Automotivate
The Sector Skills Agreement for the Motor Industry
Sector Skills Agreement – Stage 1 – Skills Needs
Assessment
Wales Final Draft Report
August 2006
Institute of the Motor Industry
Fanshaws
Brickendon
Hertford
SG13 8PQ
01992 511521
www.motor.org.uk
Skills Needs Analysis – UK
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Contents Page
PREFACE
7
1
8
EXECUTIVE SUMMARY
1.1
INTRODUCTION
1.2
THE AUTOMOTIVE SKILLS SECTOR FOOTPRINT
1.2.1 Sector Definition
1.2.2 Sector Dimensions
1.2.3 Geographic Diversity
1.2.4 Geodemographic Comparisons
1.2.5 Workforce Profile
1.3
KEY DRIVERS OF BUSINESS COMPETITIVENESS
1.3.1 Profitability
1.3.2 Remuneration and Rewards
1.3.3 Image and Reputation
1.3.4 Recruitment and Retention
1.4
IMPLICATIONS FOR SKILLS NEEDS
1.4.1 Broad Skills Issues
1.4.2 Skills Gaps
1.4.3 Skills Shortages
1.4.4 Employability and Life Skills
1.4.5 Basic Skills
1.4.6 Generic Skills
1.4.7 Technical Skills
1.4.8 Management and Leadership Skills
2
BACKGROUND AND INTRODUCTION
2.1
THE PURPOSE OF THIS REPORT
2.2
METHODOLOGICAL APPROACH
2.2.1 Quantitative methodology
2.2.2 Qualitative methodology
2.2.3 Secondary Research
3
4
DEFINITION OF THE AUTOMOTIVE SKILLS FOOTPRINT
BUSINESS NUMBERS AND ORGANISATIONAL TYPE
BUSINESS SIZE
EMPLOYMENT NUMBERS
EMPLOYMENT PROFILE
RECRUITMENT
STAFF TURNOVER AND RETENTION
WHAT DRIVES SKILLS DEMAND?
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4.1
THE GENERAL ECONOMIC CONTEXT
4.2
THE ECONOMIC PERFORMANCE OF THE SECTOR
4.2.1 The UK car market
4.2.2 UK Fleet Registrations
4.2.3 Commercial vehicles
4.2.4 Motorcycles
Skills Needs Analysis – UK
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BUSINESS AND WORKFORCE CHARACTERISTICS
3.1
3.2
3.3
3.4
3.5
3.6
3.7
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4.2.5 Maintenance and Repair
4.2.6 Other Activities
4.3
INTERNATIONAL COMPETITION
4.3.1 Summary of economic performance
4.4
PROFITABILITY
4.5
CONSOLIDATION
4.5.1 A downward trend
4.5.2 Reasons for consolidation
4.5.2.1
4.5.2.2
4.5.2.3
4.5.2.4
4.5.2.5
Increased bargaining power with manufacturers
Increased drive for market share
Investment in physical capital
Increasing cost of land
Summary
4.6
DRIVERS OF BUSINESS COMPETITIVENESS
4.6.1 Productivity
4.6.2 Patterns of consumer demand
4.6.3 Government policy
4.6.3.1
4.6.3.2
4.6.3.3
4.6.4
Technological change
4.6.4.1
4.6.4.2
4.6.4.3
4.6.5
4.6.6
4.6.7
Super Complaint – National Consumers Council
Green schemes
Employee-related legislation
Customer satisfaction and retention
CURRENT SKILL NEEDS
FUTURE SKILLS NEEDS
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6.1
QUANTITATIVE FORECASTING
6.1.1 Headline issues
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5.1
OCCUPATIONAL PROFILE OF THE SECTOR
5.2
SKILL GAPS
5.2.1 Evidence of skill gaps
5.2.2 Management Skills
5.3
VACANCIES AND SKILL SHORTAGES
5.3.1 Evidence of Vacancies and Skill Shortages
5.3.2 Employability and life skills
5.3.3 Basic Skills
5.4
GENERIC SKILLS NEEDS – GAPS AND SHORTAGES
5.4.1 Technical skills
5.4.2 Generic skills
5.5
RECRUITMENT AND RETENTION
5.5.1 The Urban/Rural dynamic
5.6
SUMMARY
6
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4.6.8 Enterprise
4.7
COMPETITIVE POSITION – BLOCK EXEMPTION REGULATION
4.7.1 Block exemption regulation
4.8
TRAINING ISSUES
4.8.1 Incidence of training
4.8.2 Possible reasons for low take-up of training
4.9
SUMMARY
5
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Information and Communications Technology
Use of the internet
Advancement in vehicle technology
Globalisation
Innovation
Competition
4.6.7.1
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6.1.2
gender
6.1.3
6.1.4
6.1.5
6.1.6
Forecast shifts in patterns of employment by occupation, employment status, and
84
Trends in replacement demand
84
Anticipated changes to pattern of skills requirements and skills
86
Scenario Planning
86
The Scenarios
88
6.1.6.1
6.1.6.2
6.1.6.3
6.1.6.4
6.1.7
7
Scenario 1 – Legislation and Infrastructure
Scenario 2 – Technology and fuel
Scenario 3 – Employees and Cost of Ownership
Scenario 4 – Government and vehicle technology
Summary
91
GEOGRAPHIC PERSPECTIVES
92
7.1
COUNTRY PERSPECTIVES OF FUTURE SKILL NEEDS
7.2
INTRODUCTION
7.3
THE GENERAL WELSH CONTEXT
7.3.1 Wales
7.3.2 Scotland
7.3.3 England
7.3.4 Northern Ireland
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SUMMARY AND PRIORITIES
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8.1
SHORT-TERM PRIORITIES
8.1.1 Management and Leadership Skills
8.1.2 Employability and Life Skills
8.1.3 Targeting of specific groups
8.2
LONG-TERM PRIORITIES
8.2.1 The image and reputation of the sector
8.2.2 Technical skills
8.2.3 Government policy
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APPENDIX 1 THE PASSENGER CAR SUPPLY CHAIN
102
APPENDIX 2 TOP 50 FRANCHISED DEALERS
103
APPENDIX 3 CAPITAL DEVELOPMENTS
105
APPENDIX 4 SELECTED NEWS
107
APPENDIX 5 URBAN RURAL DYNAMIC
117
APPENDIX 6 – BLOCK EXEMPTION REGULATION
120
APPENDIX 7 – EMPLOYERS VALIDATION SURVEY RESULTS SUMMARY
124
APPENDIX 8
126
APPENDIX 9 BIBLIOGRAPHY
127
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List of figures
Figure 1: Business Ownership and Organisation
22
Figure 2: Regional breakdown of businesses (head offices and branches)
23
Figure 3: Business Size – Annual Business Inquiry
24
Figure 4: Business Size – Automotive Skills Needs Survey 2005
24
Figure 5: Percentage share of Automotive Skills employment in regions and nations
26
Figure 6: Gender of workforce
26
Figure 7: Age of workforce
27
Figure 8: Ethnicity of workforce
28
Figure 9: Occupational profile of UK Automotive workforce
29
Figure 10: Proportion of Managers with NVQ Level 4 or Higher, in Selected Sectors
30
Figure 11: Trends in staff turnover
32
Figure 12: UK Car registrations 2000 – 2005
36
Figure 13: Trends in Registrations per Franchised Dealer Outlet
37
Figure 14: The UK used car market volume and value
37
Figure 15: Value of UK body repair market value to repairers
38
Figure 16: Selected European automotive statistics
41
Figure 17: European registrations per Franchised Sales Outlet
43
Figure 18: European used car sales per 1,000 people
44
Figure 19: Franchised dealerships – net profit as a percentage of turnover
45
Figure 20: Net profit as a percentage of turnover (regional figures):
46
Figure 21: Number of Franchised Sales Outlets
47
Figure 22: Participation in job related off-the-job training in the last 12 months
64
Figure 23: Proportion of establishments with formal human resource planning
64
Figure 24: Total training and development spend in past 12 months - banded
65
Figure 25: Occupational profile of workforce:
69
Figure 26: Proportion of establishments reporting internal skill gaps
70
Figure 27: Incidence of skills gaps and distribution across occupational groups
70
Figure 28: Skills lacking amongst employees with skill gaps in Wales
71
Figure 29: Proportion of establishments reporting vacancies
73
Figure 30: Proportion of establishments reporting hard-to-fill vacancies
73
Figure 31: Proportion of establishments reporting skill shortage vacancies
75
Figure 32: Skills Shortage Vacancies as a percentage of total vacancies
75
Figure 33: Skills found difficult to obtain from applicants for skill shortage vacancies
75
Figure 34: Proportion of Employers by Size of Employment and Location Type
81
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Figure 35: UK Automotive Skills footprint replacement demand by occupation
85
Figure 36: Future influencers on the motor industry (clustered)
87
Figure 37: Maximum infrastructure and maximum legislation
88
Figure 38: Fuel runs out, maximum development of technology
89
Figure 39: Employees unmotivated, high cost of vehicle ownership
90
Figure 40: Maximum government interference, maximum vehicle technology
91
Figure 41: Passenger Car Supply Chain)
102
Figure 42: Top Future 50 Franchised Dealers
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Figure 43: Capital Developments
105
Figure 44: Proportion of Employers by Location Type – England 2005
118
Figure 45: Rural/Urban Employment by Number of Employees - England 2005
118
Figure 46: Businesses with employees
119
Figure 47: Employers Validation Survey
124
Figure 48: Employer Validation Survey Respondent Geographical Breakdown
125
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PREFACE
This report is one of a suite of reports prepared as part of the sector skills agreement (SSA)
negotiated between stakeholders in the retail automotive sector. The SSA process commenced
in 2004 and most reports present a view of the sector in 2006.
The SSA represents a milestone in the development of processes that will ensure the United
Kingdom has sufficient numbers of appropriately skilled people to meet the future needs of the
retail automotive industry and in particular to meet the targets identified by Lord Sandy Leitch in
his 2006 report, a Prosperity for all in the global economy - world class skills.
This report reflects the work of Automotive Skills Ltd (ASL), which was the original sector skills
council (SSC) for the retail automotive sector. Readers should be aware that in July 2007 ASL
merged with the Institute of the Motor Industry IMI, the industry’s professional body since 1920,
and in September 2007, the Sector Skills Development Agency (SSDA) issued IMI with a licence
to be the SSC for the sector. The name ‘Automotive Skills’ is still used by IMI in relation to its role
in developing national occupational standards and qualification frameworks.
The nature of the retail automotive sector means that research and policy development is
ongoing. Also, there are ongoing changes to the sector’s footprint. Details of current research,
the wide range of policy issues being addressed in the sector and the most recent definition of the
sector’s footprint can to be found on the IMI’s website, www.motor.org.uk.
Sarah Sillars
Chief Executive Officer
The Institute of the Motor Industry
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1
Executive Summary
1.1
Introduction
Automotive Skills launched Automotivate – the sector skills agreement for the motor industry – in
the late summer of 2005. This report provides a detailed examination of the skills needed in the
Welsh automotive retail sector both now and in the years ahead, describing the results of Stage 1
of the Sector Skills Agreement brokering process. The information in the report is derived from
primary and secondary research, both qualitative and quantitative.
This report for Wales is part of a suite of reports covering the UK. Separate reports are available
for each home nation and for the UK as a whole.
1.2
The Automotive Skills Sector Footprint
1.2.1
Sector Definition
The footprint of Automotive Skills covers almost all activity in the motor industry downstream of
the factory gate. Thirteen industry-defined activities cover all types of vehicle including cars,
motorcycles, commercial vehicles, passenger-service vehicles and other specialist vehicles:
•
New vehicle sales
•
Used vehicle sales
•
Routine maintenance & repair
•
MOT inspections
•
Accident/body repair
•
Restoration/rebuilding
•
Fast fit (tyres, exhausts, batteries, etc.)
•
Post-factory fitting and adaption (electricals, Motability, etc.)
•
Parts and accessories sales
•
Roadside rescue/recovery
•
Contract hire/operational leasing
•
‘Daily’ rental (self drive or with driver)
•
Valeting/preparation
Automotive Skills has five SIC codes covered by its licence: 50:10, 50:20, 50:30, 50:40 and
71:10. Unfortunately, these do not map onto industry-defined activities and cannot be analysed
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individually without giving rise to misleading and erroneous data because of the multi-sector
mutually inclusive nature of almost all businesses in the footprint. Where SIC codes have been
used, they have been used in aggregate to ensure the robustness of the data.
1.2.2
Sector Dimensions
Automotive Skills’ own database suggests there are 3,800 workplaces in the sector in Wales.
The estimated total employment in the sector in Wales is 30,000. Over 90% of employees
workplaces have fewer than 10 employees and only 1-in-6 employees are female across the
footprint. The total turnover of the businesses in the Automotive Skills footprint in Wales is
£3.9bn per annum (2.8% of the UK) with a GVA of £677m (2.8% of the UK).
The sector has seen a considerable amount of consolidation over recent years with larger
businesses acquiring medium-sized and family firms as investment requirements increase. This
consolidation has seen many locations close, illustrated by the fact that the number of franchised
outlets across the UK has almost halved over the last 30 years, from 10,200 in 1975 to 5,600 in
2005. Meanwhile the number of bodyshops has fallen from 12,700 in 1997 to just 6,700 in 2005.
1.2.3
Geographic Diversity
In Wales the sector accounts for about 2.3% of the working population – a slightly higher
proportion compared to that found in the rest of the UK.
Automotive Skills estimates that there are up to 30,000 employees in the footprint in Wales, which
is fewer than in any English region apart from the North East (23,000), although the proportion of
the working population is slightly higher than the UK average.
Broadly speaking the skills issues identified in Wales are of a similar nature and significance as
those found elsewhere with differences being largely at the margins. Essentially the same kinds
of education, skills and training problems affect employers right across the UK. Where there is a
difference it is in the dichotomy between businesses with predominantly urban and predominantly
rural employee and customer territories.
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1.2.4
Geodemographic Comparisons
Automotive Skills’ own research shows that around 1-in-10 of Welsh employers in the sector
described their customer base as urban, 3-in-10 rural, and the remainder (60%) a mixed
urban/rural customer base.
Our qualitative research has highlighted that the dynamics of urban and rural employers differ
significantly both in terms of the labour market and customer base. Rural employers tend to have
more stable workforces with less staff turnover and more loyal customer bases. They do find it
harder to recruit, however, and harder to access training in a way that does not disrupt their
businesses. Proximity and access to colleges, institutes, academies and places of work, coupled
with relatively higher costs can cause significant disruption and difficulty due to extended travel
time and logistical difficulties.
Urban-based employers tend to face a workforce with a high turnover of staff, (enjoying a wider
range of alternative employment opportunities), set in a more transient societal environment. The
customer base is often less stable and poaching of staff is a greater problem. Access to training
and skills development is better and less disruptive, with a greater choice of delivery. There are
also perceived differences in quality of delivery.
1.2.5
Workforce Profile
Automotive Skills estimates that around one quarter of all employees in the sector work as
technicians, with a total of about a third in skilled occupations. Sales and administration staff
account for about a third of the total with around one-in-eight being owners or senior managers.
The remaining 10-15% includes professional and elementary occupations.
Five out of six sector employees in Wales are male, a somewhat higher proportion than in the UK
as a whole. The imbalance in gender representation is reflected in behaviours and the culture of
the sector since the sector. Ethnic minorities are represented on a par with their penetration in
Wales at about 2%.
The average age of employees in the sector is 40, in line with the average for all industries in
Wales, although there is relatively higher proportion of 25-44-year-olds in the sector – 56%
compared to 45% for all industries in Wales.
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The sector in Wales has a very low Union or staff association with membership penetration of
less than 2% – below the figure for the UK as a whole. Of this, much of this is concentrated in
certain industry activities, such as breakdown recovery.
Likewise, the sector has a small proportion of public sector employees at just 2¼% of the total
sector workforce in Wales, with many of these working in local government.
1.3
Key Drivers of Business Competitiveness
1.3.1
Profitability
Net profit ratios in the franchised retail sector typically hover around 1½% – amongst the lowest
rates of any sector of industry. Bodyshop employers typically enjoy even lower profitability and
endure significant price deflation resulting from insurer and related pressures. Unsurprisingly,
such rates of return have a negative impact on investment levels, including investment in training
and skills. There are activities where profitability is more buoyant – examples of this are in
contract hire and leasing, and breakdown recovery.
Across the footprint capital investment requirements have been rising sharply and will continue to
do so as a result of the need to cope with ever more complex technology in vehicles and the
rising standards set by manufacturers – as permitted under the Block Exemption Regulations.
Such requirements include: sector-specific IT, diagnostics hardware and software, showroom
premises specifications, and so on. The cost of financing the debt used by many employers to
fund this investment is detrimental to supporting staff development and training. The result is that
many employers focus on the short-term training ‘essentials’ or the ‘absolutely necessary’ only.
1.3.2
Remuneration and Rewards
Although it is possible to be handsomely rewarded in terms of pay and bonuses across the sector
– especially in senior positions – in most occupations pay levels are somewhat depressed. This
stems in part from poor profitability afflicting some activities in particular, as described earlier,
which in turn can have a negative effect on motivation and attitudes of employees.
Where incentives and bonuses are offered, they are often biased towards volume target
achievement. This does not always encourage support of good customer service. Our research
has shown that 67% of employers ‘definitely agreed’ with the statement that “Employees will need
to respond more to customer needs than to short-term targets”, which suggests a recognition by
employers of the problem.
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In many parts of the footprint there is a tendency to focus on jobs, rather than careers, which itself
reflects the generally low level of quality HR practices and internal capabilities in many employers
(with the exception of the larger and/or more enlightened employers). Consequently there is a
lack of defined career paths for those entering the sector.
1.3.3
Image and Reputation
Even among employers, it is widely accepted that the image and reputation of the footprint overall
is not as positive as it should be.
Negative press and publicity, plus fictional depictions of
characters working in the motor trade have contributed towards the impression, widely held by
the general public and career advisers, that the sector is not as attractive to work in as many
others. Many employers assert that this image is unfounded and applies to certain activities only,
and even there only representing a small minority of businesses. There is much evidence to
support the notion of the footprint being very professional, customer-focused and technologically
advanced employing highly skilled staff at all levels. This is especially true in activities such as
breakdown recovery, daily rental and contract hire and leasing.
Unfortunately for many, perception equals reality in some parts of the industry, and this is a
significant hurdle to overcome.
That minority of businesses that do not adhere to high
professional and ethical standards expected by today’s consumers are damaging the footprint as
a whole. By changing the behaviour of employers underachieving in these areas, the culture of
the sector overall can be raised to a new standard.
In turn, this poor image and reputation has a negative impact on recruitment and too often parts
of the footprint are seen as a repository for less able school leavers. Those school leavers who
will eagerly sign up as apprentices in May tend to be high achievers and thus more likely to go on
to enjoy a successful career in the sector. Those that choose to join in September more often do
not. It is the high quality apprentices that are needed by the sector.
Interestingly, 72% of employers questioned in our validation survey ‘definitely agreed’ that “It will
be up to the sector itself to take responsibility for behaving more professionally in order to
improve its image and reputation.” Automotive Skills will do whatever it can to support employers
in achieving this goal.
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1.3.4
Recruitment and Retention
Many employers complain about a high turnover of staff in the sector. Our research suggests the
rate is typically around 25% per annum overall, with considerable variation by occupation and
location. This is combined with the lack of funds to pay for training and the concern that trained
staff will leave. Often, this leads to the poaching of employees from competitors – often for
marginally increased rates of pay. This is a particular problem in more urban environments,
where alternative workplaces are more easily accessible.
There is relatively little recruitment from outside the sector because sector-specific experience is
usually more highly valued than transferable skills sets and competences.
Uptake of graduates is also relatively low. Automotive Skills’ research has found that employers
consider graduate-level qualifications as “nice to have”, but it’s neither essential nor a
discriminator in terms of recruitment for most. This stems partly from the perception that it is
difficult to make graduates ‘productive’ (i.e. earning income for the business) as quickly as an
apprentice. It is also harder to develop graduates because of the lack of career opportunities –
as opposed to individual job roles. The low penetration of graduates in the existing workforce
helps perpetuate the situation since experience of graduates among recruitment decision makers
is limited, and is often coloured by their own experiences.
Research we have carried out shows that 62% of employers questioned ‘definitely agree’ that “It
will be necessary to have a broad range of career paths laid out if we are going to attract and
retain more high-quality recruits and apprentices.” Automotive Skills is looking at ways to support
employers in this area.
Most employers do not have stand-alone HR functions and have expressed a desire to access
HR toolkits to help them deliver the kinds of development and training larger employers with HR
functions do. Automotive Skills is looking to develop possible solutions in this area.
1.4
Implications for Skills Needs
1.4.1
Broad Skills Issues
There are two principle dimensions to the skills needs assessment: skills gaps relating to existing
employees, and skills shortages, which relate to new recruits. Identified in relation to these
dimensions are five key areas of gaps and shortages:
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•
Employability Skills – attitudes and motivation
•
Basic Skills – numeracy and literacy
•
Generic Skills – communications, customer handling, problem solving, team working, etc.
•
Technical Skills
•
Management & Leaderships Skills
1.4.2
Skills Gaps
A quarter of employers in Wales (23%) consider their existing workforce is not fully proficient in
their jobs – a higher figure than for all businesses in the Welsh economy (18%), but roughly in
line with the rest of the UK – and more significant than skills shortages.
There is particular concern about the low proportion of managers in the footprint with level S/NVQ
4+ or equivalent qualifications – just 14% across the UK The impact this has on management
and leadership skills may fundamentally determine business success across the sector.
