The Future for British Car Exports

By SIR DONALD STOKES*

DURING 1964 the total value of exports fjom the motor industry was some £740 million, the biggest single contribution by any one in- dustry to the country's export achievement. To evaluate the possibilities of expanding this figure during the present year and in the foreseeable future it is essential to analyse the destination of our products to see what the current situation and market prospects are in the individual areas.

The Commonwealth, for example, which was the industry's largest single market area during the ten years following the war, has fallen back considerably. In 1956 the Commonwealth took 58 per cent of our exports, but this fell to 30 per cent in 1964. Australia, for example, a large and expanding market which took 16 per cent in 1954, took only 8 per cent last year. This diminishing trend is now decelerating, but one cannot be too sanguine about the increasing com- petition from other countries, particularly from Japan, which is making great efforts in Australia.

On the other hand, sales to Europe are boom- ing, and it is now the largest market for British vehicles, accounting for 40 per cent of our ex- ports in 1964, having increased from 25 per cent in 1958. Not surprisingly, the European Free Trade Area still takes the majority of these vehicles, but its recent growth and potential are less than that of the European Common Market. In 1959, 13 per cent of British vehicle exports went to EFTA, and 8 per cent to the EEC. But by last year the respective percentages were 17 per cent and 16 per cent.

Prospects in both these economic areas are still good, and Europe is likely to remain our largest customer. Although tariff disadvantages are increasing in the EEC, and we should be much happier if the United Kingdom were able to join this community, demand is still high in all countries for British vehicles. Sports cars, for example, have a steady and expanding market, particularly in France and Germany, where neither of the native motor industries seem * Deputy Chairman and Managing Director of the Leyland Motor Corporation. capable of producing a prestigious product of this kind at a competitive price.

As the tariff disadvantages increase further- more, so those British companies with assembly plants in the EEC come more and more into their pwn. Under this arrangement, companies are able to import vehicles in knocked-down form, assemble them with increasing quantities of locally manufactured content, and of course using local labour, and then re-export them to other parts of the Common Market at reduced tariffs. Belgium is rapidly building up a very flourishing motor industry of her own based on assembly plants of this kind, and there is no sign of this trend slackening. There seems to be no reason why we should not sell goods to the value of between £125 million and f130 million in the Common Market this year, which could well be increased by a further £10 million in 1966.

The industry is registering similar progress in EFTA, where last year sales were 14 per cent higher than in 1963. Although there are one or two tariff anomalies, the advantages of belonging to a widespread economic community are already being felt, and there are signs of preference being shown for British cars in EFTA countries over those produced in France,- Germany and Italy. Furthermore, in my own group we have already signed contracts in anticipation of the time, when, in July 1967, tariffs between EFTA members will disappear altogether. Although we are con- fident that these contracts have been awarded to us because of our reputation for quality and reliability, it is no mean factor that no duty will have to be paid. Good examples arc the contract which Standard-Triumph has signed to supply Saab with car engines up to a value of £5 million per annum, and Leyland Motors' con- tract to supply £2,500,000 worth of buses to Stockholm Municipal Transport. We estimate that sales by the British motor industry to EFTA this year could reach £130 million and perhaps f140 million in 1966.

So far as the Americas are concerned, we can largely discount Latin America, which is domin-

ated by the United States, Americans having invested large sums in assembly and manufae• turing plants; and where balance of payment problems prevent major increases in vehicle pur• chases from this country.

In the US, however, we have a good market, although current prospects, are rather challeng' ing, with increased competition coming from the new American sports-type cars. Our exports to the area were increased by 10 per cent in 1964, and although there are increases in competition in the market, we hope to make further progress this year and next. British sports cars particularly are now an established part of the Americart scene, and as long as this miniature boom does not present a large threat to Detroit domination, there seems little likelihood of this progress slackening. A modicum of expansion in the saloon-car field may also be expected. So far as Canada is concerned, the recent US-Canada free trade pact will not help us, but during 1964 sales there were 45 per cent above an unusually low total for 1963, and a further increase maY be expected this year. Furthermore, recently announced duty concessions by the Canadian government should help to improve our cony petitive position. The bulk of exports to the continent of Africa are absorbed by the South African Republic, and this has been one of the industry's best markets in latter years, taking between 14 per cent and 20 per cent of our overseas shipments. Govern. ment policy there insists on local investment in manufacture and assembly, and those corn' panies which have 'operated in this way have benefited tremendously from the spectacular eco' nomic growth during 1964.

In Australia and New Zealand our importance as an exporter has diminished sharply since about 1955, when our sales there represented 23 per cent of our total overseas sales. This percentage has fallen to 13 per cent, but the trend has now' been halted and, in fact, our exports to Australia rose by 11 per cent last year and our sales to New Zealand by 3 per cent. We are anticipating a slight improvement in both these markets during this year, but as all our sales are depen' dent on local manufacture and assembly, the Chancellor of the Exchequer's recent restrictions on capital outflow may inhibit our expansion plans in both countries.

In the Far East our sales have been declining and they now represent less than 12 per cent of our vehicle exports. Furthermore, it was the only area which imported fewer vehicles from Great Britain in 1964 than it did in 1963.

Political and economic conditions are likely 10

militate against much further expansion of out sales in this area, and in addition, of course, the rapidly expanding Japanese motor industry Will provide us with intense competition in those Fat

East markets which are likely to expand in the foreseeable future. There is no doubt, however,

that we could certainly provide Japan with e

little hot competition on her own doorstep rf she were to liberalise her home market and allow us to compete there on more even terns, as she is able to do in other markets of the, world. The Japanese market is still growing and the potential is enormous. At present, the in' dusty is so protected that a Triumph Herald, for example, costs more than £1,100. I feel that

we could do good business there if their Or' hungry public was given an opportunity to bUY other than Japanese.

To summarise, the export prospects for our industry are quite favourable for the next year or two, which is just as well, because I foresee a marginal decline in the boom we have been SI

experiencing at home for the past twelve months or so. On the other hand, the prospects may be marred slightly by a shortage of international liquidity caused by the simultaneous reduction Of balance of payments deficits in this country and the US.

Another great factor in our ability to export is the growth of economic nationalism, which means that an ever-increasing number of coun- tries require a certain degree of local material and labour to go into the vehicles imported by them. The latest restrictions on the transfer of capital overseas could be important in this respect. In my own company, for example, this form of investment has yielded a very high pro- portion of our export turnover. There is no question about the profitability of this policy —last year alone Leyland's capital investment overseas produced three and a half.times its own Value in sales.

As far as exports for this year are concerned, the first quarter looked rather unpromising, be- cause our total of vehicle exports had fallen by about 15 per cent in unit terms, but this can be largely explained by the spate of industrial dis- putes, and, additionally, the delayed effects of the US docks strike. We are confident that when the final figures for this year are available, they will show a level of sales slightly above 1964.

A longer-term assessment is far more difficult, and although economists tell us that the value of our exports should rise to around £1,000 million by the early 1970s, this depends to a large degree on government policy. It is my opinion that we should be assisted in achieving this objective by the following measures: joining the Common Market; the implementation of the Kennedy Round with a 50 per cent reduction on tariffs throughout the world; inducements for us to invest overseas with adequate provision to insure our money against political risks; the skilful and discreet use of monetary and fiscal controls on the home market to assure us a stable and expanding level of sales in the United Kingdom; the inauguration of suitable measures to restrain costs at home. I should add that all these measures will be in vain unless the men in our factories are prepared to increase produc- tivity and adopt a responsible attitude in industrial disputes.