JLR factory closure does actually contain some positives
News today that JLR will close a plant in the West Midlands came as no surprise. Auto analysts have been predicting this for several years as there is simply no way that it can keep open 3 plants on current volumes or even if output gets back to its peak of around 300,000 a year.
The double whammy of recession and credit has also exposed the firm, with sales down by 25-30%. It is operating well below capacity and is losing money. Put simply, it needs a new plan.
Halewood was ultimately saved because of its size; at full capacity it is a hugely efficient plant. Despite speculation over its future since the announcement that the X type was being chopped (again no surprise), the announcement of LRX production there guarantees its medium term future.
The story is very different here in Birmingham, with either Castle Bromwich or Solihull facing the chop. The decision on which to close will be made by the middle of next year. Either way, another iconic plant will go.
Concentrating production at one plant makes sense, however. It will mean, for example, having just one body shop rather than two, thereby cutting costs dramatically.
New models will embrace lightweight materials such as aluminium, and having workers in one place working across production lines will enhance flexibility and will enable the firm to respond better to changing market conditions.
Whether overall this will lead to job losses really depends on whether the firm can get new cars to market. On current models and volumes I would expect several thousand job losses. But that doesn't need to happen if the firm can invest in new derivatives based on common patforms.
On this, today's announcement actually looks positive. The sleek lightweight LRX gets the go-ahead, creating 800 jobs in Liverpool, and the firm is talking about 3 other entries into new market segments. There is no detail on this today but think for example of a 2 seater sports car to take on BMW models. If the firm brings a good-looking and well made 2 seater car to market it could sell like hot-cakes.
So, key here is investment in new environmental technologies and models. Potentially the firm could actually produce more cars across different variants using common underlying platforms thereby safeguarding jobs.
Despite the plant closure news, there is actually a lot of positive news in today's announcement. New investment in models and a concentration of activities at one plant to cut costs is the only way for the firm to go.
But alongside this there was news that the firm will offer a lower starting salary for new recruits and will make changes to the pension system to save costs.
The unions' reaction was understandable: "The GMB will be opposing everything we have heard so far. We will fight the company on this - of that I have no doubt," said one representative.
The unions have thus far played a key role in helping the firm through a very difficult period. This needs to continue and I hope they will reconsider their position on the plant closure.
But which plant will go? JLR currently employs about 5,000 workers in Solihull and some 2,000 in Castle Bromwich. Solihull sits on prime real estate which could be used for housing. Yet it is bigger and more accessible than Castle Bromwich and I can see operations being merged there more easily as new models are introduced.
Overall, I'd say Castle Bromwich was more vulnerable of the two plants to go.
And whilst the firm is stressing its desire to maintian employment levels, the only 'guarantee' of jobs will be getting attractive new cars to market that people want to buy. That's the only way the remaining UK plants - and indeed the firm - will ultimately survive.
Professor David Bailey works at Coventry University Business School.