1.4.3
Skills Shortages
Just over 1 in 10 employers in Wales experience hard-to-fill vacancies – a similar proportion to
that of all sectors in Wales. The reasons for this have been described by Welsh employers in the
footprint as:
•
“Low number of applicants with required skills”: 45% of Welsh sector employers (30% in
all sectors).
•
“Low number of applicants with required attitude…”: 30% of Welsh sector employers
(21% in all sectors)
•
“Low number of applicants generally”: 27% of Welsh sector employers (19% in all
sectors)
Our own research has highlighted that without high quality management and leadership, and
without employees with an eagerness to learn based on the right attitude and a motivation to
succeed, businesses will find it more and more difficult to succeed in today’s increasingly
competitive environment. Addressing skills shortages is key to securing the long-term future of
the sector and employment within it.
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1.4.4
Employability and Life Skills
Our research for this report has highlighted employers’ concerns about the employability and life
skills of apprentices in particular. Welsh employers have clearly expressed the need for a higher
proportion of young people to possess the right:
•
Attitude
•
Consistency in job performance
•
Motivation
•
Reliability
•
Willingness to learn
Many apprentices are highly motivated and become excellent workers – often those who express
an early interest in joining the sector – but too many are leaving school without these qualities in
sufficient measure. Some employers have specifically told us that they would prefer to employ
motivated employees who are willing to learn but who have no technical skills, rather than visa
versa.
Automotive Skills’ research has shown that 74% of employers ‘definitely agreed’ with the
statement “New employees will increasingly need the right attitude and motivation over and
above just the hard, technical skills.”
Overall apprenticeship completion rates of around one-third are to be found the sector in Wales.
The figures show that there is some way to go in this area, as some employers are achieving far
higher rates than this average.
1.4.5
Basic Skills
The standard of literacy and numeracy found by employers in too many school leavers is
described by many of them as being inadequate for even the most basic requirements of a
business. This is a major drag on the productivity of businesses and requires much remedial
action by employers to raise skills to a minimally acceptable standard.
Broadly speaking,
employers do not believe it should be their role, or that of an apprenticeship programme, to take
remedial action in basic skills under-delivered through the schools system.
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1.4.6
Generic Skills
In common with many other sectors of the economy, there is an ever-increasing demand for
generic skills. These are demanded from almost all employers in all sectors because they are
critical at all occupational levels in ensuring business success. Typically, sector employers who
report having skills gaps cite the following generic skills in particular as being key:
•
Customer handling skills: 63% of Welsh sector employers with skill gaps (57% in all
sectors)
•
Problem solving skills: 61% of Welsh sector employers with skill gaps (58% in all sectors)
•
General IT skills: 53% of Welsh sector employers with skill gaps (40% in all sectors)
These skills are in short supply and there is insufficient proficiency both among existing
employees and new recruits having a significant impact on quality of service. When asked,
nearly three quarters of employers ‘definitely agreed’ with the statement that “Capabilities in
generic skills like communications, team working and problem solving will need to increase
significantly for businesses wanting to stay competitive”.
1.4.7
Technical Skills
Of all skills types cited by Welsh sector employers as lacking among their employees, technical
skills are found wanting in more workplaces than any other skill – 73%. This is despite such skills
being at the core of apprenticeship programmes in the sector for many years. The fact that they
are still difficult to find may be a reflection of training quality.
The phenomenal pace of technological change in vehicle technology is putting pressure on
employers and employees alike.
When asked, nearly ninety percent of employers who
responded to our survey ‘definitely agreed’ with the statement “Ever increasing technology and
complexity of vehicles will result in a considerably increased need for new training and upskilling.”
A further three quarters ‘definitely agreed’ that “The ability to use diagnostic IT
equipment will be an absolute minimum requirement in all aftersales operations.”
1.4.8
Management and Leadership Skills
Of those Welsh employers in the footprint who report having skills gaps, over half cited a lack of
proficiency in management skills as a problem for them. As mentioned earlier, the sector enjoys
the dubious distinction of having the lowest proportion of S/NVQ 4+ or equivalent qualified
mangers – at 14% – of any sector in British industry.
With 16% of mangers having no
qualifications whatsoever, the sector comes third from bottom of all sectors
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Given the significance of management and leadership on all other aspects of business
productivity, profitability and success, the low volume of qualified managers is a matter for some
concern. Employers themselves tell us that much management thinking in the sector is silooriented (i.e. within function or department) and short-termist (this week/month), with a
predominance of a blame culture with too much poor leadership in too many enterprises. The
root cause is the bureaucratic outlook of many businesses, which are not behaving as learning
organisations.
From our own research we found that 73% of employers who responded ‘definitely agreed’ with
the statement that “Managers in the sector will need far better developed leadership skills”.
Automotive Skills believes that addressing this central issue will be absolutely key to ensuring the
success of the sector, and all who work in it, over the next 10 years and beyond. Businesses
need top quality management and leadership for a top quality sector delivering the productivity
and profitability demanded and required of a high-technology industry in the twenty-first century.
Skills Needs Analysis – UK
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July 2006
2
2.1
Background and Introduction
The purpose of this report
In many ways, the economies of Wales and United Kingdom are performing strongly. The UK
currently has the fifth largest economy in the world 1 , and the highest employment rate of the G7
group of countries 2 . However, productivity in the UK economy is below that of many comparator
countries 3 . One factor that drives productivity performance is skills, and recent research has
shown that the UK’s skill profile is relatively poor when compared to countries such as France
and Germany, especially at intermediate levels 4 .
Given that the utilisation of skills contributes to the productivity performance of an economy, it is
vital that the training supplied to businesses and individuals matches that which is needed and
demanded.
In order to make sure that this is the case, Automotive Skills are brokering
Automotivate - the Sector Skills Agreement (SSA) for the motor industry. The SSA will give
employers in the sector the opportunity to shape the development of training to meet their short,
medium and long-term business needs, setting the skills priorities and direction for the next 5-10
years. The Government has agreed to back any changes the SSA identifies.
Therefore, the fundamental aim of this report is to understand what it is that drives business
success and profitability in the sector. From this base, the report will assess both the current and
future requirements for skills and training from an employer perspective. Once these have been
analysed and their implications discussed, the report will conclude by suggesting priorities for
action. These priorities will feed into later stages of the SSA, when potential solutions to any
problems in the sector are discussed with key partners.
2.2
Methodological approach
The methodology employed to conduct this analysis is of both a primary and secondary nature.
Automotive Skills commissioned a quantitative survey of employers across the UK in the motor
industry in order to determine employer perspectives on current and future skills needs. This
research combined telephone, internet and self-completion methodologies. Other research of a
1
The World Economic Outlook Database, International Monetary Fund, April 2006. The UK has the fifth largest economy
if comparing Gross Domestic Product at current prices using dollar estimates calculated at market or government official
exchange rates.
2
Employment Outlook 2006, The Organisation for Economic Co-operation and Development, June 2006.
3
International Comparisons of Productivity, The Office for National Statistics, February 2006.
4
Skills Pay: The Contribution of Skills to Business Success, SSDA Research Report 5, September 2004.
Skills Needs Analysis – UK
Page 18 of 130
July 2006
primary nature included focus groups, in-depth interviews, forecasting and qualitative scenario
planning.
The secondary research undertaken involved summarising existing research reports and data,
which were of both a general and sector specific nature.
2.2.1
Quantitative methodology
The sample for the Automotive Skills Needs Survey 2005 was drawn from a database compiled
especially for the SSA process.
Automotive Skills commissioned an independent research agency to develop an integrated
employer database, providing comprehensive coverage of employers in the footprint of
Automotive Skills. This database was compiled using business records from a variety of sources
including Yellow Pages, Dun & Bradstreet and Sewells. These sources were merged to create a
single database, holding company and subsidiary head offices linked to individual sites and
establishments.
The sample for the survey drawn from this database was stratified by business size to make sure
that it was representative of the business population as a whole.
To supplement this work, Automotive Skills also conducted a validation survey with over 100
employers across the UK.
This survey drew its sample from an existing Automotive Skills
database of SSA employer registrants expressing an interest in Automotivate.
2.2.2
Qualitative methodology
To support the quantitative survey work discussed above, a series of depth interviews, focus
groups and scenario planning workshops were conducted across the UK. The depth interviews
and focus groups were conducted with members of the Automotive Skills Employers Nations Fora
and Council right across the UK, whilst the scenario planning events accessed a wide group of
industry representatives.
In all cases, attending respondents were selected to be representative of the different activities of
the Automotive Skills footprint.
Additional qualitative outputs were gathered from a debating conference – Automotivate Live! –
held in September 2005. The debating sessions at the conference were moderated by industry
Skills Needs Analysis – UK
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July 2006
opinion formers and academics and included ninety leading sector employers delegates. The
event was film recorded for research and potential output usage in connection with Automotivate.
2.2.3
Secondary Research
This Stage 1 Report has used a number of different secondary data sources. It is to be noted
that all of these data sources have limitations in terms of how well they represent the footprint of
Automotive Skills. It is important that these are borne in mind when data using these sources are
presented. The following bullet points summarise the key issues:
•
The Future Skills Wales survey, covering Wales only, includes establishments with at
least one employee in its sampling framework.
This is significant considering that
estimates put the number of businesses in the sector in this category across the UK at
about 56% of the total 5 .
•
The Annual Business Inquiry (ABI) is a dataset based upon information gathered on VAT
registered businesses.
Thus, those businesses that are not VAT registered are
systematically excluded from the sampling frame.
The ABI therefore excludes
enterprises with an annual taxable turnover of less than £60,000 (the threshold for VAT
registration) – and therefore excludes a high proportion of sole traders and micro
businesses.
These limitations may mean that there are differences between the outputs of these data and the
Automotive Skills Needs Survey 2005.
Throughout this report, where consistent data is
accessible from more than one source, both of the figures will be published together.
To ensure robustness of secondary data, Standard Industrial Classification (SIC) codes have only
been used in aggregate. At three- or four-digit level, the SICs do not map onto industry defined
activities (as noted in 1.2.1). This is made more complex still because of the multi-activity reach
of most businesses’ operations.
Therefore, SIC codes cannot be used individually without
creating misleading and erroneous outputs.
5
SME Statistics UK, 2004. The Small Business Service, February 2006. This data is for SIC code division 50, and so
does not include the leasing and renting of motor vehicles.
Skills Needs Analysis – UK
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3
Business and Workforce characteristics
3.1
Definition of the Automotive Skills footprint
The footprint of Automotive Skills covers the activities of businesses in almost the entire
downstream motor industry and all types of automotive vehicles. These vehicles include not only
cars, but also motorcycles, commercial vehicles and passenger service vehicles. The following
list of industry defined activities shows the breadth of work undertaken in the sector:
•
New vehicle sales
•
Used vehicle sales
•
Routine maintenance & repair
•
MOT inspections
•
Accident/body repair/bodyshop
•
Restoration/rebuilding
•
Fast fit (tyres, exhausts, batteries, etc.)
•
Post-factory fitting and adaption (electricals, Motability, etc.)
•
Parts and accessories sales/wholesaling
•
Roadside rescue/recovery
•
Contract hire/operational leasing of vehicles
•
‘Daily’ rental (self drive or with driver)
•
Valeting/preparation
Many businesses will operate across more than one of these activities. A franchised dealer, for
example, will sell new vehicles as well as maintain them. They may also sell and maintain used
vehicles, rent vehicles on a daily basis, offer company car contract hire or leasing, offer fast fit
services, perform MOT inspections, as well as have a bodyshop, for example. A great many
enterprises in the footprint do not fit neatly into activity categories. This again highlights the
importance of aggregating businesses operating across these activities for purposes of analysis.
A diagram of the industry supply chain illustrating this point can be found in Appendix 1.
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July 2006
3.2
Business numbers and organisational type
The Automotive Skills Employer Database estimates that there are just fewer than 4,000 sites of
all types in existence across the Wales 6 .
These businesses are organised into a variety of business types. These range from independent
sole traders to multi-site franchised dealers. The Automotive Skills Needs Survey 2005 shows
that a majority of companies in the sector are single site businesses (83%) with only 11%
operating at multiple sites.
Figure 1: Business Ownership and Organisation
81
84
65
%
27
7
3
2
8
1
Single site company Independent company Group of companies
with multiple sites
operating under
different names
Wales (43)
Large companies (6)
2
2
Other situation
Small companies (37)
Source: Automotive Skills Needs Survey 2005
This figure above is supported by data from the Future Skills Wales survey 2005 7 . It shows that
roughly three-quarters of sites in the sector are single site establishments, with roughly a quarter
being businesses with multiple sites.
The Automotive Skills Employer Database gives a regional dimension to the above figures. The
totals in the table below confirm that like Wales, a majority of companies operate from a single
site.
6
7
These are not all separate businesses, as some sites will be owned by the same company.
Automotive Skills Future Skills Wales 2005 Sector Skills Survey, 2005.
Skills Needs Analysis – UK
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July 2006
Figure 2: Regional breakdown of businesses (head offices and branches)
Head Office
%
Branch
%
All site type
%
South East
8,680
15.30
3,048
16.76
11,832
15.71
North West
6,673
11.76
2,116
11.64
8,830
11.72
East
6,449
11.37
2,054
11.30
8,570
11.38
West Midlands
5,574
9.82
1,728
9.50
7,341
9.75
South West
5,439
9.59
1,803
9.91
7,286
9.67
Yorkshire & Humber
4,983
8.78
1,556
8.56
6,563
8.71
East Midlands
4,154
7.32
1,332
7.32
5,533
7.35
London
4,102
7.23
1,217
6.69
5,337
7.08
Scotland
4,008
7.06
1,370
7.53
5,395
7.16
Wales
2,975
5.24
879
4.83
3,855
5.12
North East
2,035
3.59
714
3.92
2,761
3.67
Northern Ireland
1,664
2.93
359
1.97
2,027
2.69
Total
56,736
100
18,176
100
75,330
100
Source: Automotive Skills Employer Database
This diversity in business organisation means that solutions to skills and training problems will
need to be tailored to ensure that they meet the needs of all business types where this is
appropriate. For example, Pendragon, the largest UK franchised dealer group 8 , has dealerships
in Wales as well as in every region of England. Likewise, many employers operating in other
activities, such as daily rental, contract hire, leasing, breakdown recovery and so on, operate
across the UK and wish to enjoy common standards and provision of training across the UK.
Therefore, any proposed solutions to problems developed through the SSA process need to have
the capacity for application across all countries and regions simultaneously. Solutions that are
specific to a country or region only may be seen by many employers as unsatisfactory.
3.3
Business Size
The Annual Business Inquiry (ABI) provides data on the size of businesses within the automotive
sector. These data are based upon the government’s register of VAT registrations, and therefore
by definition exclude all non-VAT registered businesses. Data on business size is also available
from the Automotive Skills Needs Survey 2005. The following tables show that the two sources
provide similar estimates, with the ABI showing a greater number of businesses in the 1-10
category. This difference is almost certainly due to the small sample size of the Automotive Skills
Needs survey, and the margin of error associated with it. Thus, the ABI figure is preferred:
8
AM Top 100, December 2005. The AM Top 100 is a list of the largest 100 UK automotive retail groups by turnover. In
December 2005, Pendragon was top of the list with a turnover of £3,477 million.
Skills Needs Analysis – UK
Page 23 of 130
July 2006
Figure 3: Business Size – Annual Business Inquiry
Wales
Automotive
sector
GB
All Sectors
GB
England
Scotland
Automotive
Automotive
Automotive
sector
sector
sector
1-10 employees
92%
83%
88%
88%
84%
11-49 employees
7%
13%
10%
10%
13%
1%
3%
2%
2%
3%
0%
1%
0%
0%
0%
50-199
employees
200+ employees
Source: Annual Business Inquiry 2004. The ABI data is for Great Britain, and therefore excludes Northern Ireland.
Figure 4: Business Size – Automotive Skills Needs Survey 2005
Wales
UK
England
Scotland
1-10 employees
85%
83%
83%
85%
11-49 employees
12%
13%
13%
13%
50-199 employees
2%
3%
3%
3%
200+ employees
1%
1%
2%
0%
Base: UK 828, England 703, Scotland 56, Wales 43. The sample for Northern Ireland is too small
to include.
Source: Automotive Skills Needs Survey 2005.
Overall, there are on average 7 employees at each site in Wales, which is the same as the
number for the UK 9 . This low number of employees per site could possibly have the following
implications:
•
Skills gaps and skills shortages will be more difficult to cover as the available resources
are fewer.
•
The opportunities for formal off site training are fewer as this will have a noticeable impact
on the relatively small workforces in the sector where there is dependence on the specific
skills of specific people.
•
The range of skills required by companies will be broader as in small organisations it is
more likely that individuals will need to be multi-skilled.
9
Automotive SkillsError! Bookmark not defined. Needs Survey 2005.
Skills Needs Analysis – UK
Page 24 of 130
July 2006
3.4
Employment numbers
Total employment in the footprint of Automotive Skills in Wales can be estimated using data from
different sources. The Labour Force Survey estimates total employment in the sector to be
27,565, which is just under 5% of total employment in the UK 10 . The Annual Business Inquiry
gives a lower figure of 19,213 11 . This is to be expected, given that the ABI figure excludes all
employment from businesses not registered for Value Added Tax. Thus, the LFS figure is to be
preferred.
This employment is forecast to fall by 0.2% per annum over the period 2004-2014. This is,
however, an improvement on the performance during the previous ten years when employment
fell by 0.8% per annum 12 .
3.5
Employment profile
The following tables briefly summarise the employment profile of the sector in Wales from one
source - the Labour Force Survey (LFS). The first table shows the percentage of employment
within each region that is accounted for by personnel operating within the footprint of Automotive
Skills. It shows that Wales is below the UK mean:
10
Labour Force Survey 2005. Office for National Statistics.
th
Annual Business Inquiry, 2004. Office for National Statistics, updated 15 June 2006.
12
Working Futures II, January 2006. Institute for Employment Research and Automotive Skills Needs Survey 2005.
11
Skills Needs Analysis – UK
Page 25 of 130
July 2006
Figure 5: Percentage share of Automotive Skills employment in regions and nations
%
West Midlands
2.51
Northern Ireland
2.49
Yorkshire & the Humber
2.29
South West
2.27
East Midlands
2.26
East of England
2.24
UK Mean
1.99
South East
1.95
North West
1.93
Wales
1.91
North East
1.86
Scotland
1.77
London
1.18
Source: Labour Force Survey, Q1 2006.
This employment has the following demographic features:
Figure 6: Gender of workforce
Wales
Wales
England
Scotland
Northern Ireland
Automotive
All
Automotive
Automotive
sector
Sectors
sector
sector
Males
85%
52%
77%
81%
84%
Females
15%
48%
23%
19%
16%
Automotive sector
Source: LFS Q1 2006
The gender imbalance of the motor industry in Wales is evident from the above table. In January
of this year, only one other sector across the UK had a lower proportion of female workers in its
workforce 13 .
This imbalance may give rise to one way of filling any existing skill shortages in the sector recruiting more females into occupations where such shortages may exist. This solution has
been given cross-sector attention by the government in the Women and Work Commission’s
13
Diversity and the Skills for Business Network –How the Sector Skills Councils are Addressing Diversity and Some Good
Practice case Studies. GHK Consulting, January 2006.
Skills Needs Analysis – UK
Page 26 of 130
July 2006
report entitled ‘Shaping a Fairer Future’ 14 . It highlights a need to strip barriers to women from
working in roles traditionally done by men, and has made 40 recommendations to tackle job
segregation and the gender pay gap. Once the plan is formulated, the Department for Trade and
Industry will work with employers to attract more women into sectors with skills shortages such as
motor retail 15 .
Figure 7: Age of workforce
Wales
Automotive
sector
Wales
All Sectors
England
Scotland
Northern Ireland
Automotive
Automotive
Automotive
sector
sector
sector
Aged 16 - 24
14%
16%
17%
20%
20%
Aged 25 - 44
56%
45%
48%
40%
39%
Aged 45+
30%
40%
35%
39%
40%
Source: LFS Q1 2006
Although the age profile of the motor industry does not differ significantly from the UK economy
as a whole, attracting more young people into the sector could be a possible solution to reducing
any skills gaps and shortages that may or may not exist. Apprenticeships could have a key role
to play in narrowing the skills gap at technician and craft level.
For example, in response to the skills shortage in service workshops, franchised and independent
dealers have now taken on more apprentices relative to the number of fully-qualified technicians
and mechanics. Two years ago, franchised dealers only employed one apprentice for every 4.7
fully-qualified service productive.
This has now increased to a ratio of 4.0 to 1.
improvement was noted for independent garages 16 .
A similar
It is hoped that by 2008, the numbers
completing apprenticeships across the whole economy will have risen by three-quarters 17 .
Also relevant to the data on age distribution is the reduction in the number of garages and body
shops in the past 5 to 10 years. This is said to be one of the main contributory factors in reducing
the availability of skilled staff. This downturn had the effect of causing some people to leave this
activity altogether. This means there is now a gap between the younger apprentice level staff
(age early 20s) and the more experienced and established staff (aged 40s and 50s) 18 . Thus,
14
Shaping a Fairer Future, Women and Work Commission, February 2006.
th
‘Fairer deals for women workers’. AM Online, 17 March 2006.
The Retail Motor Industry Pay Guide 2006. Sewells Information & Research, 2006. Featured in article ‘Car Sales
Execs Feel Pain In The Wallet’, Retail Motor Industry Federation 2006.
17
‘Five year strategy for children and learners’. Department for Education and Skills, July 2004.
