Carcraft

Liz McInnes Excerpts

Wednesday 10th June 2015 Westminster Hall

[Liz McInnes (Heywood and Middleton) (Lab)]

I beg to move,

That this House has considered the closure of Carcraft.

It is a great pleasure to serve under your chairmanship, Mr Williams. I must begin by expressing my sympathy to all the employees and customers affected by the sudden closure of Carcraft last month. I congratulate the hon. Members who have turned up for the debate. I urge the House to take notice of the recent closure of the car dealer Carcraft, which was headquartered in Castleton, in my constituency.

Carcraft fell into administration in late April, leaving 474 people unemployed. This is the first time in the new Parliament that such a topic has been debated, and I hope that we will see some improvements in this field before such a debate is needed again. I would like to stand before you, Mr Williams, and say that the economy in the north-west is as strong and resilient as the people who live there, but that has not been the case for some time. Although the Minister may talk about an economic recovery and a long-term economic plan, there has been little evidence of them in my constituency of Heywood and Middleton—or, indeed, in the wider borough of Rochdale.

During the calendar year of 2014, unemployment in Heywood and Middleton stood at 8.1%, higher than both the regional and the national averages. More than three quarters of jobs in my constituency fall into the service sector, and almost one in six jobs is in wholesale and retail, including the motor trades. That means that the loss of an employer such as Carcraft has a large impact on the economy of both my constituency and neighbouring ones from which employees commute. In fact, with a generally low-wage economy and a shortage of new job vacancies to be filled, the loss of a business with a 60-plus year history in the area, such as Carcraft, could for some be catastrophic.

Carcraft was started in Rochdale in 1951 by Frank McKee, as a sole trader, and it became a registered company in 1964. It was later sold to his sons, backed by the Royal Bank of Scotland’s development capital arm, and was valued at that time at £50 million. The constituent companies of Carcraft were the UK’s seventh largest retailer of second-hand cars. They had an annual turnover of £120 million and were selling 225 vehicles a week. As well as the head office site in Castleton in my constituency, they traded from 10 other sites around the UK, and they were employing 474 staff when they entered administration.

In March last year, a management buy-out led to the resignation of the McKee family from the board of directors, leaving a Mr Robin Bridge as chief executive officer. Unfortunately, Mr Bridge resigned his post in September of the same year. Colin Houlihan was appointed chief executive officer and was still in that post when the company entered administration. Despite an annual turnover of £120 million, from 1 October 2011 until the end of April this year, Carcraft incurred losses of £26.9 million. As early as 2014, the directors reached the conclusion that the business was in difficulty. They are reported to believe that that is because their business has a poor reputation in a highly competitive marketplace. They also agreed that they held a high cost base, including significant rent costs, which they believed to be above market rate, a number of loan notes and an insolvent balance sheet.

It seems that Carcraft was known as a company that would give customers the hard sell, selling overpriced cars with additional extras that probably were not wanted in the first place. Indeed, there was a BBC exposé on its business practices, including having online prices that were not the same as those in the showrooms. It was well known to customers that they would not be allowed simply to take a leisurely look around the forecourt; there would always be an upselling salesperson around to apply pressure. That reputation, whether accurate or not, did not help the company in a crowded and competitive marketplace.

Something else that failed to help Carcraft was the lack of change in its business model in order to keep up with the marketplace. If I had wanted to buy a car when I started driving, I would have had to save what money I could and then buy a car within my budget. However, Carcraft was one of the original automotive companies that offered the opportunity to pay for a second-hand car in monthly instalments. Once customers were introduced to the idea of buying a car in that way, it was not long before they realised they could pay the same amount monthly to lease a brand-new car with 24/7 support. That change in the business model of the car market, combined with the issues above, made business increasingly unprofitable and difficult for Carcraft.

Another reason that the House should note for the failure of Carcraft is the amount of money that it had to set aside for payment protection insurance repayment claims. Given its reputation for the forceful selling of extra products, I think that we would agree that it is not hard to imagine customers being sold payment protection plans alongside their hire purchase agreements for vehicles. We are all aware that banks have had to set aside billions of pounds to compensate customers who were mis-sold PPI, and we know that PPI is the most complained-about financial product ever. Frequently, though, we forget that it was not just banks that mis-sold that insurance. Smaller businesses up and down the country were also involved in the practice.

