobs but the actual amount is likely to be a lot lower as manufacturers look to automate more processes, particularly in high-cost countries such as the UK.
John Leech, head of automotive at corporate finance firm KPMG, told The Manufacturer that 50% of all parts used in cars made in the UK come from Japan, but the strengthening of the yen against the pound has doubled the price that companies have to pay for half of their components. This has led many manufacturers to seek out British suppliers after 10 years of stability.
“The cost of parts from Japan has doubled. People often cite labour costs as a reason for sending work abroad but labour only accounts for 5% of the car’s costs,” said Mr Leech. “Currency exchange is a much bigger issue and has a bigger impact on costs.”
Out of all the car makers with factories in the UK, JLR has the largest Midlands supply base (around 25%), but Leech says that the low levels of local components used in UK-made cars will be a thing of the past.
A recent supply chain survey carried out by the Department for Business, Innovation and Skills identified more than £3bn worth of opportunities for domestic automotive suppliers and overseas companies wanting to invest in new facilities in the UK.
The Government survey identified key components such as engine castings and forgings, steering systems, trim interiors, vehicle upholstery, electronics and tyres, that vehicle manufacturers are looking to source in the UK to support new and existing model programmes.
SMEs crave access to the OEMs and the OEMs are fans of hubs such as this due to the exchange of innovation, reduced lead times (as they are typically located nearby) and logistics.
Birmingham City Council has selected the automotive sector as its ace in the pack, and with a number of cities (including Birmingham) set to be given more financial independence from central government, Mr Nazir predicts a situation that will encourage regions to compete for business and lure international trade.
Mr Nazir sums up that “councils will have greater freedom and power to determine how they want to use and spend local money and set up independent business rates to invest in its priorities.”
The mark has been set, and Birmingham are the first on the grid to build up an automotive supply base that previously neglected for so long.