18
Bodyshop Sub-Sector Research. Automotive Skills Ltd, July 2005.
15
16
Skills Needs Analysis – UK
Page 27 of 130
July 2006
there is a danger that the core element of skilled workers is an aging part of the workforce,
meaning that the many people with core skills will leave the sector through retirement 19 .
Figure 8: Ethnicity of workforce
Wales
Wales
All sectors
Automotive sector
White
98%
100%
Mixed
0.31%
<1%
Asian or Asian British
0.64%
<1%
Black or Black British
0.24%
<1%
Chinese
0.11%
<1%
Other ethnic group
0.41%
<1%
Source: LFS Q1 2006. Figures sum to more than 100% due to rounding.
Utilising migrant workers and increasing the ethnic diversity of sector’s workforce may be another
way to combat skill shortages, given the imbalance in the retail motor industry that can be seen
from the above table. Anecdotal and qualitative evidence from employers suggests that in the
face of staff shortages some in the bodyshop industry, in certain regions in particular, are already
employing staff from the EU accession states.
The table shows that the situation in the
automotive sector is even worse than that across all sectors of the Welsh economy.
In this regard, projected skill shortages in the construction industry has led the industry’s Sector
Skills Council to develop ‘Step into Construction’, a programme which supports employers in the
recruitment of Black and Asian people who are ‘job ready’ 20 .
Later stages of the SSA will
determine whether or not there are any lessons from schemes such as this which can be applied
to the motor industry in future years.
19
Office for National Statistics. Labour Market Statistics Group the European Labour Force SurveyError! Bookmark not
defined. March – May 2005.
20
CITB-ConstructionSkills Equal Opportunities Statement, June 2006.
Skills Needs Analysis – UK
Page 28 of 130
July 2006
Figure 9: Occupational profile of UK Automotive workforce 21
Managers and senior officials
Professional
Associate professional and technical
Administrative and secretarial
Skilled trades
Personal service
Sales and customer service
Process, plant and machine operatives
Elementary
0%
5%
10%
15%
20%
25%
30%
35%
40%
P roportion of workforce
Automotive
All Sectors
The graph above is based on general classifications applicable to all sectors of industry, so the
terminology is generic rather than sector-specific. The graph illustrates strikingly the dominance
of skilled trade occupations, dominated in the sector by technicians. It also illustrates that the
motor industry has a higher proportion of managers in the workforce than the average for all
sectors of the economy. This is to be expected, given the high number of micro-businesses and
sole traders operating in the sector.
A more interesting statistic, however, is that the sector has the lowest proportion of managers
trained to the equivalent of S/NVQ level 4+ or equivalent. The following graph shows that only
14% of managers operating in the sale and maintenance of motor vehicles are qualified to this
level, compared to 39% across all sectors of the economy. This evidence would suggest that
managerial issues will need to be addressed in the formative periods of the next stages of the
SSA process.
21
Labour Force Survey 4 quarter average (2004q1 – 2005q2). Office for National Statistics.
Skills Needs Analysis – UK
Page 29 of 130
July 2006
Figure 10: Proportion of Managers with NVQ Level 4 or Higher, in Selected Sectors 22
Sale & maint. of motor vehicles
Hotels & restaurants
Retailing
Agriculture, etc
Wholesale distribution
Textiles & clothing
All industries
Health and social work
Public administration & defence
Computing services
Mining and quarrying
Education
0%
10%
20%
30%
40%
50%
60%
70%
P roportion with NV Q4 or hig her
Source: IER estimates based on the Labour Force Survey (LFS). Data is for UK.
3.6
Recruitment
Not being able to recruit the right kind of workers may be a reason why the sector has the fewest
managers of any sector with qualifications at S/NVQ level 4 and above.
Recent research would suggest however that this is not the case.
For example, 64% of
franchised dealers report having recruitment problems, but only 3% of these 64% report having
difficulty recruiting managers. For independent dealers, the figure is even lower. Of the 46% that
experience recruitment difficulties across all occupations, only 2% report having difficulties
recruiting managers 23 .
This evidence would suggest that employers generally find management vacancies fairly easy to
fill. Nevertheless, the data on qualification levels would seem to suggest that the vacancies are
not being filled with personnel that are qualified to the appropriate levels. Thus the problem could
surround employer expectation of the level to which potential managerial candidates are qualified.
22
Sectoral Management Priorities: Management Skills and Capacity. Research report prepared for the Sector Skills
Development Agency by the Institute for Employment Research, January 2005.
23
The Retail Motor Industry Pay Guide 2005. SewellsError! Bookmark not defined. Information & Research, 2005.
Skills Needs Analysis – UK
Page 30 of 130
July 2006
According to the same source, the real recruitment problems lie in the area of aftersales, most
notably technicians. Just over 20% of franchised dealers and 20% of independent dealers had
difficulty recruiting technicians and mechanics in 2004. There are also an appreciable number of
independent dealers describing the shortage of MoT testers as ‘desperate’ or something
similar 24 .
Employers have also expressed concerns about the number and quality of trainees coming
forward. Some have said that they are unprepared by the education system to meet the technical
skills required 25 . Possible reasons for this that have been suggested by employers include:
training providers not having up-to-date equipment
staff with insufficiently up-to-date skills who experience difficulties with new technologies
trainees not being sufficiently experienced in practical work for them to be able to ‘hit the ground
running’ when they start work.
Analysis of the Automotive Skills Needs Survey 2005 supports these data on recruitment
difficulties and identifies some key concerns. For example, the pool of possible employees is not
considered adequate 26 . Employers say that applicants are sometimes not fit for purpose and the
‘wrong’ people are pushed towards the industry:
“At the moment we haven’t got the right talent coming through
the door, because it (the industry) is not attractive enough.”
The same source would also suggest that the sector has a very poor image overall, thus having a
negative impact on the calibre of workers willing to consider it as a career option. Another reason
given for the low level of young people wishing to join the sector is the increased numbers of
young people who are being guided towards Higher Education.
Thus, the pool of possible
recruits available for sectors such as the motor retail sector is reduced.
Progressing from this, research has shown that there is doubt about the availability of graduates
willing to enter the sector, and the feasibility of using graduate level recruits to fill skill
shortages 27 . Other sources suggest that there are concerns over salary levels (starting salaries
24
Ibid.
Bodyshop Sub-sector Research. Automotive Skills Ltd, 2005.
26
Automotive Skills Needs Survey 2005. Automotive Skills, 2005.
27
Ibid.
25
Skills Needs Analysis – UK
Page 31 of 130
July 2006
for graduates need to be higher than those for non-graduates, for example) and experience of
having graduates ‘poached’ by other employers. There is also a concern about the extent to
which graduate qualifications are relevant to the sector 28 .
Evidence from the Automotive Skills Needs Survey 2005 suggests that from an employer and
employee perspective, low pay and poor working conditions relate closely to the sector’s inability
to attract and retain staff. The Pay Guide 2005 shows that ‘perks’ enjoyed by employees are also
on a downward trend 29 . Franchised dealers seem to be reducing the provision of private petrol
and medical plans.
3.7
Staff Turnover and Retention
It has been reported that staff turnover is a key issue for the motor industry 30 . Data for Wales is
not available, but data for the UK show that the figures fluctuate significantly from year to year.
The Pay Guide 2005 suggests that high staff turnover may be the reason why actual increases in
basic pay exceed the pay awards that responding businesses say they give.
Figure 11: Trends in staff turnover
25%
S taff turnover
20%
15%
10%
Franchised Dealers
Independents
5%
Bodyshops
0%
1997/98
1998/99
1999/2000 2000/2001 2001/2002 2002/2003 2003/2004
Y ear
Source: Sewells, The Retail Motor Industry Pay Guide 2005
Data for franchised dealers shows that staff turnover is likely to be highest in both sales and
service, something this is disguised within the data above. It is suggested that this could be due
28
Graduate and Extra-Sector Experience Research, Automotive Skills, January 2005.
The Retail Motor Industry Pay Guide 2005. Sewells Information & Research, 2005.
30
Staff turnover was first measured by the Sewells Pay Guide in 1998. The most recent figures are here quoted.
29
Skills Needs Analysis – UK
Page 32 of 130
July 2006
to the fact that both departments employ large numbers of executives and technicians.
Independent dealers have the highest turnover rate in servicing, a fact that is unsurprising given
that servicing and repair is an independent dealer’s core business 31 .
The impacts of staff turnover seem to be absorbed as far as is possible by micro businesses (10
or fewer employees), who often choose to spread work among the existing workforce. Larger
companies (11 or more employees) are more inclined to promote existing staff members or
recruit replacements 32 .
The Automotive Skills Needs Survey 2005 also indicates that staff turnover is still perceived as
high, and a problem for many companies in the footprint. Possible causes are many but may
include relatively low wages and anti-social or long hours, and may reflect a management skills
challenge. This is illustrated in the following comments made by employers:
“I don’t think they can take the pressure - it’s not a normal office environment. We work from 7.30
a.m. till 6 p.m. and often there are people here till 7.”
“They are paid such low wages, you know, the minimum wage, you sort of get what you pay for.
We only actually sacked one for being useless - the others left of their own accord when they
found a better paid job.” 33
There is, however, strong anecdotal evidence that training offers a return on investment and in
particular that training has a positive impact on staff retention:
“[Without training] the service levels would drop, the skills would not be updated, and it would also
worry me about de-motivating the staff.” 34
31
The Retail Motor Industry Pay Guide 2005. Sewells Information & Research, 2005
Automotive Skills Needs Survey 2005. Automotive Skills, 2005.
33
Ibid.
34
Ibid.
32
Skills Needs Analysis – UK
Page 33 of 130
July 2006
4
What drives skills demand?
This section of the report will consider the key drivers of skill demand in the motor industry. It will
consider general drivers of change, as well as assess the factors that affect business
competitiveness.
Consideration will also be given to international competition.
Before this,
however, an introduction to the current macro-economic situation in the UK will be given.
4.1
The general economic context
The Organisation for Economic Cooperation and Development has recently described the
economy of the United Kingdom as a ‘paragon of stability’. This conclusion was drawn from data
over the last decade that shows robust growth in GDP, small cyclical economic fluctuations and
inflation rates at target levels. 35 Although the output value of the Welsh economy is only 79.9% of
the UK average, data shows that output has been fairly stable across the last decade 36 .
Even though on a slight downward trend, the employment rate is also relatively high in the UK
compared to other G7 counties 37 . The number of people in employment for the three months
ending in March 2006 was 28.90 million, the highest figure since comparable records began in
1971 38 . High Welsh employment, currently 71.8%, has contributed to this, even though Welsh
employment is below the UK average 39 . Since 1995, consumer spending had increased 3.5%
year on year as growth in household consumption has increased above GDP for the last 10
years 40 . One reason for this is that households have been saving less. In the third quarter of
2005, households saving ratio was only 5.5% of disposable income 41 .
In this regard, total household debt has grown sharply as a percentage of disposable income over
the past decade and currently stands close to 150%. At the end of 2005, the secured debt to
income ratio was 121%, compared to 80% in 1995. The unsecured debt to income ratio was
24%, a figure which is almost double that of 10 years ago 42 . Data specific to Wales shows that
the situation in this country is no different – in early 2005 it was shown that the average Welsh
family was living above its means 43 . The implications of this could be significant to the motor
35
The Economic Survey of the United Kingdom 2005. OECD, 2005.
Economic Statistics Monthly – March 2006. National Assembly for Wales.
Employment Outlook 2006, The Organisation for Economic Co-operation and Development, June 2006.
38
Economic Trends, No.631. Office for National Statistics, June 2006.
39
Key Economic Statistics – March 2006. The National Assembly for Wales.
40
rd
Lustre lost. The Economist, March 23 2006.
41
Quarterly national accounts briefing note: 2005Q3. The Office for National Statistics, 2006.
42
Debt facts and figures. Credit Action, June 2006.
43
WalesError! Bookmark not defined. is the land of the big spenders. IC Wales, June 9, 2005.
36
37
Skills Needs Analysis – UK
Page 34 of 130
July 2006
industry – if households borrow less in the future, disposable income available for the purchasing
of vehicles will obviously decrease.
Indeed, an article by the Economist suggests that these trends cannot continue. It argues that
both government and household spending is likely to decrease in the coming years, meaning that
GDP growth will have to be sustained by other sources. One such source could be investment by
businesses. Businesses are not likely to invest however if they think that consumer spending is
likely to be weak. 44
Despite this, the OECD still expects a short-term pick-up in momentum, with a strengthening in
private consumption and investment expected to take GDP growth to around 2½ per cent in 2006
and 3% in 2007. Headline inflation is projected to move slightly higher in the short term in
response to the recent rise in domestic fuel prices. 45
This is the economic context in which the analysis of sectoral data will need to be considered. It
is obvious from the above data that operating as a business across all sectors of the UK economy
may be more difficult in the coming years than in has been in the past decade. The next section
will start by considering how the economic conditions above have affected demand in the motor
industry.
4.2
The economic performance of the sector
4.2.1
The UK car market
In 2004, a total of 2,567,269 new cars and 389,923 new commercial vehicles were registered in
the UK. Of these 2,567,269, a total of 90,952 were in Wales. 46 The UK as a whole was the
second largest new car market in Europe after Germany (3,266,826 in 2004).
There were
7,731,609 used cars sold in the UK in 2004. In the same year there were over 30 million cars in
use on the UK’s roads. Recent evidence suggests however that, in line with a slowing of the UK
economy, new car registrations have fallen by about 100,000 in 2005 compared to 2004 47 .
44
rd
Lustre lost. The Economist, March 23 2006.
Economic Outlook No. 79. OECD, 2006.
46
Ibid.
47
Motor Industry Facts 2006. SMMT, 2006.
45
Skills Needs Analysis – UK
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July 2006
The following chart shows the number of cars registered in the UK since 2000:
Figure 12: UK Car registrations 2000 – 2005
2700
Num ber (000)
2600
2500
2400
2300
2200
2100
2000
2000
2001
2002
2003
2004
2005
Year
(Source: SMMT Motor Industry Facts 2005)
As the figure shows, UK new car registrations have been rising steadily over the past few years,
even if they have slowed recently. This rise is due in part to the fact that people are changing
their cars more often. The average age of a car in the UK car parc has decreased from 7.3 years
old in 1997 to 6.8 in 2003 48 .
The general increase in new car registrations is happening at the same time as steady long-term
upward trend in the annual average sales per franchised outlet dealer up to 2004. However,
these can also be seen to be slowing slightly in recent times:
48
The Automotive Industry Handbook 2005. Sewells, 2005.
Skills Needs Analysis – UK
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July 2006
Avera ge S ales P er Ou tlet
Figure 13: Trends in Registrations per Franchised Dealer Outlet
600
500
400
300
200
100
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Year
Source: Manufacturers, featured in The Automotive Industry Handbook 2005, Sewells 2005.
The used car market also shows signs of upward trends. Figure 14 shows recent increases in
both the volume of cars sold, and their corresponding value.
Figure 14: The UK used car market volume and value
8
35
6
30
5
4
25
3
2
Va lu e (£b illion )
Volu m e (m illlion u nits)
7
20
1
0
1994
1995
1996
1997
1998
1999
Volume
2000
2001
2002
2003
15
Value
Source: BCA Used Car Market Report 2004 featured in The Automotive Industry Handbook 2005, Sewells 2005.
Skills Needs Analysis – UK
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July 2006
Looking at other parts of the sector, the available data shows a slight upward trend in the net
value of the UK body repair industry:
Total market value excl VAT (£billion)
Figure 15: Value of UK body repair market value to repairers
6
5
4
3
2
1
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
Y ear
Source: Sewells' Bodyshop Opinion Survey 2004 as featured in Sewells - The Automotive Industry Handbook 2005. Data
for 2002 is unavailable.
4.2.2
UK Fleet Registrations
Fleet registrations in the UK also continue to grow. The Automotive Industry Handbook shows
the 25-plus fleet segment reached a new high of 1.1 million registrations in 2004. This is an
increase of about 2.4% on the previous year. The sector has now gone over the one million mark
for the eighth consecutive year. The fleet share of the new car market also rose by 1.2% in 2004
to 42.6%.
It is estimated that the size of the total business and fleet market is larger than this, however.
Vehicles may be purchased for business purposes but not logged as business/fleet – especially
in the sub-25 micro-fleets. There are estimates that have put the combined 25-plus fleet and sub25 fleet business sectors’ share of the new car market at over 60 per cent 49 .
49
The Automotive Industry Handbook 2005. Sewells, 2005
Skills Needs Analysis – UK
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July 2006
4.2.3
Commercial vehicles
Commercial vehicle registration decreased slightly by 1% in 2005 (385,969 registered) compared
to 2004 (389,923 registered). This static picture follows year on year increases since 1999 50 .
The demands of commercial vehicle customers differ somewhat from those of passenger car
keepers. For CV operators, downtime is lost income, which may have a significant impact on
business success. So, for example, all-hours maintenance and repair services are commonly
offered combined with a “can-do” engineering-focused, problem-solving ethos in support of
customer needs. Overall the dynamics of sales and after-sales activities are rather different from
that found in the passenger car sector.
4.2.4
Motorcycles
According to the Department for Transport’s Compendium of Motorcycling Statistics 2006
motorcycle traffic has increased by an estimated 37% in the last ten years.
Although
motorcyclists make fewer trips on average in 2004 than they did annually twenty years ago, the
distance traveled and the time spent traveling on those trips has increased over the same period.
The most recent government statistics found that there are more than 1.6 million motorcycles in
Great Britain.
The ownership rate in Wales in 2004 is fairly low (10.8 per 1000 head of
population) but not as low as in Scotland.
According to the Motor Cycle Industry Association (MCIA) registrations of Motorcycles and
Scooters rose 9% in the year to March 2006 compared to the previous year, whilst Mopeds fell
slightly. Consumers in this sector range from very demanding biker ‘experts’ to commuters and
all points in between.
4.2.5
Maintenance and Repair
The Automotive Industry handbook shows that the servicing and repair sector is one activity that
is showing some signs of a small decline. Although the cost of servicing has increased due to
higher labour costs, the servicing and repair market is a key activity which is experiencing a
reduction in value.
The trend in replacement of components rather than repair, and the use of sensors to identify
which components require changing, impacts both on the volume of servicing and on the skills
and time needed to deliver the service 51 .
50
Motor Industry Facts 2006. SMMT, 2006.
Skills Needs Analysis – UK
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July 2006
Service demand among owners of older cars is likely to be more influenced by the relative cost of
servicing than those of younger cars. Owners of older cars are, therefore, more likely to defer
having a car serviced if there is an economic downturn, while owners of younger cars may be
tempted to use lower cost service outlets such as independent garages. This represents a threat
to the maintenance and repair market 52 .
4.2.6
Other Activities
The diverse footprint of this report includes some highly-customer-focused activities such as daily
rental, fast-fit and roadside recovery to name but three. Very specific skills sets are needed in
different occupations in these areas of work, but it is probably true that these can be considered
in relative contextual relationship, rather than as different sets of requirements. Sector Skills
Councils that have undertaken SSAs have found many cross-sectoral skills needs common to all,
and the same is true within the Automotive Skills footprint. In order to gain greatest benefit for the
largest possible number of employers, the focus must be on where skills have greatest impact on
profitability.
4.3
International competition
The previous data has shown some upward trends in the value and volume of much of the motor
industry. Having looked at key data on the UK car market, comparisons to other European
countries will help to show how UK car market is performing relative to EU comparator countries.
The following table presents some key figures for the European motor industry.
51
52
The Automotive Industry Handbook 2005. Sewells, 2005
The car service and repair market in the UK – 2005. Mfbi, CMS 2005.
Skills Needs Analysis – UK
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July 2006
Figure 16: Selected European automotive statistics
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UK
EU
Population
(‘000s)
Population
density
(per sq
km)
New Car
Registrations
Car Parc
Eurostat
2004
Eurostat
2003
ACEA 2004
ACEA 2004*
8,140
10,396
5,398
5,220
60,200
82,532
11,041
4,028
57,888
452
16,258
10,475
42,345
8,976
59,700
383,047
97
340
125
17
110
231
84
58
191
174
480
114
83
22
244
311,292
484,757
121,490
142,439
2,013,709
3,266,825
289,691
154,136
2,264,688
48,234
483,745
197,645
1,517,286
264,246
2,567,269
14,127,452
No.
Franchised
Sales outlets
4,109,129
4,818,571
1,914,370
2,331,190
29,900,000
45,375,526
3,960,189
1,582,833
33,973,147
GMAP
European Car
Distribution
Handbook
2004
2,581
3,575
1,239
993
12,774
18,830
1,554
833
6,857
7,151,000
4,100,000
19,541,918
4,113,424
30,267,204
192,249,487
3,132
1,736
6,428
1,924
5,777
68,233.0**
Source: SMMT Motor Industry Facts 2006
*EU excluding Luxembourg
The table shows that Germany and the UK have similar population densities. However, Germany
has 3 times as many franchised sales outlets. The fact that Germany has a 30% larger population
can only account for some of the difference. The German market is even more fragmented than
the UK market. Therefore, statistics showing annual new car sales per franchised sales outlet will
give us greater insight into how the two markets are operating.