[Kate Green (Stretford and Urmston) (Lab)]

I am most grateful to my hon. Friend for securing this debate on a matter that affects workers in my constituency who were employed at the business there. I am sorry that I cannot stay for the whole debate, Mr Williams. Can my hon. Friend say whether, to her knowledge—if she does not know, perhaps the Minister will be able to answer later—now that the company is in administration, any customers who might have PPI mis-selling claims to pursue will be able to continue with those allegations and to receive any compensation if that is due?

[Liz McInnes]

I thank my hon. Friend for her intervention. I hope that the Minister will be able to respond to that question. I am not sure whether PPI claims against this company will be able to be pursued.

I have no doubt that everyone in the Chamber has received unwanted calls, emails or texts from companies volunteering to help them to claim for PPI mis-selling. In my case—I am sure this also applies to others—that advice is for PPI that I have never actually taken out. However, the industry around PPI does demonstrate the numbers involved and the size of the marketplace for such claims. The House needs to note that more companies may end up involved in insolvency in the coming months and years because of PPI.

None of this is too surprising. Businesses, sadly, do not always succeed, and in every constituency companies large and small have gone into receivership. During the previous Parliament, 99,530 companies applied for insolvency. The things that concern me about the closure of Carcraft are the decisions taken by the directors, the timing and the lack of consultation with staff and customers. Given that the directors realised in late 2014 that the balance sheet was insolvent and Carcraft was moving towards engaging an administrator, I am surprised that it did not begin a consultation with its employees.

The Manchester Evening News has reported that staff were told only hours before the company entered administration. Staff have said that even after they raised concerns about the future of the company, management told them that everything was fine. Obviously, that was not the case, and staff had their fears confirmed when administrators arrived with redundancy letters for all of them. Even worse, at that point managers reportedly told staff that they had known for at least three months that that might happen. People had turned down opportunities to take jobs elsewhere because managers had assured them that their jobs were secure. Now those folk are left with no jobs, secure or otherwise.

[Joan Ryan (Enfield North) (Lab)]

I, too, congratulate my hon. Friend on securing the debate, which affects people in Enfield North and their work. I have found it very difficult to get any information from anybody—the administrators or the solicitors who seek to bring a group action—about the former employees, and I am concerned about what is happening to them. They were left high and dry and given no information by the company, and they will now need support to find employment. We cannot turn the clock back and bring the company back, but those former employees deserve some support. I have had difficulty finding out the number of people involved and what has happened since in order to be able to give them that support. Does my hon. Friend have any further information? I hope that the Minister will also address the matter.

[Liz McInnes]

I understand that the Carcraft outlets employed between 25 and 50 people, but I can get exact figures to my right hon. Friend after the debate. The major employment was in my constituency, where we have lost about 150 jobs. I will go on to talk about the support available, if she will bear with me. There is some support available for staff, but it is on a fairly impromptu basis.

My right hon. Friend referred to legal action. Some of the staff who have been displaced are consulting employment lawyers about bringing legal action against Carcraft. Although staff will receive their statutory redundancy payment, they will struggle to obtain notice pay and unpaid holiday pay. However, because that is now likely to form part of legal action, I do not intend to say any more on the matter at this stage.

When a business such as Carcraft enters administration, another important cost is that incurred by customers, who chose to spend their hard-earned money at Carcraft on vehicles or on packages—such as the “Drive Happy” guarantee—that included servicing, warranty, MOTs and roadside assistance. Customers who bought such packages now have to find those services elsewhere, and they are certainly not driving happy, especially if they were sold the packages only days before Carcraft announced that it was going into administration. Staff have confirmed that they sold vehicles and guarantee packages until the night before the administrators stopped trading.

I am troubled by the fact that Carcraft continued to sell goods in early 2015, despite knowing that administration was highly likely. Of course, it is illegal to continue to trade only after insolvency has been confirmed, but there is something unfair and slightly disreputable about a company that trades in the knowledge that it is highly unlikely to be able to provide the promised services. In the case of the “Drive Happy” package, 29,000 people across the country paid for services that they can no longer receive. Luckily, only a small number of customers bought cars and were unable to collect them, and the administrators have made arrangements with those customers.

Not everything in this situation has been negative. A number of organisations, formal and otherwise, have come to the aid of those most adversely affected by Carcraft’s entering administration.

As my right hon. Friend the Member for Enfield North (Joan Ryan) mentioned, it is important to talk about support for those who have lost their jobs. The devastating impact of the sudden loss of a job on family wellbeing cannot be underestimated. The administrators, along with ERA Solutions, which specialises in assistance on employee matters when a company goes into administration, have provided advice to employees and supported them in accessing help from local jobcentres. Rochdale Borough Council has been in touch with employees in my constituency who were directly affected, and other councils around the country have done similarly. Rochdale has given help and advice to those who wanted it on matters including how to apply for relevant benefits and support, and how to start up their own businesses should they wish to.

