My item last week about brighter prospects for car makers looked forlorn by Friday lunchtime, when news bulletins were leading with a quote from one Tony Murphy of the Unite union to the effect that an announcement of 800 job cuts at Honda’s Swindon plant was ‘a hammer blow to UK manufacturing’. This was followed at the weekend by a rather less emphatic response to a press release from Jaguar Land Rover which included news of 800 extra jobs at Solihull, continuing a sustained expansion of its workforce that began two years ago. I was hoping Murphy might declare himself ‘over the moon’, but he left it to his assistant general secretary Tony Burke to issue a pious welcome making play of the fact that JLR is only offering one-year contracts. ‘We hope we can convert them into well-paid, permanent jobs in the future,’ he said. Interesting use of ‘we’ there, Tony — but we won’t achieve that objective if we talk the industry into despair, will we?
British car factories employ 150,000 people — and the wider automotive sector, all the way to your local Kwik Fit, employs 700,000 — so what equated to a transfer of 800 jobs from Wiltshire to the West Midlands was more a flutter in the breeze of globalisation than a ‘hammer blow’. That was just a good phrase for a headline, and one that played to a lazy narrative of irreversible manufacturing decline; reporters couldn’t be bothered to look closer at why Honda’s exports to Europe have been weak while JLR’s sales to China, Russia and the US have been going gangbusters.
The narrative of decline really did ring true a generation ago, however, when the hard men of Unite’s predecessor, the Amalgamated Engineering Union — the likes of Longbridge convenor Derek ‘Red Robbo’ Robinson — held the British car industry by the goolies, and its management had neither the stomach nor the capital for the fight. Now the picture is different: in car and component making (as in aerospace, which still employs 100,000) we have a critical mass of design and engineering skills combined with modern plants that allow us to remain globally competitive despite cheaper labour costs elsewhere. We want and need young people to see exciting futures for themselves in these industries, as apprentices or graduate engineers — and we don’t need union officials putting them off by talking the apocalyptic language of 1975.
Cash mountains
All this talk of hammer blows to manufacturing and massacres in the shopping malls — I’ll come to those in a moment — is one reason why companies have been hoarding cash instead of investing it in new productive capacity. This is a global pattern, to be observed in companies from Apple to Siemens as well as the leaders of the FTSE 100, and in such turbulent economic times it’s not difficult to understand the boardroom mentality behind it. As one fund manager observed, ‘First and foremost, this is not a time for being heroic.’
But the habit is particularly prevalent in the UK, where public companies were reckoned by Deloitte last year to be holding more than £60 billion of ‘excess working capital’, while business investment was running at record low levels. Sitting on cash does not create skilled jobs or inject adrenaline into the wider economy; the hoarding itself is often achieved by delaying payments to smaller suppliers, making survival tougher all the way along the food chain; and research shows that the shares of companies holding excess cash tend to underperform the market, doing no favours for investors and pension funds.
The alternatives of special dividends and share buy-backs are controversial too, and governments can’t force companies to spend their money on machine tools and research laboratories. But they can influence corporate decision-making through large-scale investment tax credits and George Osborne has failed to do that so far, preferring instead to tinker around with marginal measures, some of which have come back to bite him. I’m intrigued by the argument put forward in a recent Prospect article by former Monetary Policy Committee member Adam Posen, who says Osborne should go further, changing governance rules so that cash mountains that are neither invested nor returned to shareholders as dividends over a two-year period are ‘automatically subject to a vote at the AGM’. One thing’s for sure, sustained recovery will only come when companies find both the confidence and the incentive to think bigger and bolder again.
Not-so-blue Tuesday
‘Film bonanza’, begins an email from the cinema manager at what I like to think of as the world-famous Helmsley Arts Centre, cultural hub of my part of Yorkshire. Box-office sales for our new season have been breaking records, and one sell-out extra screening of Skyfall set a new benchmark for online bookings at 55 per cent of the total. Meanwhile, perusing my Amazon account, I see I have shopped there almost once a week for the past twelve months and seven times since Christmas, accumulating piles of (mostly secondhand) books and CDs, regular orders of printer ink, a smart new briefcase and even some bedding.
I tell you all this because, as the snow begins to settle, commerce in the high street — mine and yours, I suspect — looks all but dead. Some shops haven’t bothered to reopen since New Year’s Eve, and probably never will; HMV music stores may soon follow Jessops’ camera shops and Comet’s electrical emporiums towards oblivion. This week began with ‘Blue Monday’, supposedly the most depressing day of the year, and a weather forecast to match. American sources seem to think the low point falls next Monday — but who cares, either way we should all soon start to feel better about the year to come, and to realise that consumers are spending eagerly online if not in person, the best factories are thriving, and investment prospects are selectively improving. Not-so-blue Tuesday is coming.
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