By analysing these data in Figure 16 it is possible to see quickly how popular the motor car is in
the UK, and how efficient the downstream motor industry is in the UK. This is shown in Figure
16a:
Skills Needs Analysis – UK
Page 41 of 130
July 2006
Figure 16a: Analysis of Data from Figure 16 Ranked by Lowest Outlet Density
Annual
Registrations
per person
Rank
^
Parc# per
Person
Rank
^
Franchised
Outlets Per
Person*
Rank
~
UK
43
2
507
3
10
1
Italy
39
4
587
1
12
2
Greece
26
13
359
14
14
3
Spain
36
8
461
8
15
4
Portugal
19
15
391
13
17
5
EU average
37
7
502
5
18
6
Finland
27
12
447
10
19
7
Netherlands
30
10
440
11
19
8
Ireland
38
5
393
12
21
9
France
33
9
497
6
21
10
Sweden
29
11
458
9
21
11
Germany
40
3
550
2
23
12
Denmark
23
14
355
15
23
13
Austria
38
6
505
4
32
14
47
1
464
7
34
Belgium
Source: SMMT Motor Industry Facts # The parc is the total number of registered
2006
vehicles in any given country.
* Multiplied by ’00,000s.
15
^ Ranked by value
~ Ranked by efficiency
Although the market in Germany is the largest in Europe it is characterised by a density of
franchised outlets over twice as high as that found in the UK. Such outlets are typically smaller
and more fragmented than is the case in the UK where persistent consolidation over several
decades has concentrated outlets. The same is true of the market in France.
These structural differences have implications for skills, although it should be remembered that
overseas competition is a very minor factor in the automotive trade downstream of the factory
gate. Consider if a customer lives in Wales, it may not be practical to have their car serviced in
Belgium.
Skills Needs Analysis – UK
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July 2006
Likewise, with the recent relative equalisation of vehicles prices across Europe the incentive to go
to the trouble of sourcing a new car overseas has been greatly reduced to the point where it has
no measurable impact on the UK market.
Figure 17: European registrations per Franchised Sales Outlet
444
330
Luxembourg
Denmark
Portugal
Austria
Belgium
Sweden
Finland
Netherlands
France
Germany
Ireland
186 185 173
158 154 143
137 136 121
114 98
Greece
207
EU (15)
Spain
Italy
UK
236
Source: The Automotive Industry Handbook 2005. Sewells, 2005
The graph shows that even accounting for population and population density differences, the UK
registers more cars per franchised sales outlet than Germany. The following table also shows a
strong UK performance in the sales of used vehicles:
Skills Needs Analysis – UK
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July 2006
Figure 18: European used car sales per 1,000 people
140
120
100
80
60
40
20
Spain
Portugal
Italy
Norway
Denmark
Germany
Belgium
France
Austria
Netherlands
UK
0
Source: The Automotive Industry Handbook 2005. Sewells, 2005.
4.3.1
Summary of economic performance
It has been shown in the sections above that the UK and thus Welsh economy is not performing
very strongly at this time, with GDP decreasing and consumer spending near to static. It has also
shown that the retail motor industry seems to be showing signs of some economic decline, with
new car registrations down 100,000 in 2005 compared to 2004, and fleet registrations also down.
It has also been shown, however, that some of the UK motor industry has been growing in
volume and sales, such as the used car market.
A logical deduction to make from this data would be that businesses in Wales are yielding at least
average profit margins. Even if the economy and the sector are showing signs of slowing now, it
would still be expected that in the years of growth previous to 2005, profitability would be healthy.
This is the subject of the next section.
Skills Needs Analysis – UK
Page 44 of 130
July 2006
4.4
Profitability
National breakdowns of profitability figures are given below, but the following two figures show
that profitability in the sector across the UK is low, and has been for at least the last five years.
In 2004, the average profit of a franchised dealership was just 0.7 per cent. (The AM Top 50
franchised dealers with profit figures can be found in Appendix 2).
Figure 19: Franchised dealerships – net profit as a percentage of turnover
9 month national average 2005
12 month national average 2004
12 month national average 2003
12 month national average 2002
12 month national average 2001
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Net p rofit a s a % of tu rn over
Source: Driving Force, Trevor Jones Chartered Accountants, Issue 12, 2005.
The regional dimension to these figures is also significant. Businesses operating in the South
East and London have found it incredibly difficult to make a profit, with many returning a loss.
The Chief Executive of one of the UK’s largest franchised dealer groups has commented that
making a profit in the capital is impossible, and that London is the most expensive places for
motor trading in the world 53 . This is in contrast in business in other parts of the country. Wales
and the South West are close to the average profit margin for businesses across the sector:
53
Forward Drive. RMSI, Issue 09, April 2006.
Skills Needs Analysis – UK
Page 45 of 130
July 2006
Figure 20: Net profit as a percentage of turnover (regional figures):
Northern Ireland
Scotland
North West
North East
Midlands and East
South West and Wales
South East
London
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Net p rofit as a % of tu rn over
Source: Driving Force, Trevor Jones Chartered Accountants, Issue 12, 2005.
Although the figure above shows that profitability is generally very low, it is worth noting that there
are still some very profitable businesses operating within the sector. Lookers, the eighth largest
franchised dealer group, have outperformed the rest of the franchised dealer market with their car
supermarket model 54 .
Generally, however, profits are low, and it has been argued that manufacturers are now trying to
cut costs in the supply chain by concentrating on the dealerships distribution network. One
response to this threat suggested by the Retail Motor Industry Federation is that dealerships need
to send a collective voice to manufacturers, thus providing ‘strength in numbers’ 55 . Another
solution would be for dealerships to consolidate, becoming large enough entities in themselves to
dictate terms to manufacturers. This is the subject of the next section.
54
55
Lookers' qtr 1 results well ahead of expectations. AutoWired, 18 April 2006.
Carmakers eye dealers for profit chop. AutoWired, 09 June, 2006.
Skills Needs Analysis – UK
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July 2006
4.5
Consolidation
There are many reasons why consolidation is taking place in the motor industry. After providing
evidence that consolidation is taking place in the sector, the following section will highlight some
of the main reasons why this is happening. All of the reasons shown will have some implications
for skill requirements.
4.5.1
A downward trend
The number of UK franchised points has decreased overall (despite a slight increase in 2004)
from 2000 to 2005. Even more interestingly, the number of franchise points has almost halved
from 10,201 in 1975 to 5,927 in 2004. This however has not had a significant effect on new car
registrations or the car parc. 56
Figure 21: Number of Franchised Sales Outlets
6100
6000
Num ber
5900
5800
5700
5600
5500
5400
2000
2001
2002
2003
2004
2005
Y ear
Source: Sewells, The Automotive Industry Handbook 2005
Consolidation of dealer networks has increased as a result of the growing power of dealer groups
within them. The 1990s saw a large number of acquisitions of dealership sites by other dealers to
form small regional dealer groups with up to five or ten dealerships, and larger national or
regional dealer groups with up to 100 dealerships. The introduction of the Supply of New Cars
56
The Automotive Industry Handbook 2005. Sewells, 2005.
Skills Needs Analysis – UK
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July 2006
Order in 2000 and the new Block Exemption Regulation in 2003 resulted in a further
concentration of outlets, with larger dealer groups acquiring smaller groups as well as individual
dealerships. This was a consequence of vehicle manufacturers reorganising the structure of their
dealer networks to accommodate the growing power and influence of large dealer groups 57 . (The
AM Top 50 franchised dealers by turnover can be found in Annex 2).
4.5.2
Reasons for consolidation
4.5.2.1
Increased bargaining power with manufacturers
Consolidation is a UK wide issue, and no different in Wales than the rest of the UK economy.
The reasons why businesses are consolidating are as relevant to Wales as any other part of the
UK.
Pendragon Plc operates across every region of Great Britain, and it is their stated aim that
through business acquisitions, it will ‘build large-scale relationships with key manufacturers’ 58 .
One benefit that consolidation may bring to dealerships is to increase the reliance of
manufacturers on large dealer groups. Manufacturers and dealers have differing agendas, and
dealerships, as the previous section on profitability has shown, are currently being placed under a
pressure by car manufacturers.
The overproduction of cars means that dealers are being
‘encouraged’ to take on more stock by manufacturers, leading to pre-registration of vehicles
which haven’t actually been sold 59 .
Although the resulting reduced car prices are favoured by consumers, there is financial pressure
being placed on dealers (e.g. stock holding and debt costs as well as lower margins). Many may
choose to sell, and thus consolidation arises. If consolidation results in more franchises being
controlled by one large dealer group, manufacturers will be increasingly dependent on that dealer
group, rather than the other way round. 60
If dealerships are better placed to set their own agendas, the industry may see a move away from
manufacturers forcing dealerships to act in a certain way. Thus, business activities may become
broader, and skills requirements more diverse.
57
The UK Car Body Repair Market 2005. MFBI (A division of Trend Tracker Limited), Report reference 143, 2005.
Acquisition of Reg Vardy PLC. News, Pendragon Plc, 2006.
59
Consolidation and the rise of the east. Business Money, April 2006.
60
Ibid.
58
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July 2006
4.5.2.2
Increased drive for market share
The previous section showed that profits in the sector are generally low.
Another way that
companies can seek to change this situation is through increasing their overall share of the UK
market.
Only recently, the UK’s largest franchised dealer group, Pendragon Plc, agreed to
acquire Reg Vardy Plc, at that time the UK’s third largest franchised dealership. Pendragon hope
that the agreed acquisition will enable them to grow with their selected manufacturers 61 .
It remains the ambition of Pendragon to hit a double figure market share 62 . It is also likely that
other major franchised dealer groups will be seeking takeover opportunities.
This aim is possibly fuelled in part by what has happened in other areas of retail such as the food
industry. The rise of Tesco and Asda, for example, can be used to assess the likely impact on
car retailing. Small dealer groups are similar to corner shops, and these smaller dealerships will
continue to decline in number with the continued growth of leading franchised car dealership
groups. 63
This activity will almost certainly have implications for skills and training demand. As companies
get bigger, economies of scale are utilised, and labour requirements reduce. Thus, the demand
for skills and training may decrease, although the reduction in staffing could also lead to
increased needs for multi-skilling. On the other hand, the more that economies-of-scale are
utilised, the more profitable a business may be.
The available resources for training and
development may therefore be greater.
4.5.2.3
Investment in physical capital
The demands for investment in physical capital may have two effects. In the first place, the
requirement to spend on refurbishments to premises, for example, may force some companies
out of business. Alternatively, the bigger companies get, the more they can optimise economies
of scale, and begin to reduce investments in physical capital.
The cost of opening and refurbishing dealerships is high, and with already low profit margins,
available funds for investment in training become low.
Last year saw Sytner open a new BMW dealership that cost £19m, with other retailers having
opened £10m-plus Mercedes showrooms. JD Cleverley in Cardiff also opened a 5 acre site for
61
Acquisition of Reg Vardy PLC, Pendragon Plc, 2006.
Dealer Consolidation - When size matters for the watchdogs. The IMI Magazine, 2006.
63
Consolidation and the rise of the east. Business Money, April 2006.
62
Skills Needs Analysis – UK
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July 2006
£7m, reported in March of this year. Historically, these motor retailing locations have not been
considered to be high-cost.
The above data must be considered in the context of generally low profitability in the sector.
Vehicle manufacturers can demand that franchised dealerships makes refurbishments often
running in hundreds of thousands of pounds. A recent survey of National Franchised Dealers
Association members shows that the average cost of refurbishment implementing manufacturer
standards has been £683,071 since 2003 64 .
The chairman of the NFDA has made the following comment:
“At a time when dealers have to fight for every sale in return for
average profits of just 0.5 per cent, every penny counts. If these
standards do not help to shift more stock, it is difficult to justify the
“investment” dealers are required to make in implementing them.” 65
With average profits of 0.5 per cent, and the high costs of refurbishment detailed above, it is easy
to deduce that training budgets will be small if existent at all.
This obviously has serious
implications for future skills demand – many businesses may decide that operating in the industry
in unviable, possibly reducing the pool of available labour.
4.5.2.4
Increasing cost of land
The increasing cost of land, especially in London and the South East, has also led many
businesses to consider leaving the motor trade altogether. A recent study has shown that there is
a growing trend among freehold-owning dealers based in the south east to sell their sites and exit
the industry altogether.
The high value of land has led many dealers to sell their sites for
66
redevelopment . This gives opportunity for other companies to buy these businesses and thus
increase their own market share.
Wales is not comparatively expensive, with London obviously more expensive than any other
region, with values in the capital averaging about £2m per acre.
The South East is also
expensive, with land at around £1.2m per acre. This situation is forcing dealers to reconsider
64
RMIF car dealer attitude survey says manufacturer standards cost too much. Auto Industry, April 2006.
Dealers Wave White Flag On Manufactuer Standards. RMIF, 2006.
66
Dealer profitability slumps to record low. Motor Trader, 20 March 2006.
65
Skills Needs Analysis – UK
Page 50 of 130
July 2006
trading within the M25. Indeed, HR Owen is selling some of its sites, while Capital Chrysler has
lost all of its presence in the capital 67 .
Demand for land to be used for alternative means is also putting pressure on land values, with
values in the West Midlands just under £1m per acre. This is compared to the South West of
England and Scotland, where land values are just over £300,000 per acre. One independent
dealer has made the following comment:
I can work for 60 hours a week and make a six figure loss this year, or
I could sell the site for flats for £6m. Why am I even thinking about
it? 68
It is unlikely that small independent dealers, such as those run by families, will want to compete
when they are up against much bigger businesses. Pendragon, the UK’s largest franchised
dealer group, recently set up a joint-venture property business with Royal Bank of Scotland
through which it raised £98m through a sale and lease-back of 34 of its 250 sites. Lookers has
also stated that new car sales are not where it makes its money. 69 However, Sytner, another
franchised dealer group, has argued that it intends to focus on selling and servicing cars only, not
wishing to make money from buying property 70 .
4.5.2.5
Summary
Consolidation is taking place in part because large businesses wish to increase market share and
profitability by taking advantage of economies of scale. This dynamic is also fuelled by the
difficulties experienced by small businesses to make reasonable profits due to pressures to invest
capital and the temptation to sell land at high prices. There are, however, other drivers affecting
the sector, and other reasons why profitability may be low. These will now be discussed.
4.6
Drivers of business competitiveness
This section considers the factors in Wales affecting productivity and profitability and the demand
for goods and services in the sector.
It will start, however, with a brief summary of the
productivity performance of the sector.
67
Rising land values and rent costs hit retailers. AM Online, December 2005.
Forward Drive. RMSI, Issue 09, April 2006
69
Ibid.
70
Ibid.
68
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4.6.1
Productivity
In general, the economic performance of the UK in terms of economic growth, has, in the last 20
years, been weak compared to the USA. However, compared to the EU as a whole it has been
strong, securing real increases in GDP above the EU average throughout the last 20 years 71 .
However, this superior performance has been entirely due to the UK achieving more rapid
employment growth compared to other EU countries.
The difference is not accounted for by
productivity growth. Productivity performance in the UK has been weak 72 .
It should be noted at the beginning of this section however that productivity in vehicle
maintenance and repair is strong compared to European comparator countries.
The SSDA
Research Report No. 6 has found that the vehicle maintenance and repair sector performs
strongly when compared to the European Union 15 group of countries. Indeed, the sector is in
the top 5 of the 15 for productivity performance 73 .
It is with this background that the next sections look at drivers of business competitiveness.
4.6.2
Patterns of consumer demand
The changing volume and pattern of consumer demand will almost certainly impact upon the
requirement of skills in the sector, whether this is a positive or negative impact.
The section above highlighted the fact that high levels of household debt currently exist. The
effect that this could have on consumer demand is significant. Indeed, one industry figure has
argued that a high level of credit card debt has left consumer confidence low. It is suggested that
as people try to repay these debts, disposable income will be less, and thus buying a new car
less of a priority 74 . The same article argues that high fuel prices are also putting people off
investing in new and used cars. This pattern would suggest that the demand for vehicle servicing
and repair may begin to decline as new and used car sales fall.
One business is Wales has tried to combat this suspected decline by opening what is Europe’s
biggest showroom in Cardiff. Audi have opened a Centre that incorporates 19 workshop bays,
71
EU Productivity and Competitiveness: an industry perspective. O’Mahoney and van Ark 2003, quoted in The UK Skills
and Productivity Agenda: The Evidence Base for the SSDA’s Strategic Plan 2005-2008. Campbell, M and Garrett, R,
SSDA Research Report 6, 2004.
72
The UK Skills and Productivity Agenda: The Evidence Base for the SSDA’s Strategic Plan 2005-2008. Campbell, M
and Garrett, R, SSDA Research Report 6, 2004.
73
Ibid.
74
Dealers hit by troubled consumer finances. AM Online, May 2006.
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conference and training facilities for up to 50 as well as a cafe with internet bar and a small
museum 75 .
In this spirit, recent evidence would indicate that there is a growing consumer demand for used
cars, as residual values remain high. Indeed, the improving value of residual values of used cars
is down to increasing consumer demand 76 . Values continue to be strong for diesel, small and
family cars. There may therefore be skills and training needs as businesses try and adapt to
these trends.
The following factors will also have significant effects on patterns of consumer demand.
4.6.3
Government policy
The policy of both national government and the devolved administration could drive consumer
demand and business behaviour, and thus the direction of the sector. The skills and training
needs of the workforce could also be affected in many ways.
A few examples have been
selected.
4.6.3.1
Super Complaint – National Consumers Council
Under Section 11 of the Enterprise Act 2002 (EA 2002), consumer bodies designated by the
Secretary of State for Trade and Industry are able to submit “super-complaints” to the Office of
Fair Trading where they consider that there is ‘any market feature, or combination of features,
such as the structure of a market or the conduct of those operating within it, that is or appears to
be significantly harming the interests of consumers’ 77 .
The threat of a super-complaint was
raised against the motor industry by the National Consumer Council in March 2006, and could
result in mandatory legislation to ensure quality and standards.
This complaint has now been delayed, as the NCC has recognised the significant investment in
skills based initiatives taking place in the sector. However, the NCC has highlighted a range of
areas that it would like to see improved, and thus the super-complaint is still something that could
take place in the sector 78 . Any form of quality standard would have significant implications for
skills and training requirements.
75
th
Largest showroom in Europe opens in Wales. AM Online, 26 February 2006.
Better used car demand cuts rates of depreciation. AutoWired, October 2005.
77
Super-complaints Fact Sheet, the Department for Trade and Industry, 2005.
78
Automotive Skills will continue to promote skills - based initiatives to help ensure the industry avoids a ‘Super
Complaint’. Press release from Automotive Skills, March 2006.
76
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4.6.3.2
Green schemes
Government policy could also affect the demand for skills through legislation on vehicle
emissions. For example, Band A vehicles (those that release under 100 g/km per kilometre)
currently incur no tax costs at all 79 .
There are also examples of manufacturers manufacturing ‘green cars’ despite any government
legislation being in place such as a low carbon grants scheme (now discontinued). For example,
Honda has said it will build these cars regardless of government pressure and has said that they
will continue to develop “today's hybrid technology, and tomorrow's fuel cell vehicles” 80 .
4.6.3.3
Employee-related legislation
The government can also impact upon businesses through legislation affecting employment.
For instance, discussions are currently taking place to consider statutory paternity leave of six
months.
It is argued by the RMIF, for example, that “such a move would add yet another layer
of cost and bureaucracy to the administrative burden which small and medium sized businesses
already shoulder” 81 . Further, it has been suggested that the proposals could threaten the future
prosperity of many small and medium sized businesses, potentially adding “considerable costs in
terms of recruitment, training and loss of productivity.”
4.6.4
Technological change
There are two ways in which technological change can affect the skills needs of motor retail
businesses. One way is how able personnel are to adapt to changes in technology such as I.T.
hardware and software. The second way is how technological advances affect the manufacture
of motor vehicles themselves, and thus the requirements for maintenance and repair.
These
create two key groups of skills needs: high-level problem solving skills, and technical diagnostic
skills. The latter are needed in order to cope with very complex vehicle systems (e.g. adaptive
suspensions, telematics, DSC, ABS, ECUs, etc.).
79
The 2006 Budget Changes to Cost of Vehicle Tax, the DVLA 2006.
Grant-less green cars difficult concept to sell. AutoWired, June 2006.
81
6-months paternity leave will be too costly. AutoWired, October 2005.
80
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4.6.4.1
Information and Communications Technology
The first of these problems has been highlighted by a report which shows how ageing IT hardware
is having detrimental effects on dealer performance 82 . It is argued that old computers are leaving
dealers struggling to make the most out of any investment they make in new software. Dealer
management system specialist Pinewood reports that IT hardware in many dealerships is so out
of date that it is of “little more than ‘junk’ value”. The Pinewood research covered 1,040 dealers
using its own and other Dealer Management Systems (DMSs). Problems with IT were identified
in at least 58% of the dealers surveyed.
The problem of having outdated hardware takes two forms:
•
It is being used in conjunction with old software.
•
investment in software has been made but not hardware
In the first instance, technology will simply be very out of date, probably holding back the
business, with the whole system liable to “break down regularly”. The situation highlighted in the
second bullet is sometimes workable, but more often the old computers ‘clip the wings’ of the new
Dealer Management Systems (DMS).
The research conducted by Pinewood has found that the average age of the core software
behind the dealer management systems being used in franchised dealerships was more than 10
years old. It argues that this statistic puts the dealer sector ‘firmly in the dark ages in IT terms,
and years behind the software technology used in other retail industries’ 83 .
This has implications for other integrated IT systems, such as computer diagnostics for which
highly skilled technicians are required. From 2006 MOT testing (regulated by VOSA) is now
entirely computerised, replacing the old ‘pen’n’paper’ certificate system. This too has created IT
and related skills difficulties for MOT testing stations.
82
Old computers leave dealers struggling to make the most of their software investment. Pinewood Research, on
www.pinewood.co.uk, 11/04/2006.
83
Ibid.
