GKN Automotive Plant: Birmingham

Mark Pawsey Excerpts

Wednesday 28th April 2021 Westminster Hall

[Mark Pawsey (Rugby) (Con) [V]]

It is a pleasure to follow the hon. Member for Birmingham, Erdington (Jack Dromey) speaking up for a manufacturing facility in his constituency. He and I have a great deal in common. We are joint chairs of the all-party parliamentary manufacturing group and we both want to see a strong future for manufacturing in the UK. I am, like him, an MP in the west midlands, where automotive manufacture and the components used in automotive are a key part of our local economy.

I am also a member of the Business, Energy and Industrial Strategy Committee and was a member of it in the last Parliament when Melrose gave evidence on 6 March 2018 ahead of its acquisition of GKN. As the hon. Member said, Melrose also gave evidence to the Committee on 23 February this year. I support his interest in supporting manufacturing in the UK, but as a former business owner I believe there must be occasions when we, Government and broader society should respect the ability of business owners and managers to take the action they consider necessary—often difficult and challenging decisions—in the best interests of their company, and accept that those decisions are being taken for the right reasons.

When GKN came before the Select Committee ahead of Melrose’s acquisition, it is fair to say that there was a pretty strong challenge by my colleagues on Melrose’s plans for the future of GKN. There were questions to the three founders of Melrose amid concern that Melrose was attempting to buy the company on the cheap and then sell off individual bits. In that session, Melrose set out its reason for the acquisition, which was principally to improve a business that in recent years had been only poorly run. As a member of the Committee, I was able to ask the witnesses what their plans were for the long term and what reassurance they could give that they would not simply sell it off. Simon Peckham, the chief executive, said:

“We say we have a three to five-year strapline, and we have always said that.”

He added:

“We are quite happy to hold businesses for longer. We are quite happy to go back to our shareholders if necessary and say, ‘This is the wrong time to do something now. We will keep this business.’”

So there is evidence that where the business is right, they will keep it. I therefore asked:

“Could we be confident that in five or 10 years’ time the structure…would be broadly as it is today?”

Simon Peckham was straight. He said:

“No. We have said, between years 4 and 5, we will sit down and work out what the right thing to do is. I cannot give you a commitment about 10 years’ time, but we have set out very clearly in our offer document exactly what we mean.”

I also asked Mr Peckham about how the acquisition of GKN was in line with the Government’s industrial strategy. Mr Peckham replied:

“At the end of the day, we want to invest in R&D. We want to develop these businesses. We want to grow them. We want to improve them. We want to take a GKN business that we think is currently underperforming.”

He said that Melrose had access to the ability to raise finance

“to build GKN, if it is the right thing to do”.

He added:

“I accept we are not saying we are going to hold these assets for ever. We are not sitting in front of you misleading you.”

It is therefore clear that Melrose intended to acquire the business, have a look at it and see what it thought needed to be done.

Mr Peckham appeared before the Committee on 23 February this year—three years into its ownership of the business—for a session that was essentially about Brexit, but the opportunity was there for the Chair to ask a question about Erdington. Simon Peckham replied:

“Erdington is one of the difficult decisions that we were presented with. As well as the good stuff we do, when we inherited GKN it was basically a troubled business. Your Committee spent quite a long time talking to them about that and the profit warning they did at the time. As a business, it needed improvement.”

Additionally, he said:

“Let me turn to Erdington, because it is a difficult position. It is one of the difficult things. We have complied with the spirit and the word of every undertaking we gave, but we also said we would make difficult decisions from time to time. Unfortunately, Erdington is one of those.”

Ahead of that session, Melrose sent its “Briefing note: Melrose meeting its commitments”. That set out legally binding undertakings for five years to ensure that Melrose remained headquartered and listed in the UK, that the board would have a majority of UK residents, and that GKN Aerospace and Driveline businesses would retain the same rights to the GKN trademarks. Significantly, rightly or wrongly, there were no undertakings in relation to jobs, employment or sites of any of the GKN businesses.

It is important to consider the business environment since that acquisition took place. In the past 18 months, businesses have had to face the pandemic and the uncertainty of Brexit. There was a huge fall in car sales: the Society of Motor Manufacturers and Traders reported 2020 sales were down 30% ,with showrooms shut for several months. The biggest decline was in diesel cars, but petrol reduced, too, due to a fast growing switch to electric. That sector is not currently served by products from the Erdington factory. That must have played a part in Melrose’s decision to wind down the factory over the coming 18 months.

I have listened carefully and know very well the case made by the hon. Member for Birmingham, Erdington. I am keen to see a strong future for UK manufacturing. I share his concern about the loss of the facility and the impact on his constituents. However, to be fair to Melrose, it made its position pretty clear on acquisition. That was accepted by GKN’s shareholders. The challenging business environment has brought forward a difficult decision. I believe the company must be able to take the action it deems to be in its best interests, while honouring the commitments it has made.

I hope that the phased approach that Melrose proposes over the 18-month period will minimise any impact on those affected individually, and the broader area in Birmingham. I have heard from the hon. Gentleman some of the alternatives proposed for the facility, and I hope that they might provide the basis for retention of some activity there, perhaps under the Melrose ownership or the ownership of others. I very much look forward to hearing from the Minister what steps she may be able to take to assist in that regard.