The industry has come together to attempt to offer support. The former CEO Robin Bridge, who is now a director of Vehicle Trading Group, quickly joined forces with Andy Coulthurst of Motors.co.uk to help employees of Carcraft. They have set up a Facebook group in which they encourage former employees to send CVs and ask companies whether there are jobs in the industry for those staff. As we might imagine, the response has been overwhelming. Several key members of the industry have provided support, and that is a promising example of a community coming together.

A further example of the industry helping to support its own members is the involvement of the Automotive Industry Charity, to which the administrators ensured employees had direct access. The organisation—once known as the Motor and Allied Trades Benevolent Fund, but now known simply as BEN—has informed those affected that it provides listening and advice services, and help with accessing support from the right organisations, through its helpline. BEN’s welfare and care services are available not only to anyone employed in the sector, but to their whole families. That takes its reach to an estimated 3.84 million people in the UK alone.

In the wake of the news about Carcraft’s going into administration, BEN was proactive in contacting the administrator, Grant Thornton, to make it aware of the services available to staff. Additionally, BEN was proactive in sharing contact information, website details and contact numbers on its social media and digital platforms. Although the details of contact made by employees are confidential, BEN has confirmed to me that it received a number of inquiries on the back of the Carcraft closure, in response to which details of the following services were provided.

Employment law and legal advice was provided, including details of the Advisory, Conciliation and Arbitration Service and civil legal advice. Advice was given on dealing with redundancy, including reference to Citizens Advice and the Money Advice Service and direction to online materials. Guidance was given on employee welfare rights and benefit entitlement through Citizens Advice and the jobcentre. Budgeting and debt advice was given through the Money Advice Service, Citizens Advice and StepChange. As it is challenging to talk about many of those issues in the work context, BEN supplemented the work undertaken by existing in-house or state-run benefits provisions. A spokesperson from BEN said:

“Given that many of the employees were only made aware of the situation when they arrived at work…a vast number will…be experiencing shock, stress, worry and an uncertain future. As yet, the full details of the circumstances and the long term future impact cannot be assessed.”

That stark fact cannot be ignored.

The sudden impact of job loss on an individual, their family and, ultimately, the community must be investigated so that people are not exposed to such difficult circumstances without prior warning. I urge the House to consider what the Government are doing to protect workers when an employer goes into administration. How do the Government plan to improve protections both for employees of companies facing insolvency and for customers of such businesses? Do the Government have any plans to legislate to improve workers’ rights in such situations? What can be done to ensure that the Insolvency Service amends the status of former employees to something other than preferential creditors?

It is also vital to ensure that, particularly in times of economic struggle, customers are given the maximum possible protections. What will the Government do to ensure that businesses with insolvent balance sheets or similar financial difficulties are more responsible in the selling of products and services that they may not be able to provide in subsequent weeks or months? The Minister will no doubt tell us all about the Government’s long-term economic plan and the number of jobs that have been created, but there is still a lot of concern about the nature of such jobs. Some 474 full-time jobs with a pension scheme and protections have been lost, and a high number of the jobs that may replace them will be part time, self-employed or on zero-hours contracts. All the talk of economic recovery is not reflected in the day-to-day lives of my constituents and, indeed, others across the country. We must use this opportunity to change that and improve the lives and livelihoods of the people of this country.

I look forward to the Minister’s response. I hope that, following this debate, I will be able to provide my affected constituents with some reassurance.

--- Later in debate ---

[Liz McInnes]

I am grateful to the Minister for her full response to the queries I raised, and grateful to all my hon. Friends who have taken the time and trouble to attend and contribute.

We have had a good debate. I am grateful to my hon. Friends for their appreciation, which they have expressed to me, for my securing this debate. This debate arose as a result of a question I asked during business questions. I was more or less challenged and told, “If you want to discuss this further, call for a debate.” That is exactly what I did, and I am grateful for your excellent chairmanship of this debate, Mr Williams.

I feel more reassured. I feel that I can go back to my constituents and give them some new information about assistance that they can access. However, I am conscious that an investigation is ongoing, and I will be watching the results with interest. There are an awful lot of unanswered questions. Finally, I thank everybody concerned.

Question put and agreed to.

Resolved,

That this House has considered the closure of Carcraft.