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4.6.4.2
Use of the internet
This IT problem does not seem to have adversely affected how franchised dealers use the
internet.
Indeed, franchised dealers are very likely to carry out business on the internet,
according to research carried out exclusively for Motor Trader 84 .
The Franchise Barometer has found that 96% of retailers have their own website to promote
sales and services. Opinion is divided, however, over how the internet will be used over the next
five years. Just over half (57%) of traders believe it is set to expand and become a major part of
the business activity, whilst 39% believe that it will not grow enough to make a significant impact.
4.6.4.3
Advancement in vehicle technology
Advancement in vehicle technology will mean that there is a requirement for skills in the motor
industry workforce that do not currently exist.
For example, the SMMT Foresight Vehicle
suggests that in the next 10-20 years, the following developments could be fostered into vehicle
production 85 :
•
zero failure electronics with self-monitoring circuits and active intervention
•
switches that do not have to be pressed but respond to finger pointing
•
sleep/drowsiness monitoring
•
on-board computers that predict vehicle and pedestrian movements and automatically
trigger the car to respond to an emergency
•
real conversation voice control
Although manufacturing developments are not the subject of this report, all of these
developments will require the maintenance and repair and fault diagnosis of advanced
electronics. Any technological developments in vehicle manufacture will possibly feed through to
the maintenance and repair sector.
4.6.5
Globalisation
Although the automotive industry as a whole is highly globalised, that part of it downstream of the
factory gate for which Automotive Skills is responsible is focused almost entirely on the domestic
market. Only a tiny proportion of enterprises in the footprint have any operational reach outside
the UK and those are mainly involved in sourcing vehicles and parts.
84
85
Franchised dealers embrace technology. MotorTrader, 21 Apr 2005.
Britain’s Automotive Industry Leads the World. Carsource, 2006.
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However, ownership of UK retail operations is far more international, even if managed in the UK.
Of the AM100 (AM magazine, June 2006), 7 retail groups are owned by foreign vehicle
manufacturers with a combined turnover of £3.7bn, accounting for just over 10% of the total
AM100 turnover of £35.6bn.
A number of other AM100 dealer groups are foreign owned
including the third largest, Sytner Group – bought in 2002 by Roger Penske’s United Auto Group
(UAG) of the US. The turnover of this business in the UK is £1.8bn, with 105 outlets employing
nearly 4,500 staff. UAG has outlets in Germany as well.
In the daily rental sector, many household names are part of major multinationals, for example:
•
US-based Avis Group (including Budget) is owned by Cedant.
•
Hertz was owned by Ford until a private equity consortium bought it in December 2005.
•
Tulsa (Oklahoma)-based Dollar/Thrifty has franchises around the world, including the UK
•
Alamo/National owned by Vanguard Car Rental is curiously also based in Tulsa with a
significant presence in the UK
•
Europcar became a wholly-owned subsidiary of Volkswagen in 1999 until being acquired
by European venture capitalists Eurazeo in 2006.
The Block Exemption regulation could have some impact on how some businesses in the sector
work across different countries.
The location clause of the European Commission’s Block Exemption Regulation 86 essentially
prevents dealers from expanding outside their own territories. However, from October 2005, any
dealer wishing to sell passenger cars and commercial vehicles will be able to set up secondary
sales and delivery outlets anywhere within the EU, Norway, Iceland and Liechtenstein. This
should significantly strengthen competition between dealers across the Single Market 87 .
Fleet management providers will probably benefit, as they will have the opportunity to supply their
international clients on a pan-European basis more easily. A recent article has argued that a
large number of multinational users want European contracts, due to the savings they can
secure. Fleet managers in countries where the use of company cars is widespread could benefit
most of all 88 .
86
For more on the BER, see section 4.7.
Block exemption for cars fact-sheet. The Department for Trade and Industry, 2006.
88
Abolition of location clause under block exemption regulation draws near. Pricewaterhouse- Coopers LLP, 2005.
87
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It will be important that managers in all parts of the sector respond to these changes positively.
Working practice may not be the same as it has been in the past, and new opportunities for
growth and development may present themselves. The implications for skills needs could be
significant in terms of management and leadership.
4.6.6
Innovation
According to the OECD, across a range of conventional indicators, innovation performance in the
UK is mediocre in comparison with the best performing OECD countries 89 .
At the national level, innovation is defined by the Welsh Assembly Government as the successful,
commercial exploitation of new ideas and a key driver of productivity. Other external factors
affect productivity and profitability, but ‘innovation generates competitive advantage and promotes
sustainable growth, with all that that means in terms of more added value jobs and greater, more
sustained, prosperity’. 90
This point has also been argued at the sector level. One analyst has said that the UK automotive
industry needs to redefine its role to ensure that it has a healthy future in what is ‘a rapidly
evolving global industry’. Much of the literature centres on innovation in vehicle manufacturing,
which is not of primary concern in this report. However, it has been argued previously that
innovations in vehicle manufacture will possibly have implications further down the line in terms of
vehicle maintenance and repair.
In this regard, it is argued that Britain cannot just concentrate on value-added products if it is to
survive the competition from Eastern Europe and the Far East. Suggestions include the UK
selling prestige brands where price pressures are less intense and also in niche markets where
the country could ‘harness its design and development expertise’ 91 . If this advice was heeded,
future innovation in vehicle manufacturing would possibly lead to greater demand for these types
of car and thus new markets in new and used car sales. As suggested above, any innovations in
car design will have a direct impact upon the skills needed for vehicle maintenance and repair.
89
The Economic Survey of the United Kingdom 2005. OECD, 2005.
Wales for Innovation. The Welsh Assembly Government, 2006.
91
Engines, prestige and niche models is way forward. AutoWired, June 2006.
90
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4.6.7
Competition
4.6.7.1
Customer satisfaction and retention
The presence of well-trained, responsive staff is a key factor in ensuring that customers feel they
have received the service to which they are entitled. The importance of customer facing skills
and the impact they have on business competitiveness cannot be underestimated.
From a number of reports and data sources based upon mystery shopping research, there is
evidence of poor customer service throughout the sector.
It is argued that ‘a significant
proportion of the industry is responsible for delivering poor standards.’ 92
Recent qualitative research undertaken for Automotive Skills across the UK, including Wales, has
suggested that good customer relationships and service are essential if businesses are to remain
productive and profitable 93 . Good relations with clients will make the following more likely:
•
Repeat business
•
Recommendation to others (by word-of-mouth)
•
More efficient and cost effective to retain existing customers
•
Improved profitability
This is summed up by one employer:
“…a small dealership…has managed to survive every iteration of
dealer agreements, restructuring of franchises, block exemption and so
on and so forth. Why? Because [x] is up first thing in the morning
greeting his customers at service, he’s handing the vehicles over to
them when they buy a new car, and despite all that he still manages to
sell 150 cars a year. It’s [about] excellence in terms of meeting his
customers needs and experience.”
The previous quote suggests that it is softer skills that are needed, but are often the ones that are
not employed.
The following points were also suggested by employers as ways in which
dealerships and other businesses within the sector can gain an advantage in competition:
92
93
From a speech by Steve Brooker. National Consumer Council.
Automotiveate Live. Automotive Skills focus group of emolyers, 2005.
Skills Needs Analysis – UK
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•
It is attention to detail rather than staff numbers that makes the difference.
•
Looking at other retail sectors, lessons can be learned about customer experience.
•
The fragmented nature of the sector with departmental silos makes consistency of
experience more difficult – but this must still be strived for.
•
Many customers do not appreciate the value of routine servicing – that’s a failure of
communication by the sector, and must be improved.
Another way businesses compete in the industry is through the use of reward schemes.
However, employers have suggested that these schemes concentrate too much on volume rather
than customer care. Thus, productivity per se is not the important factor. Rather, it is quality as
well as quantity that is important. Through offering a quality service, businesses will aim to
increase their client base. Productivity will then become as issue. This is supported by the
following comment:
“I think that we have got to think about the perspective that comes from
a £15k experience, not from the gross profit of the car, or from the
point of view of the sales man getting £30 commission. If someone
walked into M&S with £15k to spend you would have everyone running
around and falling over themselves.”
In this regard, Kia UK Dealers are to be monitored on how well they are performing in terms of
customer satisfaction and service. The following quote is from the customer support & service
development manager of KIA Motors (UK) Ltd:
"Customer satisfaction and retention is central to our growth and
absolutely vital for the long term sustainability and profitability of our
dealer network. Finding-out what our customers really think of the
service they receive from our sales and aftersales operation helps us
to shape our future business strategy and dealer training and will
ultimately allow us to achieve our ambitious targets."
94
Kia are not doing this in isolation, as 34% of employers in the Automotive Skills Needs Survey
2005 said they have a formal measure for customer satisfaction. This figure increases to 46% in
Northern Ireland but drops to 22% in Scotland.
94
Employers who took part in the qualitative
Kia dealers to get honest appraisal of performance. AutoWired, May 2006.
Skills Needs Analysis – UK
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research made a connection between staff being ‘fit for purpose’ and whether or not they were
able to deliver the required output and maintain customer satisfaction.
The following statement from the Automotive Skills Needs Survey 2005 makes the link more
forcefully:
“We spend a lot of time at branch level making sure the training is right
and making sure they’re competent in what they’re selling, because if
they’re not competent it comes across to the customer, and they will go
somewhere else. We can’t afford to be losing customers like that.”
This comment highlights the need for businesses in the sector to make sure that their staff
receive adequate training in these ‘softer skills’.
4.6.8
Enterprise
It is crucial to the improvement of productivity that entrepreneurship is encouraged within an
economy, and that government supports people who take opportunities and risk.
A strong
entrepreneurial base is a driver of growth and prosperity in an economy. It has recently been
argued that new and more dynamic businesses increase competitive pressures in markets and
facilitate the introduction of new ideas, technologies and more efficient working practices 95 .
Despite the strong growth in the number of SMEs since the 1970s, rates of entrepreneurial
activity in the UK are moderate by international standards, especially when compared to the
countries such as the United States 96 .
The previous data presented indicated that many businesses were deciding to leave the motor
industry because of low profitability, in part due to the requirements to invest significantly in
physical capital. This may also be a barrier to others entering the industry.
The evidence would suggest that the number of VAT registered businesses operating across the
sector is stagnating in number, after an increase of 3.1% between 2002 and 2003. The number
of VAT registered businesses in 2004 across the sector was 68,420, an increase of just 0.8% on
2003. This is a greater increase than the economy as a whole however, where the increase on
95
96
Enterprise and Innovation, HM Treasury, 2006.
Ibid.
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2003 in 2004 was just 0.5% 97 . Given that much of the franchised network is consolidating, it is
probable that new business start-ups occur in other parts of the downstream motor industry.
These increases are moderate at best, and as profits in the sector fall, more may need to be done
to encourage more entrepreneurs to take risks in the industry. There may also be a need for
current managers to be trained to a higher standard in order that they may be better placed to
make strategic business decisions.
4.7
Competitive Position – Block Exemption Regulation
The analysis so far has shown that UK franchised dealers are selling more vehicles per outlet
than their European counterparts. This section will briefly consider how, if at all, changes to the
Block Exemption Regulation (BER) will affect competition between countries of the European
Union.
4.7.1
Block exemption regulation
In the year 2000, the Supply of New Cars Order 2000 was introduced following the Competition
Commission (CC) monopoly inquiry into the supply of new cars. The CC found that private car
buyers in the UK were paying about 10% too much for the average car, taking account of
discounts, trade-ins and finance deals 98 .
The Block Exemption Regulation exempts the
distribution, sale, maintenance, repair and other related aftersales activities associated with
passenger cars from European Commission competition rules.
The BER enables car manufacturer national sales organisations to create networks of ‘selective’
or ‘exclusive’ dealership networks:
•
Dealers are now able to operate in different areas and EU countries
•
Sales/aftersales activities for different franchises are allowed from the same premises
with fewer restrictions.
•
Non-franchises dealers and brokers will be better able to compete
•
Greater servicing and repair market competition
•
Lower costs
•
Aftersales activities can be carried out by any retailers (whether franchised or not)
provided the retailer abides by manufacturer-approved standards
97
98
Starting up in 2006 - Business start-up trends. Start-ups.co.uk, 2006.
Block exemption for cars fact-sheet. The Department for Trade and Industry, 2006.
Skills Needs Analysis – UK
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July 2006
•
Independent retailers/suppliers will have access to necessary technical information,
including diagnostic equipment and software.
There was also a location clause of the BER which essentially prevented dealers from expanding
outside their territories. From October last year, however, any dealer wishing to sell passenger
cars and commercial vehicles and who meet the manufacturers standards will be able to set up
secondary sales and delivery outlets anywhere within the EU, Norway, Iceland and Liechtenstein.
It has been argued that those with the most to gain are large dealers and multinational fleet
providers, with already pronounced national variations. British franchised dealers sold an average
of 444 new cars per outlet last year, reflecting the fact the market has already consolidated. In
Europe's other markets, the figures were lower, with 330 in Italy, 236 in Spain, 173 in Germany
and 158 in France. It was lower still in most of the other countries to which the regulation applies
suggesting that ‘British dealers are in a better position than continental counterparts to exploit the
scrapping of the clause.’ 99
Evidence would suggest however that the lifting of the clause has made little difference so far. As
this report noted earlier, profits in the sector are low. It is therefore a risky strategy to move into
the area of another dealer to compete ‘head-to-head’. Many will choose to do this on the internet,
which is a far more cost effective approach 100 .
4.8
Training issues
This section has so far looked at the drivers of change impacting upon the motor industry, and
how businesses within the sector may need to respond to these changes. This section will look
at the current training practice of businesses. From this, it will be possible to assess how wellplaced businesses are to respond to demands for new skill sets.
4.8.1
Incidence of training
The following figure shows what percentage of the Welsh workforce has participated in off-the-job
training in the 12 months previous to March/April/May 2005 101 :
99
Abolition of location clause under block exemption regulation draws near. Pricewaterhouse- Coopers LLP, 2005.
Location Clause is no more. Did the earth move for anyone? AM Online, October 2005.
101
Automotive Skills Sector Skills Survey, Future Skills Wales 2005. (Interviews could have taken place in any of the
months listed).
100
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Figure 22: Participation in job related off-the-job training in the last 12 months
Automotive Skills
All Wales
52
58
% of establishments providing off-the-job training
Source: Future Skills Wales 2005
The figure shows that there is not a significant difference between automotive employers and
employers across the whole of the Welsh economy in terms of provision of off-the-job training.
The occupational breakdown of this data is also interesting. Nearly three quarters of the sector’s
technicians have received off-the-job training in this time period, as have just over half (57%) of
managers. Data also shows that large companies are more likely to train their staff (83% did)
compared to small companies, where only 46% did.
Data for England shows the incidence of formal human resource planning:
Figure 23: Proportion of establishments with formal human resource planning
Automotive Skills
Whole Economy
Business plan
42%
55%
Training plan
36%
45%
Training budget
25%
33%
None
45%
31%
Any
53%
66%
National Employer Skills Survey 2005
Stemming from this, the following evidence, for England only, shows the relatively little amount of
money invested on training over the course of a year. The modal category is for those employers
who invest nothing in training:
Skills Needs Analysis – UK
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July 2006
Figure 24: Total training and development spend in past 12 months - banded
25.0
Percent
20.0
15.0
10.0
5.0
£100,000+
£75,000 - £99,999
£50,000 - £74,999
£40,000 - £49,999
£30,000 - £39,999
£20,000 - £29,999
£10,000 - £19,999
£5,000 - £9,999
£1,000 - £4,999
£500 - £999
£250 - £499
£100 - £249
Under £100
Nothing
0.0
Source: National Employer Skills Survey 2005
Possible reasons for the low take up of and investment in training in the sector has been
investigated in the Future Skills Wales and Automotive Skills Needs Survey 2005.
4.8.2
Possible reasons for low take-up of training
The Future Skills Wales Survey for 2005 suggests possible barriers to off-the-job training in
Wales. The main reason why businesses do not provide this mode of training is due to staff
already having the appropriate skills. Just over 4 out of 5 employees in the automotive sector in
Wales said that this was the case. A further 40% intimated that one reason for not training offthe-job was time constraints.
Qualitative feedback to the Automotive Skills Needs Survey 2005 shows that the cost of training
is a particularly important issue for the sector. One employer puts it this way:
“The reality is that the emphasis is on putting money towards the
commercial activity and the training side being self-funded but that
money has to come from somewhere and that’s coming out of dealers'
margin and profitability which is tiny.”
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Perhaps more importantly, there is a significant opportunity cost, which means small businesses
are at a disadvantage as they can ill afford to lose staff for training days:
“It’s a time issue really you know they have to really do it on their own
time and if you’re sending someone away from the branch you know it
can be quite costly.”
To summarise, evidence from the qualitative research shows that the following issues are
impacting upon the sector’s businesses. The extent to which they impact will depend strongly on
the size, location and specific needs of any given business:
•
Location of training. One employer identified training at a distance of 500 miles away.
This would demand three days away from work, considering travelling etc.
•
There is a perception of a poor training offer by the Further Education sector.
•
There is a lack of available training.
•
There is a preference for 'on-the-job' training, which often varies in quality
•
Some employers have difficulty in affording training and experience difficulty in releasing
staff for training. This applies particularly to micro businesses.
•
The spread of businesses throughout the UK and devolved administrations means that
available centralised training facilities are not always accessible to all.
The data suggests that the sector is not really in a position to respond to changes in the skill sets
that might be needed as the drivers of change impact upon the sector.
4.9
Summary
This section has shown that consumer spending and thus demand in the UK economy is currently
slowing. It has also shown a small slowdown in the demand for new cars. There is, however,
evidence of rising demand and value of trade in other parts of the sector.
It has been evidenced that profits in the sector are very low, with industry consolidation taking
place across the UK, specifically in franchised dealerships. It has been shown that productivity is
relatively high compared to comparator EU countries, but that demands for high capital
investment (in buildings and refurbishment) have seen many businesses leave the sector. Other
businesses are now generating income from other means, such as property utilisation. The
section has also looked at other drivers of business competitiveness, such as technological
change and the effects of government policy.
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It was evidenced in the final place that the incidence of training is low, and investment in training
also low.
The report will now go on to look at what skills employers feel they need both currently and in the
future.
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5
Current skill needs
Having looked at the drivers of business competitiveness in the last section of this report, this
section will now assess the current skills needs of businesses within the sector in Wales. It will
start by presenting a brief occupational profile of the sector. It will then go on to assess the skill
needs of the sector, first with reference to skill gaps, and then with reference to skill shortages.
Skill needs giving rise to both skill gaps and shortages will then be assessed. To finish, the
section will look at some issues concerning recruitment and retention, including the rural and
urban dynamic.
5.1
Occupational profile of the sector
It is useful to keep in mind the occupation profile of the sector before discussing current and
future skills needs. This will help to keep perspective when discussing particular occupational
roles. The following table from the Labour Force Survey shows how employment in the sector is
distributed across the standard occupational groups:
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Figure 25: Occupational profile of workforce 102 :
Managers and senior officials
Professional
Associate professional and technical
Administrative and secretarial
Skilled trades
Personal service
Sales and customer service
Process, plant and machine operatives
Elementary
0%
5%
10%
15%
20%
25%
30%
35%
40%
P roportion of workforce
Automotive
All Sectors
The figure shows the relative importance of skills trade occupations, including technical skills. It
also shows the relative importance of managers in terms of volume compared to other
occupations. It is important to keep this in mind when skill gaps and shortages are discussed in
the next sections.
5.2
Skill Gaps
Skill gaps occur when the existing workforce of a business does not have the skills required in
order to be fully proficient. The extent of these gaps in the sector can be seen from the latest
national survey data. The following section shows the extent of internal skill gaps within the
motor industry.
102
Labour Force Survey 4 quarter average (2004q1 – 2005q2). Office for National Statistics.
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5.2.1
Evidence of skill gaps
Figure 26 shows the incidence of skill gaps in the motor industry:
Figure 26: Proportion of establishments reporting internal skill gaps 103
Wales (whole economy)
Wales (Automotive sector)
Proportion of establishments reporting internal skills gaps
18%
23%
Base: All establishments
The number of firms reporting skill gaps is slightly higher in the Welsh automotive sector than for
the economy as a whole. This figure of 23% has shows an increase on 2003, when only 20% of
establishments reported skill gaps in their existing workforce.
Figure 27 gives an occupational breakdown of skill gaps from an employer perspective. It should
be noted that the following figure uses a base of Welsh employers who report having internal skill
gaps:
Figure 27: Incidence of skills gaps and distribution across occupational groups 104
Skilled trades
Sales and customer service staff
Administrative staff
Managerial
Associate professionals
Professionals
Machine operatives
Elementary staff
Personal service staff
Occupational pattern of internal skill gaps
39%
32%
10%
7%
4%
4%
2%
1%
1%
Base: All automotive employees with skill gaps.
The nature of skills gaps in Wales can also be seen from the following figure.
It also
demonstrates the importance of technical skill needs:
103
104
Data for Wales is from the Welsh Employer Skills Survey, and is for 2005.
Ibid.
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Figure 28: Skills lacking amongst employees with skill gaps in Wales 105
Technical and practical skills
Customer handling skills
Problem solving skills
General IT user skills
Management skills
Team working skills
Communication skills
IT professional skills
Using numbers
Literacy skills
Welsh language skills
Don’t know
Work experience (unspecified)
Time management/keeping
Motivation/behaviour
Other
Sales/marketing skills
All sectors (%)
52
57
58
40
40
49
49
26
25
23
23
3
3
2
2
2
3
Automotive (%)
73
63
61
53
51
46
44
30
27
24
18
5
3
1
1
1
0
Base: All establishments with skill gaps
The figures above confirm the relatively high significance of lack of proficiency in technical skill
occupations, at least from an employer perspective. More specifically, the technical and practical
skills cited that were non-generic included:
•
Car mechanic skill/Car repair skills (23 per cent)
•
Product knowledge (10 per cent)
•
Apprenticeships (10 per cent)
•
Finance/Accounts/book keeping (7 per cent)
The figure for management skill gaps in Figure 28 is relatively high compared to other
occupations and the rest of the Welsh economy. Indeed, a lack of management skills is a good
example of where a skills gap exists in the sector. This subject is the focus of the next section.
5.2.2
Management Skills
It has been noted before in this report that a low number of managers are qualified to S/NVQ
Level 4+. Figure 10 of this report shows that only 14% of managers operating in the sale and
105
Automotive SkillsError! Bookmark not defined. Sector Skills Survey, Future Skills Wales 2005. .
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maintenance of motor vehicles are qualified to this level, compared to 39% across all sectors of
the economy.
Also significant is the number of managers in the sector without any qualifications. A recent
report has shown that the proportion of managers in the sector without any qualifications is 16%,
the third highest of any sector across the economy of the UK. 106
Whilst it is important that managers have a good understanding of technical issues where
relevant, the importance of good management to business performance has been highlighted by
employers in the sector through qualitative focus group events 107 . Employers argued that good
management and leadership is the key factor in delivering change to the sector.
As one
employer has put it:
“…putting a good manager into a poorly performing place with the right
procedures can really pay off…”
The research further concluded that managers:
•
need skills improvement and training as much as technicians do
•
are under too much short-term pressure and are not sufficiently trained to manage the
way they need to
•
are from sales or finance backgrounds, meaning that there needs to be career
progression for those from other disciplines
This sentiment is also confirmed by the Automotive Skills Employer Validation Survey. Managers
who operate in the sector were asked to state whether they definitely agreed, tended to agree,
tended to disagree or definitely disagreed with the statement that managers in the sector will
need to have far better leadership skills if business performance is to improve. Just under three
quarters of those who responded (73%) said that they definitely agreed. 108
This issue is absolutely fundamental to the future of the downstream motor industry.
106
Sectoral Management Priorities: Management Skills and Capacity. Research report prepared for the Sector Skills
Development Agency by the Institute for Employment Research, January 2005.
The data presented here is from ‘Automotivate Live’, a focus group of employers organised by Automotive Skills, using
employers taken from all sub-sectors of the Automotive Skills footprint.
108
Automotive Skills Employer Validation Survey. Automotive Skills, 2005.
107
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5.3
Vacancies and Skill Shortages
Skills shortages occur when companies cannot fill vacancies within the business because of a
lack of candidates with the required level of skills. A special focus in this section will be on basic
and employability skills, particularly in the realm of young recruits.
5.3.1
Evidence of Vacancies and Skill Shortages
The following data will first show how many companies across the sector in Wales have
vacancies within their companies. It will then show how many of these vacancies are hard-to-fill.
Of these hard-to-fill vacancies, the proportion that are hard-to-fill due to skill shortages will be
given. All data comes from the Future Skills Wales Survey 2005.
Figure 29: Proportion of establishments reporting vacancies
Wales (all sectors)
Wales (Automotive sector)
Proportion of establishments reporting vacancies
21%
19%
Base: All establishments
About 1 in 5 companies report having vacancies for whatever reason. Those having vacancies
that are hard-to-fill are presented in the next table:
Figure 30: Proportion of establishments reporting hard-to-fill vacancies
Wales (all sectors)
Wales (Automotive sector)
Proportion of establishments reporting hard-to-fill
vacancies
10%
12%
Base: All establishments
The reasons why employers have hard-to-fill vacancies differ between different countries.
Although these reasons are not always down to skills, they are nevertheless important when
thinking about the future of the sector.
The following table shows why vacancies are most likely to be hard-to-fill in Wales 109 :
109
Data is from Future Skills Wales Employer Survey 2003, as the sample size on the latest data set is too small for
analysis
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Figure 30a: Reasons for hard-to-fill vacancies
Reasons for hard-to-fill vacancies:
Too much competition from other employers
Not enough people interested in doing this type of job
Poor terms and conditions (e.g. pay) offered for the post
Low number of applicants with required skills
Low number of applicants with the required attitude,
motivation or personality
Low number of applicants generally
Lack of work experience the company demands
Lack of qualifications the company demands
Poor career progression / lack of prospects
Job entails shift work/unsociable hours
Remote location/poor public transport
Benefits trap/problem with benefits
Wages are lower than other firms
Automotive
5.7%
Wales
4.5%
Automotive
25.3%
Wales
25.1%
Automotive
0.0%
Wales
5.0%
Automotive
44.6%
Wales
29.8%
Automotive
29.7%
Wales
21.4%
Automotive
27.4%
Wales
18.7%
Automotive
16.3%
Wales
14.9%
Automotive
9.3%
Wales
13.5%
Automotive
0.0%
Wales
1.7%
Automotive
5.7%
Wales
14.8%
Automotive
6.9%
Wales
11.6%
Automotive
4.5%
Wales
3.0%
Automotive
9.3%
Wales
9.7%
These data show that reasons why automotive employers have hard-to-fill vacancies do not vary
considerably from reasons why employers across the whole economy have hard-to-fill vacancies.
Of those companies that have hard-to-fill vacancies, the following percentages have hard-to-fill
vacancies because of skill shortages:
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Figure 31: Proportion of establishments reporting skill shortage vacancies
Proportion of establishments reporting skill shortage
vacancies
4%
6%
Wales (all sectors)
Wales (Automotive sector)
Base: All establishments with hard-to-fill vacancies
It is now possible to show what percentage of total vacancies are because of skill shortages:
Figure 32: Skills Shortage Vacancies as a percentage of total vacancies
Skills Shortage Vacancies as a percentage of total
vacancies
14%
27%
Wales (all sectors)
Wales (Automotive sector)
Base: All establishments with at least one vacancy
The data shows that a significant number of vacancies are down to not being able to find potential
employees with the right skills, and also that automotive employers are nearly twice as likely to
have skills shortage vacancies as a percentage of total vacancies.
The following table shows the specific nature of skill shortage vacancies as they are for the sector
in England. Welsh data for the same variable cannot be presented due to the small sample size
of the Welsh employer survey in 2005.
Figure 33: Skills found difficult to obtain from applicants for skill shortage vacancies
Automotive
Technical and practical skills
Problem solving skills
Customer handling skills
Written Communication skills
Oral Communication skills
Team working skills
Literacy skills
Numeracy skills
Management skills
General IT user skills
Office admin skills
IT professional skills
Foreign language skills
60%
41%
33%
32%
31%
31%
29%
26%
19%
19%
18%
11%
8%
All
Sectors
51%
34%
39%
31%
37%
33%
28%
24%
25%
16%
17%
14%
11%
Source: NESS 2005 – data is for England
Bold indicates figure for footprint that is higher than all sectors
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Although robust evidence for Wales cannot be provided, anecdotal evidence suggests that
employers found it difficult to find people with enough experience to make them suitable for any
given role. Further, employers found that some technical skills were lacking, due to both a lack of
qualifications and the required experience. Again, this table highlights important issues that will
be picked up in the next section. Concentration will now be given to two specific areas of skill
shortage.
5.3.2
Employability and life skills
Qualitative focus group research across the UK has stressed the importance of making sure that
the sector does more to attract a range of young people in the motor industry. Increasing the
presence that the industry has in schools, for example, would be a way to make sure that the
industry is appealing to many young people.
One employer has summed this up in the following way:
“…we, as an industry, don’t do nearly enough to promote the industry to
schools…and until we do more of that, we won’t get enough young people
into the industry.”
Much of the reason for this drive is because some young recruits to businesses currently lack
general life skills such as:
•
Having the right attitude
•
Consistency in their job performance
•
Good motivation
•
Reliability
•
Having a willingness to learn
This finding is confirmed by the cross-UK Automotive Skills Employer Validation Survey and the
statistics given in this section.
National statistics show that in Wales, for example, 30% of
businesses cannot find applicants with the required attitude, motivation or personality.
In
England, 34% of businesses have hard-to-fill vacancies because of a low number of applicants
generally.
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The Automotive Skills Employer Validation Survey has found that just fewer than three-quarters
of businesses that responded to the survey definitely agreed that new employees will increasingly
need the right attitude and motivation over and above just the hard, technical skills. Just over half
definitely agreed that more employees will need to be welcomed from outside the motor industry
if it is going to get all the high-quality recruits it needs.
5.3.3
Basic Skills
The Automotive Skills Employer Validation Survey also shows evidence that the basic skills of
young people coming into the sector are sometimes less than adequate. Over half of employers
surveyed (56%) definitely agreed that to gain successful entry into the sector, school leavers will
need to have far better literacy, numeracy and life skills than today’s school leavers. A massive
94% either definitely agree or tend to agree.
5.4
Generic Skills Needs – gaps and shortages
Some skills are both hard to find in potential employees as well as lacking within the existing
workforce. Evidence for this is presented in the tables above, where some skills are short in the
existing workforce, as well as difficult to find in potential recruits. A few examples will now be
discussed.
5.4.1
Technical skills
The statistics above show that technical skills are urgently required, both in the existing workforce
and from potential new recruits:
A majority of 60% of businesses said that they found technical skills hard to find in possible new
recruits. Just under this amount, 58%, said that technical skills were lacking in the existing
workforce.
This is backed up with anecdotal evidence from the Future Skills Wales Survey, as mentioned
above. This is despite the fact that technical skills have been at the heart of the apprenticeship
programme for many years.
A recent study of businesses operating in the sector across two regions of the United Kingdom
has shed much light on this technical needs discussion 110 . Both small and large employers were
110
Skill and Training Requirements in the Vehicle Maintenance Industry in Greater Manchester & Devon and Cornwall.
Geoff Mason and Matt Osborne, National Institute of Economic and Social Research, London. Prepared on behalf of
Sector Skills Development Agency and Automotive Skills, October 2004.
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surveyed. In the case of employers with ten or more employees, they were asked to identify their
‘core group’ of employees. This was defined as “the group of employees at this establishment excluding managers - whose skills and knowledge you feel make the greatest contribution to the
success of your business”. Roughly seven in ten establishments nominated ‘vehicle trades’ as
their core group of employees for purposes of answering the survey questions. Establishments
with less than ten employees answered questions about core groups on behalf of all their
employees.
Almost three quarters of vehicle maintenance establishments in Devon and Cornwall questioned
for the research said that the technical and practical skills of their core group of employees
(mainly in vehicle trades) needed improving or upgrading.
The need however was not for
technical skills in isolation – the study shows that 57% of the vehicle maintenance establishments
in Devon and Cornwall actually wanted combinations of both technical and generic skills to be
upgraded. The same study was undertaken in Manchester, and the findings were very similar.
This survey was able to gather information on the specific types of skills that need improving in
more detail than most such surveys.
For example, the technical skill requirements strongly
emphasise new skill needs in diagnostics, electronics and keeping up to date with new
technology. The IT skill requirements range from use of standard programmes to use of new
MOT software and diagnostic equipment.
The Automotive Skills Employer Validation Survey confirms that technical skills are a real
requirement in the sector at present. When asked if ever increasing technology and complexity of
vehicles will result in a considerably increased need for new training and up-skilling, a huge
majority of 89% definitely agreed.
A further 10% tended to agree, with only 1% tending to
disagree.
Further, many employers feel that a requirement to use diagnostic IT equipment will be an
absolute minimum requirement in all after-sales operations. Just fewer than three-quarters of
respondents said that they definitely agreed with this statement. This sentiment is supported by
qualitative research that suggests technology is moving at such a pace that technicians’ skills are
barely able to stand still given the technology found in vehicles requiring maintenance and repair
right now:
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“…the pace of technology now means we need the people now to service
the cars in the workbay, now…” 111
The occupational profile of the sector shows that much employment is in technical occupations,
and so these gaps and shortages need to be addressed going forward.
5.4.2
Generic skills
In common with many sectors of the economy, there is an increasing demand for skills of a
generic nature. This is true in Wales, according to the quantitative data presented earlier – see,
for example, figure 28. These skills are demanded from employers in this sector because they
are critical at all occupational levels in ensuring business success. Typically employers cite the
following as key competencies:
•
Communications skills (internal and external)
•
Customer handling skills
•
Problem solving skills
•
Team working skills
The evidence, again, was presented above – figure 28 demonstrates the need for all of the skills
in the list above from potential new recruits. Indeed, 61% of employers have said that staff with
skill gaps lack skills in problem solving.
This is the third highest skill need in the existing
workforce after technical and customer handling skills.
The need for generic skills is also confirmed by the Automotive Skills Employer Validation Survey.
When asked if capabilities in generic skills like communications, team working and problem
solving will need to increase significantly if businesses want to stay competitive, just fewer than
75% said that they definitely agreed that they would.
5.5
Recruitment and Retention
Some skills gaps and shortages occur because of image problems with the sector. Employers
were asked about the importance of improving the image of the sector in the Validation Survey.
A majority of managers believe it is the responsibility of the sector itself to take responsibility for
behaving more professionally in order to improve its image and reputation. Only 4% of employers
disagree with this statement in any degree.
111
Autotmotivate Live.
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This perception is supported by data from the Future Skills Wales Survey presented above which
shows that some employers cannot fill vacancies because there are not enough people interested
in working in the sector. One in four employers in Wales believes this to be the case.
Pay and benefits packages also contribute to vacancies being hard-to-fill. The Retail Motor
Industry Pay Guide 112 shows falling trends in real increases of basic pay and total salary.
Moreover, focus group work with employers has confirmed this 113 . The following points sum up
the arguments:
•
The pay structure needs closer examination – it constitutes a significant barrier to entry to
those who would otherwise wish to work in the industry
•
Benefits are not sufficiently attractive, especially to those working outside the sector
•
Poor overall margins remain an obstacle to further increases in pay
There are also issues of recruitment and retention linked to the urban/rural dynamic.
5.5.1
The Urban/Rural dynamic
For understanding to be gained about the urban/rural dynamic, data from the Inter-Departmental
Business Register has been analysed by aggregated SIC codes, and thus represents the whole
Automotive Skills footprint. An analysis of these data has been carried out by the Department for
Environment, Food and Rural Affairs using standard cross-governmental rural definitions.
Headline results are in figure 34:
112
113
The Retail Motor Industry Pay Guide. Sewells, 2005.
Automotivate Live.
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Figure 34: Proportion of Employers by Size of Employment and Location Type
100+
51-110
100
0
99
10
85
11-49
6
80
5-10
7
72
2-4
9
69
0-1
0%
10%
20%
Urban
30%
11
9
40%
50%
Rural town or fringe
60%
70%
Rural village
4
8
13
10
74
All
5
7
9
13
80%
4
7
90%
100%
Rural dispersed
Source: Defra Rural Statistics Unit – IDBR Class 4 Local Authority Data 2005 – Figures are for England
These dynamics are important, as qualitative research conducted during the early part of this
SSA has shown it to be clear that there are some key differences in the employment and market
dynamics for those employers with an urban or rural customer base/location 114 .
These
differences tend to be in the magnitude rather than the nature of any given problem.
Employers advised that in more rural locations it was harder to attract employees, including
apprentices, where ‘travel to work’ and ‘travel to college’ times and means were restricted. At the
same time, existing employee turnover was lower and staff were more loyal. This appeared to
reflect local market dynamics and the place the workplace had in the community.
On the other hand employers in more urban environments tended to see higher staff turnover – in
part a reflection of alternative employment opportunities and the more transient nature of the local
community. Finding new employees was said to be a little easier.
114
Automotivate Live.
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5.6
Summary
This section has described an overview of the current skills needs priorities for the sector in
Wales, showing that there are both skill gaps and skill shortages across the footprint. It was
shown that there is a need for management skills, technical skills, employability skills, basic skills
and generic skills.
It was also shown that many businesses have hard-to-fill vacancies because of reasons not
directly related to skills, such as industry image problems and poor remuneration.
The range of significant issues that have been identified will form the central element to the short
and long-term priorities that are considered in Section 8 of this report.
However, any solutions to these problems will also need to have future skill requirements in mind,
and these are the subject of the next section.
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6
Future Skills Needs
In order to assess the likely demand for future skills needs, this section of the report will present
the results of quantitative forecasting and qualitative scenario planning. For the former of these
two elements, an independent research company was commissioned to provide quantitative
estimates for employment and replacement demand. These estimates were done by analysing
the Working Futures II data. 115
This quantitative data looks generally across the UK in this
section, and then presents some more country specific data in section 7.
For the scenario planning, 4 workshops were conducted across the country, all of which were
facilitated by an independent research company.
6.1
Quantitative Forecasting
In this section we present quantified estimates of future skills needs for the Automotive Skills’
footprint by looking at data on replacement demand. The quantified analysis presented here is
from the work undertaken by the Warwick Institute for Employment Research and Cambridge
Econometrics 116 .
The results provide a useful benchmark and assessment of overall changes in trends in
employment within the industry. It would obviously be unwise however to interpret them as
precise forecasts. Results presented here are an aggregation of more detailed analysis, which
cannot be published due to confidentiality and the diminishing robustness of the more detailed
estimates.
In this quantified analysis, estimates for the sector as a whole are briefly summarised. The data
has been run using the ‘best fit’ SIC codes, the relative merits of which were discussed at the
beginning of this report. The SIC definition has been used because this is the basis upon which
Office for National Statistics (ONS) data are classified. Only from the ONS can the required data
be obtained which is consistent across all of the dimensions analysed (sector, region, gender,
status, occupation, qualification, time).
115
R. Wilson, K. Homenidou and A. Dickerson, Institute for Employment Research, University of Warwick - Working
Futures National Report 2003 – 2004
116
Working Futures 2004-2014 (SSDA WF2), Institute for Employment Research and Cambridge Econometrics.
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6.1.1
Headline issues
An assessment of current and future skills has identified the following key issues for the sector:
•
A decline in employment numbers.
•
A substantial replacement demand.
•
An increase in qualifications required.
•
A predominance of males working in the sector which is likely to continue.
•
A need to raise the image of the sector.
6.1.2
Forecast shifts in patterns of employment by occupation, employment status,
and gender
The key findings of the Working Futures II data are summarised in the bullet points below:
•
Employment in the Automotive Skills footprint is forecast to fall slightly between 20042014.
•
A high proportion of current employment is male and on a full-time basis - this
composition of the workforce is not expected to change greatly during 2004-2014.
•
A high proportion of workers are managers and senior officials, reflecting the high
proportion of small independent traders in the sector. One-quarter are employed in sales
and customer services occupations.
•
In both managerial and senior official and skilled trade occupations, the numbers
employed are forecast to fall during 2004-2014, but at a slower rate than during the
previous ten years.
•
The fastest growth in employment in the sector is forecast in the North East, a relatively
low cost region, and in the East of England, where population growth is strong and which
is also influenced by demand in adjacent high-cost London.
6.1.3
Trends in replacement demand
It is projected that around 30% of the 2004 workforce will need to be replaced during the years
between 2004-2014. This compares with 40% for the economy as a whole. The largest total
requirement is for 60,000 additional recruits in sales and customer service occupations.
Employment projections indicate the total numbers of people expected to be employed within the
sector in the future. However, it is important to look also at replacement demand in order to
provide an indication of the numbers of workers that employers will need to replace because of
retirement, mortality, career moves or other reasons. Total requirement indicates the sum of
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July 2006
expansion demand (due to the change in employment) and replacement demand (due to turnover
of the workforce).
Figure 35: UK Automotive Skills footprint replacement demand by occupation
2004
Employment
level
Expansion
demand
134
22.9
54.8
-8
0.5
-1.1
36.5
-6.9
13.7
6.8
83.9
-11.4
26.6
15.2
22.8
2.3
9.1
11.4
149.1
16
45
61
52.9
4.2
18
22.2
62.6
619.4
-8.5
-12.9
19.7
202.3
11.2
189.4
Managerial
Professional Occupations
Associate Prof and Tech.
Administrative, Clerical and
Sec.
Skilled Trades Occupations
Personal Service
Occupations
Sales and Customer
Service Occs.
Machine and Transport
Operatives
Elementary Occupations
Total
Changes 2004-2014
Replacement
Total
demand
requirement
000s
45.8
37.8
7.4
7.9
17
15.9
Source(s): SSDA Working Futures II and OPERA Employers’ survey - 2006 Cambridge Econometrics.
The forecast fall of 13,000 in total employment during 2004-2014 is relatively small. Substantial
replacement demand however is forecast to be required to replace those that retire or leave the
sector for other reasons.
For each occupational group of the Automotive Skills footprint, the total requirement during the
period 2004-2014 is positive. By occupation, the largest total requirement is for 60,000 additional
recruits in sales and customer service occupations during 2004-2014, representing around 40%
of those employed in these occupations in 2004. In managerial and senior official occupations a
total requirement of 38,000 is forecast, because the requirement to replace existing workers is
expected to more than compensate for the decline in the share of these occupations. For each of
the associate professional and technical and skilled trades occupations, the total requirement is
projected to increase by 15,000.
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6.1.4
Anticipated changes to pattern of skills requirements and skills
In terms of patterns of qualification requirements:
Qualification levels in the sector are relatively low, especially for managerial and senior official
occupations. Therefore, marked increases in the expected levels of qualifications required of
those employed in each occupation are projected to increase qualifications levels in the sector.
The largest incremental demand, of 110,000, is expected to be for NVQ level 3 qualifications.
Demand is expected to increase in all occupations with the largest increases in sales and
customer service, managerial and senior official and skilled trade occupations.
6.1.5
Scenario Planning 117
This Sector Skills Agreement is a long term programme, lasting for as long as ten years. It is
obvious that during this time, skills needs are likely to change greatly through a combination of
technological developments, legislative changes, economic effects and consumer demands. It is
likely that in ten years time the motor industry will be a very different place to what it is at this
point in time.
It was therefore deemed appropriate to conduct a series of futures workshops with key industry
personnel from the sector. These workshops utilised members of the employer / industry panels
along with other sector experts to examine how the industry may change and develop. The
workshops had a holistic focus on the industry whilst at the same time looking at specific issues
that may affect specific industry activities.
Attendees to the workshops were asked to think of all the possible influencers on skills needs for
the future and to try and gauge both their degree of influence and their level of importance. The
scenarios are presented as extreme situations. Scenario 1, for example, does not mean to argue
that there will be a world of no private car use. Rather, these are the extremities of any given
direction. There were many commonalities between how attendees grouped these influencers.
The following boxes show how they were combined into clusters:
117
All of the information in this section is taken from Scenario Planning Futures Workshops
Report. Turquoise, December 2005.
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Figure 36: Future influencers on the motor industry (clustered)
COSTS
FUEL
PERCEPTION
Cost of vehicles
Cost of repairs
Cost of using roads
Alternative fuels
Oil companies
Oil reserves
Oil price
Esteem of trade
Consumer expectation
INFRASTRUCTURE
LIFESTYLE
TECHNOLOGY
Roads
Local Councils
Public transport
Local planning
Work/life balance
Migration of skills
Internet shopping
Working from home
Materials used
Expectation of invention
Technological advances
New construction techniques
LEGISLATION
MANUFACTURE
Recycling
Environmental issues
Licenses to practice
Manufacturers
Competent
manufacturers
The figure highlights the ongoing importance of some factors that have already been discussed in
this report. It was noted in the section on drivers of skills demand how important issues such as
legislation and technology are to the industry at present.
This figure shows their ongoing
importance.
From the clusters above, employers were asked to nominate three that they felt were the most
important. The following three clusters were suggested:
•
Legislation
•
Technology
•
Fuel
From this discussion, four scenarios of the future were developed, all concentrating on one
particular theme. These will now be outlined briefly.
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6.1.6
The Scenarios
Put simply, scenarios are different views of the future – they are not predictions. Thus, the
following pages give four different views of the future motor industry.
6.1.6.1
Scenario 1 – Legislation and Infrastructure
This is a scenario that can have four possible extremes. In the future, there could be:
•
Maximum infrastructure and Maximum legislation
•
Minimum infrastructure and Minimum legislation
•
Maximum infrastructure and Minimum legislation
•
Minimum infrastructure and Maximum legislation
Respondents were asked to suggest which one of these scenarios was most likely to take place
in the future. The scenario considered most likely to happen was the first of the extremes above.
The following figure shows how the scenario develops. If there is maximum legislation and
maximum infrastructure, we see a world where public transport is dominant with very little private
car ownership. The opposite of this (minimum legislation and minimum infrastructure) is a world
of ‘grid lock’. The result would be a low emphasis on skills development in new technologies and
types of industry.
Figure 37: Maximum infrastructure and maximum legislation
What does this look like?
•
•
•
•
No private car use
Carbon taxing
Car park pricing
Free public
transport
What happens as a result?
•
•
•
•
•
Limit of car use
Increased
technology –
hybrids etc
Lower wear rates
Less manufacture
Large increase in
public sector
technology and
manufacture focus
What skills are required?
•
•
•
Electronics
New materials
Modern material
repairs
This scenario is looking at an extreme case. However, it can be observed that some of the
themes coming through in this scenario have been seen before in this report. For example, when
looking at innovation in section 4, it was suggested that skills in electronics would be required in
the future as the manufacture of vehicles gets more innovative and complex. This is linked in
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with increases in technology, such as hybrid vehicles. This may come in as government tax
schemes make the purchase of hybrid vehicles more attractive.
This scenario would also suggest that servicing and repair of vehicles would see a small decline
in volume of cars serviced. This would be due to cars being used less, leading to lower wear
rates and thus less need for servicing.
6.1.6.2
Scenario 2 – Technology and fuel
The four possible extremes to this scenario are:
•
No change in the quantity of fuel, maximum development of technology
•
No change in the quantity of fuel, minimum development of technology
•
Fuel runs out, maximum development of technology
•
Fuel runs out, minimum development of technology
Scenario workshop attendants felt that the third of these scenarios was the most likely future
development.
The following chart shows how the scenario builds. If there are maximum
technological advances and fuel reserves are exhausted, we see a world where new fuel sources
will dominate the future. The opposite quadrant to this world (Minimum technological advance
and fuel doesn’t run out) is seen as the status quo but with little new technology.
Figure 38: Fuel runs out, maximum development of technology
What does this look like?
•
•
•
Alternative power
sources
Hybrids
Current
developments in
the uses of fuels
What happens as a result?
•
•
•
•
New manufacture
Specialisation
More selective
recruitment
Requirement for
new skills
What skills are required?
•
•
•
•
Wider capability
Electronics
Modern material
repairs
Communication
The Automotive Skills Employer Validation Survey also indicates that technical skills will be
required in the sector in the future. When asked if ever increasing technology and complexity of
vehicles will result in a considerably increased need for new training and up-skilling, 89% of
employers definitely agreed that it would.
We again see in this scenario a need for skills in electronics as technology gets more advanced.
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6.1.6.3
Scenario 3 – Employees and Cost of Ownership
Attendees to the later workshops took a slightly different approach. This approach was centred
more on employees and the costs of vehicle ownership.
The four scenarios available under this heading are the following:
•
Employees well motivated, low cost of vehicle ownership
•
Employees well motivated, high cost of vehicle ownership
•
Employees unmotivated, low cost of vehicle ownership
•
Employees unmotivated, high cost of vehicle ownership
Perhaps unsurprisingly, discussions concluded that the fourth of these scenarios is the most likely
to happen. The next figure again shows how the scenario builds. The possibilities generated in
this scenario were in many ways the most pessimistic of all. If, on the other hand, employees are
really well motivated/remunerated, even with costs of ownership being high or low, we see a
world where expectations and reliability/prosperity issues dominate.
Figure 39: Employees unmotivated, high cost of vehicle ownership
What does this look like?
•
•
General industry
decline
Problems with staff
reliability
What happens as a result?
•
•
•
•
•
Low respect of
industry and staff
More home
workers
High staff turnover
Difficult
recruitment
Industry moves off
shore
What skills are required?
•
•
•
Man management
Customer handling
Basic engineering
skills
The Automotive Skills Validation Survey shows that 62% of employers definitely agree that it will
be necessary to have a broad range of career paths laid out if the sector is going to attract and
retain more high-quality recruits and apprentices. Many employers have expressed a desire to
access HR toolkits to help them deliver the kinds of development and training larger employers
with HR functions already do.
In a sense, the evidence is that this is a scenario which is already happening – the extent to
which it carries on and develops may be down to how the industry responds.
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6.1.6.4
Scenario 4 – Government and vehicle technology
For this scenario, there are four possibilities:
•
Maximum government interference, maximum vehicle technology
•
Maximum government interference, minimum vehicle technology
•
Minimum government interference, maximum vehicle technology
•
Minimum government interference, minimum vehicle technology
The assumptions made in this scenario are that government will legislate and interfere with the
market to maximum effect, coinciding with significant advances in technology. The scenario is
mapped out below. If the government legislates to the full and technology advances as well, the
scenario is a world dominated by high end design and skills. The opposite of this is to keep the
status quo, with pollution having a high impact.
Figure 40: Maximum government interference, maximum vehicle technology
What does this look like?
•
Emphasis on
public transport
Skilled repairer
Fewer private cars
•
•
What happens as a result?
•
•
•
•
6.1.7
What skills are required?
Fewer older cars
More congestion
charging
Technology and
skills increase
Greater
investment in
manufacturing
•
•
•
•
•
Electronics
Legal skills
Telematics
Modern material
repairs
Emission control
technology
Summary
The scenarios above all incorporate themes that have been running through this Skill Needs
Analysis:
•
The need for management skills, including man-management
•
The importance of technical skills as vehicle technology increases
•
The importance of improving the image of the sector
•
The need for soft and customer facing skills.
Not only are these skills currently needed, but may also prove essential to the future development
of the motor industry.
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7
7.1
Geographic perspectives
Country perspectives of future skill needs
This section continues to present forecasts in employee numbers and required qualifications
levels, concentrating specifically on country dimensions.
Similarly to the previous section, the quantified analysis presented here builds on the work
undertaken by the Warwick Institute for Employment Research and Cambridge Econometrics and
published in SSDA’s Working Futures 2004-2014. The results are based on the use of a regional
multi-sectoral dynamic econometric model of the UK economy, combined with occupational,
replacement demand and qualification modules.
The results take account of data from the
Census of Population 2001 and other sources including the Annual Business Inquiry and the
Labour Force Survey.
Forecasts of employment by status and gender are provided by the multi-sectoral dynamic model
which incorporates an input-output framework to represent how industries are inter-related
regionally. The analysis estimates the numbers employed in each occupation in order to assess
the required demand for skills in the sector. Future patterns of occupational structure and of
demand for skills (as measured by qualifications) are then calculated using the occupational,
replacement demand and qualification modules. The econometric model is, generally speaking,
based upon quite sophisticated econometric analysis of long time-series data sets.
It is
characterised by many feedbacks from one set of equations to another. By contrast, the other
sub-models relating to occupational employment and replacement demands are based on much
more limited data and do not feed back into the main econometric model.
The forecasts are for the period 2004 to 2014 and the summary points cover the sector within
each country, with comparisons made where relevant for the UK average for the sector.
7.2
Introduction
Variations in the data between countries arise primarily due to the supply of labour and the ability
to employ suitably qualified workers, and not differences in the trends in demand.
These
variations are likely to be greater at the local level than the regional level.
Trends in the availability of workers of school-leaving age are determined by a number of factors
including demographic and social change. In each of England, Wales, Scotland and Northern
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Ireland, the population of school–leaving age (16-17) is projected to decline between 2004 and
2014. Of school-leavers, the proportion entering employment is typically higher in Scotland than
in England, Wales and Northern Ireland.
The qualification levels of the working-age population vary by region and devolved administration,
with London having a higher proportion of highly qualified residents (i.e. qualified to NVQ level 4
and 5 or equivalent) than any other UK region in any country (in 2005). This regional variation in
qualification levels reflects the specialisation of activities and occupations in the different
countries and the greater mobility of highly skilled labour. However, according to this source, the
workforce of the Automotive Skills footprint is typically less mobile than other sectors. This could
be due to the highly specific nature of some occupations in the industry.
What is possibly more relevant for the sector is the educational attainment of local school-leavers
and those leaving further education.
Variation in local educational provision and attainment
produces distinct differences in the size and quality of labour force available to the sector. For
example, amongst English Learning and Skills Council areas, the proportion of working-age
population with no formal qualifications in 2004 is estimated to have varied between 8% in Surrey
and 23% in Greater Merseyside.
The greatest variation across regions and localities arises in the extent of opportunities for
competing employment in, for example, other skilled trades and personal services. In the long
run, competition for skilled workers comes not merely from other companies in the sector but from
other sectors competing to employ skilled workers and offering higher wages.
7.3
The general Welsh context 118
Before looking at Welsh data that is specific to the automotive sector, the general Welsh context
will first be considered.
In terms of total population growth across the whole of the economy, an increase of
approximately 100,000 is expected between the years of 2004 and 2014. This is an increase of
0.4% per annum, an increase which is in line with the UK economy as a whole. Also set to
increase is the working age population, although the increase in this (0.4%) is projected to be
slightly less than the UK average, which is forecast to be 0.5%.
118
Working Futures 2004 – 2014 Spatial Report. A. Green, K. Homenidou, R. White and R. Wilson, the Institute for
Employment Research, January 2006.
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Concerning ILO unemployment, forecasts estimate that this is expected to increase quite sharply
up to the year 2009. This is expected to be at a faster rate than for the UK as a whole.
Between 2004 and 2014 there is expected to be a gain of over 20 thousand male full-time jobs in
Wales, and this represents an annual rate of increase of 0.5 per cent. This is greater than the UK
average. Projected growth in part-time jobs for males is expected to grow at a faster rate than
that for full-time jobs. Projected losses in full-time jobs for females are confined to Wales. The
average projected rate of growth across the UK is 0.7 per cent per annum.
At SOC Major Group level, the largest increase in occupational employment between 2004 and
2014 is projected to be in professional occupations, with an expected increase of almost 30
thousand jobs. This represents an increase of a similar rate to that of the UK as a whole. Other
substantial employment gains are expected for personal service occupations (22 thousand jobs),
associate professional and technical occupations (15 thousand jobs), managers and senior
officials (over 15 thousand jobs) and sales and customer service occupations (10 thousand jobs).
Interestingly for the automotive sector, Elementary occupations and skilled trades occupations
dominate job losses, with employment expected to contract by approximately 35 thousand and 10
thousand respectively. These losses represent rates of decline in excess of the UK average. A
further loss of 5 thousand jobs is expected for administrative, clerical and secretarial occupations.
7.3.1
Wales
Having looked at the general Welsh context, this section will look at data that is specific to the
automotive sector in Wales. The following observations can be made:
Sector employment is forecast to increase, compared with a fall at the UK level.
•
As in the UK, the proportion of males in the workforce is high and is likely to remain so.
•
Compared to the UK average for the sector, in Wales there is a relatively low proportion
of employment in professional and associate professional & technical occupations. The
proportions in managers & senior officials, skilled trades and sales & customer service
occupations are similar to the UK average for the sector. The proportion in machine &
transport operative occupations is higher than the UK average for the sector.
•
Although the increase in total employment in the sector in Wales is expected to be only
modest, substantial replacement demand is forecast to be required to replace those that
retire or leave the sector for other reasons. It is projected that 37% of the sector’s 2004
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workforce will need to be replaced during 2004-2014. This compares with 30% for the
sector at the UK level.
•
For each occupational group in the sector in Wales the total requirement (expansion
demand plus replacement demand) is projected to be positive.
For the largest
occupational groups the forecast total requirements are:
o
2,200 in managers & senior officials (41% of those employed in these
occupations in 2004),
•
o
1,700 sales and customer services occupations (27%) and
o
900 in skilled trades (26%).
Compared to the UK average, the sector in Wales has a marginally higher proportion of
employees with qualifications levels of NVQ level 3 and NVQ level 4 equivalents. The
proportion is relatively low for NVQ level 4.
•
Marked increases in the expected levels of qualifications required of those employed in
each occupation are projected to increase qualifications levels in the sector. The largest
incremental demand of 4,900 is expected for NVQ level 3 qualifications, representing
around 67% of those employed with these qualifications in 2004 (62% for the UK).
•
When expressed as a proportion of those employed with these qualifications in 2004, the
incremental demands for NVQ level 1 – 4 qualifications in the sector in Wales are
projected to be relatively high compared to the sector at the UK level.
How Wales compares to the other nations can be seen in the following analysis.
7.3.2
Scotland
The following summarises the skills needs for Scotland.
•
Sector employment is forecast to fall a little faster than at the UK level. As in the UK, the
proportion of males in the workforce is high and is likely to remain so.
•
Compared to the UK average for the sector, there is a relatively low proportion of
employment in managers and senior officials and sales and customer service
occupations. The proportion in elementary occupations is higher than the UK average for
the sector.
•
Although total employment is expected to fall slightly in Scotland, substantial replacement
demand is forecast to be required to replace those that retire or leave the sector for other
reasons. It is projected that 24% of the sector’s 2004 workforce will need to be replaced
during 2004-2014. This compares with 30% for the sector at the UK level.
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•
For each occupational group, the total requirement (expansion demand +/- replacement
demand) is projected to be positive (net).
For the largest occupational groups the
forecast for total net requirements are:
o
3,700 in sales and customer services (32% of those employed in these
occupations in 2004),
•
o
2,200 managers & senior officials occupations (22%) and
o
600 in skilled trades (9%).
Compared to the UK average, the sector in Scotland has a marginally lower proportion of
employees with qualifications levels equivalent to S/NVQ level 3 and S/NVQ level 4. The
proportion is relatively high for NVQ level 1 and those with no qualifications.
•
Marked increases in the expected levels of qualifications required of those employed in
each occupation are projected to increase qualifications levels in the sector. The largest
incremental demand of 7,000 is expected for S/NVQ level 3 qualifications, representing
around 49% of those employed with these qualifications in 2004 (62% for the UK).
•
When expressed as a proportion of those employed with these qualifications in 2004, the
incremental demands for all levels of qualification in the sector in Scotland are projected
to be relatively low compared to the sector at the UK level.
7.3.3
•
England
Employment in the sector in England is forecast to fall slightly between 2004 and 2014.
By occupation, the level of employment is expected to increase in professional, personal
service, sales and customer service and machine operatives occupations. It is expected
to decline in managers and senior officials, associate professional, administrative, skilled
trades and elementary occupations.
•
Although total employment is expected to fall slightly, substantial replacement demand is
forecast to be required to replace those that retire or leave the sector for other reasons. It
is projected that around 30% of the 2004 workforce in the sector will need to be replaced
during 2004-2014. This compares with 40% for the economy as a whole. By occupation,
the largest total requirements are projected in sales and customer service and managers
and senior official occupations.
•
Qualifications levels in the sector are relatively low, especially so for managers and senior
official occupations. Fewer than 10% of those employed in 2004 had qualifications of
NVQ level 4 or higher compared with 30% for the economy as a whole
•
Marked increases in the expected levels of qualifications required of those employed in
each occupation are projected to increase qualifications levels in the sector. In all regions
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the largest incremental demand is expected to be for NVQ level 3 qualifications. In
England as a whole, demand is expected to increase in all occupations with the largest
increases in sales and customer service, managers and senior officials and skilled trade
occupations.
7.3.4
Northern Ireland
•
Sector employment is forecast to increase, compared with a fall at the UK level.
•
As in the UK, the proportion of males in the workforce is high and is likely to remain so.
•
Compared to the UK average for the sector, in Northern Ireland there is a relatively low
proportion of employment in managers & senior officials and machine & transport
operatives occupations. The proportion in skilled trades occupations is similar to the UK
average for the sector.
In sales & customer service occupations the proportion is
relatively high.
•
Although the increase in total employment in the sector in Northern Ireland is expected to
be only modest, substantial replacement demand is forecast to be required to replace
those that retire or leave the sector for other reasons. It is projected that 35% of the
sector’s 2004 workforce will need to be replaced during 2004-2014; this compares with
30% for the sector at the UK level.
•
For each occupational group in the sector in Northern Ireland the total requirement
(expansion demand plus replacement demand) is projected to be positive.
For the
largest occupational groups the forecast total requirements are:
o
2,900 in sales & customer service (53% of those employed in these occupations
in 2004),
•
o
900 managers & senior officials occupations (29%) and
o
300 in skilled trades (14%).
Compared to the UK average, the sector in Northern Ireland has a marginally lower
proportion of employees with qualifications levels equivalent to NVQ level 4 and NVQ 3.
The proportion is relatively high for NVQ 2, NVQ 1 and those with no qualifications.
•
Marked increases in the expected levels of qualifications required of those employed in
each occupation are projected to increase qualifications levels in the sector. The largest
incremental demand, of 9,900, is expected for NVQ level 3 qualifications, representing
around 20% of those employed with these qualifications in 2004 (62% for the UK).
•
Positive incremental demand is projected for the higher qualifications levels (NVQ level 5,
4, and 3) falling demand is projected for the lower qualifications levels. This means that
demand for employees with lower qualifications levels is expected to fall.
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8
Summary and Priorities
This report has assessed current and future skill needs in the sector in Wales in the context of
factors that are likely to affect business performance and competitiveness in the coming years.
This section will summarise some of the findings of the report, and thus consider some short and
long term priorities for the motor industry.
8.1
Short-term priorities
8.1.1
Management and Leadership Skills
It has been shown in this skills needs analysis that the proportion of managers in the sector
trained to S/NVQ Level 4+ is the lowest proportion of any sector in the UK economy. The number
of managers with no qualifications is also the third lowest of all sectors.
It is essential, however, that the industry has managers that are well equipped for the future. For
this reason, Automotive Skills have put together a set of performance standards for automotive
retail managers, and those aspiring to be so in the future, that clearly define the skills and
knowledge the industry agrees are required both now and in the future.
Automotive Skills have therefore developed Automotive Retail Management Standards (ARMS),
a set of Level 4 (NQF Level 5/SCQF Level 8) management and leadership standards which are
industry specific and now recognised by the UK regulatory authorities as a leading-edge
benchmark against which managerial performance can be measured. These can also be used as
a mechanism for management development enabling organisations and training providers to
develop first class management training provision based upon their content.
It will be important for Automotive Skills to promote this tool to existing managers as well as those
that join or are promoted from within the industry. This will contribute to reducing the skills gap
that currently exists within this occupation.
8.1.2
Employability and Life Skills
Relatively high staff turnover and a shortage of employability skills have also been attributed in
part to poor people-management skills by employers taking part in this research.
The
improvement of management skills will help to improve the motivation and performance of the
existing workforce.
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A more professional image in the long-term will help to attract the right kind of employee. Only
through creating a more professional image will high calibre candidates with the necessary life
skills wish to join the sector. Automotive Skills must also work with key partners to improve the
training supply, thereby helping to ensure that current employees have access to the training they
need to develop the skills that need improving.
8.1.3
Targeting of specific groups
The scenario planning work conducted by Automotive Skills for this Skills Needs Assessment
concluded that a short-term priority for the industry was to forge stronger links between education
and industry in order to encourage more young people into the industry.
As a solution to this problem, the Young Apprenticeship Scheme was launched in 2004 by the
government in England. The programme offers 14-16 year olds the chance to follow an industryspecific programme on top of the core national curriculum. It is being run across a number of
industrial sectors, one of which is the retail motor industry. Within the retail motor industry,
partnerships in the first year of the scheme were developed between employers, schools and
learning providers in East Sussex, Bournemouth, Leeds and Nottingham.
Over the last year, approximately 450 employers in the automotive sector have been participating
in the Young Apprenticeship programme. The number of partnerships has increased to nineteen,
all working with Automotive Skills and the Learning and Skills Council to see if the YA scheme is
the right programme to meet the needs of employers in the sector.
National data sources have also highlighted the lack of representation of women and ethnic
minorities within the retail motor industry.
The number of females working in the motor industry
needs close attention, as it is very different from the proportion of women in the labour market
across all sectors.
Automotive Skills will continue to work closely with partners to assess
whether or not this solution is helping to increase the number of these people entering the
industry.
8.2
Long-term priorities
8.2.1
The image and reputation of the sector
The lack of management and leadership skills in the sector has possibly contributed to the poor
image the sector has in the wider public. It was shown earlier that the sector still faces the threat
of a super complaint by the National Consumer Council because of concerns about poor
consumer protection across the service and repair sector.
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Automotive Skills has welcomed the recent news that the National Consumer Council has
delayed its threat of a super complaint against the motor industry. The NCC has recognised the
significant investment in skills-based initiatives taking place in the sector, including those led by
Automotive Skills and the Institute of the Motor Industry.
This decision by the NCC gives a strong signal that the industry is moving in the right direction.
However, as part of its route map unveiled at the time of their announcement, the NCC has
highlighted a range of motor industry initiatives it would like to see taken forward to continue
efforts to raise standards of consumer care.
With these initiatives, a more professional image will be portrayed to customers and potential new
recruits to the sector. This is a long-term priority, with action already being taken to implement
the changes required.
8.2.2
Technical skills
Advances in vehicle technology will have implications for both short and long-term skill needs of
the sector. Data presented in this Skills Needs Assessment has shown that technical skills are
considered difficult to obtain now. This is a situation that is only likely to get worse with future
technological advances.
Employers in the sector have argued that the motor industry needs to embrace new technology,
rather than withdraw from it. Having up-to-date technical skills is hugely important to the sector’s
productivity and profitability, given that there is almost twice as much employment in this
occupational category than any other.
Technical skills are at the heart of the apprenticeship scheme, and yet there is still a shortage of
them in the sector. Thus, it will be the job of Automotive Skills to make sure it consults widely
with employers to make sure that the outcomes of qualifications are what the industry demands
and needs.
8.2.3
Government policy
In the same way that the industry will need to keep abreast of technological change, government
policy will also have to be monitored to make sure that the industry is prepared for any changes
that may change working practices within the sector.
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This report has shown how this operates at both a governmental and supranational level.
European competition laws, for example, have recently changed, and the industry must make
sure that it is flexible enough to respond to any other changes in law to affect business practice
that might be proposed. This is particularly true of the Block Exemption Regulation, which is
reviewed periodically, and will continue to have a significant impact on the business structure of
new car sales and Aftersales.
Further, employers have argued that the industry must engage fully in the debate on emissions
policy. This is both a short-term and long-term priority, with perpetual possible amendments to
government policies and priorities.
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Appendix 1 The Passenger Car Supply Chain
Figure 41: Passenger Car Supply Chain)
Breakdown Recovery
Operators
OEM
Modules, Components & Parts
Daily Rental
Contract Hire &
Vehicle Leasing
Vehicle
Supermarkets
Vehicle Manufacturer
Non-OEM Modules,
Components & Parts
Fast Fit
Franchised Retailer
Auctions
Independent Retailer
Body Repair
Independent
Aftermarket
Restoration
Services
Independent M&R
Valeting &
Preparation
MOT Testing
This graph illustrates the complex inter-relationship between different parties of the supply chain
that reach in and out of the footprint.
Skills Needs Analysis – UK
Page 102 of 130
July 2006
Appendix 2 Top 50 Franchised Dealers
---------------------------------------------------------------Figure 42: Top Future 50 Franchised Dealers
Company
Latest
Pre-tax
Return on
Turnover
Profit
Sales
3,168,200,000
65,400,000
2.06
Arnold Clark
1,591,250
57015
3.58
Reg Vardy
1,717,921
43787
2.55
Sytner Group
1,414,001
31479
2.23
Lookers
1,093,752
26383
2.41
European Motor Holdings
800,000
20000
2.50
JCT 600
453,000
10100
2.23
Camden Motor Group
1,155,000
9804
0.85
Porsche Retail Group
226,846
9621
4.24
Agnew Group
276,000
9200
3.33
Marshall Motor Holdings
438,961
8743
1.99
Listers of Coventry (Motors)
390,000
7500
1.92
Stoneacre Motor Group
133,469
6511
4.88
Perrys Group
359,702
6159
1.71
Helston Garages Group
267,000
6000
2.25
Williams Motor Co (Holdings)
220,006
5705
2.59
TC Harrison Group
177,000
5700
3.22
Bristol Street Group
554,220
5581
1.01
Lind Automotive Group
372,000
4941
1.33
Parks of Hamilton
213,993
4881
2.28
Ryland Group
501,121
4860
0.97
Dutton Forshaw Group
300,327
4674
1.56
Greenhous Group
483,200
4667
0.97
RRG Group
191,259
4584
2.40
Addison Motors
300,519
3967
1.32
CEM Day
145,000
3800
2.62
Meteor Group
174,100
3700
2.13
Caffyns
155,684
3303
2.12
Sinclair Motor Holdings
146,593
3179
2.17
Pendragon
Skills Needs Analysis – UK
Page 103 of 130
July 2006
Company
Latest
Pre-tax
Return on
Turnover
Profit
Sales
Halliwell Jones
104,803
3136
2.99
Dick Lovett
206,000
3120
1.51
Currie Motors UK
164,000
3019
1.84
Renault Retail Group
643,000
2800
0.44
Wood Group
102,104
2568
2.52
Norton Way Motors
125,000
2500
2.00
74,751
2482
3.32
127,212
2254
1.77
92,562
2140
2.31
149,572
2127
1.42
WJ King (Garages)
63,696
2114
3.32
RH Patterson & Co
190,856
2110
1.11
McLean & Appleton
105,000
2050
1.95
Hendy Holdings
177,479
2031
1.14
89,753
1826
2.03
133,000
1800
1.35
Hughes of Beaconsfield
97,000
1800
1.86
Lifestyle Europe
75,972
1770
2.33
Westover Group
112,133
1764
1.57
Charters of Aldershot
46,609
1728
3.71
Hawkins Motors
38,850
1670
4.30
Speeds Motor Group
Macrae & Dick
Godfrey Hall
Donnelly Bros Garages
(Dungannon)
Gates Group
Beadles Group
Average profit
2.20
Source: AM Online
Skills Needs Analysis – UK
Page 104 of 130
July 2006
Appendix 3 Capital Developments
Figure 43: Capital Developments
Date
Company
Marques
Location
24/03/06
Sytner
BMW, Mini
Loughton,
Essex
24/03/06
M-B Bishops
Stortford
MercedesBenz
Bishops
Stortford
10/03/06
Jardine
Motors
Bentley
Sevenoaks
Size
2.08 acres
18 s/room
60 used
12 w/bays
211 parking
12 s/room
40 used
12 w/bays
Cost
Source
£3.7m
www.am-online.com
£2m
redevelopment
www.am-online.com
n/k
£1.2m
www.am-online.com
£7m
www.am-online.com
£6.5m
AM magazine 24/02/06
n/k
www.motortrader.com
£2m
www.motortrader.com
10/03/06
JD Cleverley
Audi
Cardiff
5 acres
19 s/room
65 used
24/02/06
Derek
Woodman
BMW, Mini
Blackpool
5 acres
5 acres
24 s/room
125 used
30 w/bays
Two-storey
8 s/room
60 used
09/02/06
Sytner
MercedesBenz
Smart
Cribbs
Causeway
03/02/06
Camerons
Audi
Perth
27/01/06
Motorsales
Vauxhall
Harlow
n/k
£500,000
redevelopment
AM magazine 27/01/06
Skoda
Inverness
n/k
£1m
AM magazine 27/01/06
Toyota
Watford
n/k
£2.5m
AM magazine 27/01/06
Cribbs
Causeway
2 acres
10 s/room
8 w/bays
80 parking
n/k
www.autowired.co.uk
Sunderland
n/k
£5.5m
www.autowired.co.uk
27/01/06
27/01/06
Delmore
Cars
Andrew
Rowley
27/01/06
Bristol Honda
Honda
26/01/06
Jennings
Motors
26/01/06
Sherwood
17/01/06
CD Bramall
Ford,
Mazda
Vauxhall,
Chevrolet
Iveco
17/01/06
Lancaster
Bentley
Sevenoaks
12/01/06
05/01/06
Guy Salmon
Pentagon
Knutsford
Doncaster
16/12/05
Pentagon
Land Rover
Toyota
MercedesBenz,
Chrysler
and Jeep
Portsmouth
Motor Park
Audi
Dundee
Audi
Aberdeen
16/12/05
16/12/05
John Clark
Motor Group
Specialist
Cars (JCMG)
16/12/05
Greenoaks
MercedesBenz
5/12/05
Richville
Multi-
29/11/05
(ref open
03/05)
HR Owen
BMW
28/11/05
Jack Barclay
Bentley
18/11/05
Alan Milne
Peugeot
Skills Needs Analysis – UK
Northallerton
n/k
Liverpool
1.25 acres
Showroom +
20 used cars
n/k
33,000 sq ft
Slough
North
Tyneside
Elgin, Moray
www.autowired.co.uk
www.autowired.co.uk
£1m
www.autowired.co.uk
£3m
£2.5m
www.autowired.co.uk
www.motortrader.com
25 vehicles,
22 w/bays
60 used cars
n/k?
www.am-online.com
8 car s/room
14 w/bays
£2.5m
www.am-online.com
£1.5m
www.am-online.com
£12m!
AM magazine 16/12/05
£10m
www.am-online.com
n/k
£7.5m
www.motortrader.com
n/k
£2m for
refurbishment
www.motortrader.com
1.6 acres
Two stories
£1.5m
AM magazine 18/11/05
Two stories
16 w/bays
8 franchises
on 8 acres
with 700
cars*
Western
Avenue,
London
Central
London
£100k
refurbishment
£1.5m
Page 105 of 130
July 2006
Date
Company
Marques
Location
18/11/05
RMB
Automotive
Toyota
Northallerton
15/11/05
Bramall &
Jones
Audi
Derby
08/11/05
Motorsport
Vision
tbc
Snetterton
31/10/05
Patterson
Motor Group
Ford
Shiremoor,
Newcastle
25/10/05
RMB
Automotive
Toyota,
Lexus
Bowesfield
Farm,
Stockton-onTees
25/10/05
Waters
Group
Renault
St Albans
24/10/05
Francis
Motor Group
Honda,
Hyundai
24/10/05
Sinclair
Motor
Holdings
MercedesBenz, Audi
Size
142 parking
6 car s/room
7 w/bays
80 used cars
3.5 acres
50 used cars
3 car, 5
motorcycle
showrooms
T/O £22m
1,800 n/u
cars pa
Cost
Source
£2m
AM magazine 18/11/05
n/k
www.autowired.co.uk
£15m
www.am-online.com
£1.4m
www.autowired.co.uk
£4m
www.autowired.co.uk
8-car s/room
80 used cars
10 w/bays
£4m
www.am-online.com
Thorpe
Arnold, nr
Melton
Mowbray
2 acres
£2.5m
www.autowired.co.uk
Swansea,
Bridgend
2 sites
£9m
www.motortrader.com
£5m+
£1.1m
www.autowired.co.uk
£1.75m
www.autowired.co.uk
£7.5m
www.autowired.co.uk
£4.5m
www.motortrader.com
£2m
www.motortrader.com
£2m
www.am-online.com
2,000m
£3m
www.motortrader.com
n/k
£1.4m
AM Magazine 23/08/05
3-storey
building
3.5 acres
Two stories
8 car s/room
15 w/bays
50 used cars
25 acres
2 halls
100 staff
420 cars
120 CVs
3 acres
Substantial
investment
www.motortrader.com
£4.4m
AM Magazine 29/07/05
£12m
AM Magazine 29/07/05
£4m
AM Magazine 17/06/05
21/10/05
JCT600
Porsche
Leeds
21/10/05
Lookers
Charles
Hurst
Renault
Chrysler
Jeep
Altrincham
1.8 acres
32k ft2
30-car s/r
17 w/bays
100 parking
10 w/bays
Belfast
150m2 s/r
13/10/05
26/09/05
Inchcape
MercedesBenz
Nottingham
27/09/05
Sytner
Lexus
Milton Keynes
BMW
Portadown
30/08/05
David
Prentice
John Roe
Motors
Polar
26/08/05
Patterson
16/09/05
30/08/05
Toyota
Ford
Ford
Hessle, Hull
Warrington
Shiremoor,
Tyneside
Bishop’s
Stortford
03/08/05
Charvills
Vauxhall
29/07/05
Sytner
Audi
Harrogate
29/07/05
BCA
Auctions
Nr Bedford
17/06/05
Benfield
Toyota
Wakefield
65k ft2
35-car s/r
22 w/bays
100 parking
1.7 acres
6-car s/r
9 w/bays
20 BMWs
10k ft2 Mini
2
15k ft
2
AM Magazine 21/10/05
*each franchisee with a 2,100sq ft showroom and 2,700sq ft ancillary PDI/service unit plus space to display between 77
and 98 cars externally.
Skills Needs Analysis – UK
Page 106 of 130
July 2006
Appendix 4 Selected News
Dealers struggle with out-of-date PCs
26 April 2006
Old computers are leaving dealers struggling to make the most out of any investment they make
in new software.
Dealer management system specialist Pinewood says that the IT hardware in use in many
dealerships is so out of date that it is of little more than ‘junk’ value. The problem was identified by
Pinewood research, which covers 1,040 dealers using its own and other dealer management
systems. Instances were identified in at least 58% of the dealers surveyed.
Geoff Miller, sales manager at Pinewood, said: "The problem of outdated hardware takes two
forms. The first is when the dealer is using old hardware and old software. Here, the technology
will simply be very out of date, probably holding back the business, and the whole system liable to
break down regularly. The second is when an investment in software has been made but not on
hardware. Sometimes, this can work but more often, the old computers clip the wings of the new
DMS. The potential of the new technology is compromised."
Pinewood's research into dealer IT hardware follows last month's survey into dated DMS
systems. Research conducted by the company found that the average age of the core software
behind the dealer management systems in use in franchise dealers was more than 10 years old.
Miller said: "This statistic places the dealer sector firmly in the dark ages in IT terms and years
behind the software technology used in other retail industries."
Source: www.am-online.com
Number of new car dealers hits record low
6 April 2006
The number of franchised new car sales outlets in the UK has fallen to the lowest amount in 30
years, according to the latest Sewells Franchise Networks report.
It shows there were 5,644 new car sales outlets last year, compared to 5,927 in 2004.
Skills Needs Analysis – UK
Page 107 of 130
July 2006
“Although the demise of the MG Rover network has seen many dealers leave the trade
altogether, it does present remaining sites with the opportunity to develop a franchise with other
ambitious marques. In this respect, Franchise Networks includes research on open points that
vehicle manufacturers wish to fill throughout the UK,” said Sewells.
Sewells reflects on the loss of the MG Rover dealer network and its influence on the overall fall in
the total number of franchised dealer points. However, existing MG Rover dealers are not
included in the report, as the network can only be described as one which sells nearly-new or
used cars. Franchise Networks 2006 also provides an overview of the new and used car markets,
for both the UK and for Europe. For new cars, the UK statistics include analysis by make, car
segments, top-selling makes and models, fleet sales, and car parc. Similar statistics are also
included for Europe.
Pendragon strengthens its grip
Who Owns Who, the Sewells dealer directory, and Franchise Networks reveal how the structure
and shape of the ‘top 20’ UK dealer groups continues to change as acquisition and organic
expansion ensured growth in 2005. The ‘top 20’ groups now control 1,255 new car franchise
points compared with 1,252 at the end of 2004.
Pendragon stretched out its lead over the rest of the ‘top twenty’ with the acquisition of smaller
operations in 2005. However, Pendragon’s recent purchase of Reg Vardy is not included because
this happened in early 2006. When Reg Vardy is integrated within Pendragon, the group will have
over 300 sites, 350 franchises and a turnover of over £5 billion. The report notes that Pendragon
will then have increased its vehicle manufacturer partnerships considerably. For example, the
group will account for a third of Jaguar’s dealer network and half its sales volumes as well as 45%
of Land Rovers’ distribution network.
No explosion of authorised repairers since BER changes
At the end of 2005, there were 616 ‘authorised repairers’ in the UK. It was hoped that changes to
Block Exemption would create an explosion of authorised repairers, but the number at the end of
2005 had only increased by 105 sites on 2004.
Skills Needs Analysis – UK
Page 108 of 130
July 2006
High volume marques continued to attract approved repairers as they offer larger car parcs and
the opportunity of enough business to justify the cost of meeting vehicle manufacturer’s exacting
standards. Citroen, Ford and Vauxhall dominate the ‘top 10’ authorised repairer networks, with
Citroen leading with seventy-three authorised repairers.
Source: www.am-online.com
Dealer quarterly report Q1
3 April 2006
Here are the latest trends reported by consultancy firm, Network Automotive in the first quarter of
this year.
New and used car sales
Dealers are not even attempting to achieve sales targets which they believe the have no hope of
reaching, following slow new and used car sales. Many are finding the whole situation very
discouraging but most are taking some action to fight back against the problem.
The availability of manufacturers' budgets to help with incentives that could alleviate the problem
is limited, and most are also reluctant to commit to any long-term spending that could bring about
structural improvements, says Network Automotive.
As a result of these factors, we believe that further reductions in new car prices during the next
quarter and the rest of 2006 are unavoidable as part of the quest to encourage customers back
into the showroom, and this will have an inevitable knock-on effect on nearly new and used car
prices.
One developing trend is that much retail new car competition seems to be occurring more on a
local basis, with customers looking to get the best deal on a type of car from a number of dealers,
rather than wanting a particular model and trying to buy this for a good price. This is perhaps an
indication of a "bargain hunting" mindset that can only make life tougher for dealers.
The most proactive dealers are switching much of their attention to aftersales in the expectation
that higher margins can be achieved there than in car sales. Dealers who take a more reactive
Skills Needs Analysis – UK
Page 109 of 130
July 2006
stance are in for a bumpy ride throughout the rest of the next quarter and the rest of the year, we
expect.
On aftersales, the report continues:
Aftersales
Many forward-looking dealers are viewing aftersales, parts and rental as their best chance of
achieving profitability in 2006 and we agree with this approach. Dealer activity in this area is
proving to be quite varied but tends to be based on extracting the maximum return from existing
resources.
So, for example, customer databases are being used for direct marketing purposes to ensure that
a larger number are captured for service and maintenance, while dealers who operate rental
desks are working to establish better links with local businesses. Also, efforts are being made to
increase parts sales - if people are hanging on to their existing car for longer, dealers believe,
then there will be more demand for service, maintenance and parts.
Bodyshops operated by dealers are also finding life tough, with most hoping simply to break
even. This remains an extremely competitive area, with both independent and dealer repairers
struggling equally.
Source: www.am-online.com
Sellers' market for dealers looking at acquisition
CHARTERED ACCOUNTANTS, Trevor Jones, surprisingly reports that more dealers are looking
to expand.
"With average dealer profitability as a percentage of turnover finishing on 0.5% for 2005 it was
expected that there would be a large number of dealers looking at exit strategies," said business
development manager, David Kendrick. He added that for companies considering an exit
strategy, it appears to be a sellers market.
He bases his comments on the fact that 75% of registrants on the Stockport firm's
Dealermatch.co.uk service, are looking to grow their businesses.
Skills Needs Analysis – UK
Page 110 of 130
July 2006
DATE: Monday, April 03, 2006
Source: www.autowired.co.uk
Pendragon chief wants 10% of the retail market
PENDRAGON, currently in a hostile bid for the Lookers' Group, will go on acquiring UK retail
motor businesses until it has 10% of the market. Having acquired Reg Vardy Group, Pendragon
currently has around 5% of the market. A successful take-over of Lookers would take it to 6%.
"In the near term we would like to see Pendragon with 10 pct of the UK market," Pendragon chief
executive, Trevor Finn, said at the weekend. "It is a £100bn -a-year industry and it is very
fragmented but in 10 years' time there'll be four or five big dealerships," he said. "This is still the
beginning of the consolidation, not the end of it," he added, "and we are emerging as the clear
market leader."
The Pendragon chief was talking to the Sunday Telegraph.
Pendragon's hostile bid for Lookers, however, would be dealt a crucial blow if GE Capital,
Lookers' largest shareholder, rejects the bid. GE Capital has a 25% stake in Lookers and The
Mail on Sunday said yesterday that it was about to snub Pendragon's take-it-or-leave it offer.
Source: www.autowired.com , 13/03/06
West Midlands sites drive a profit
21 Feb 2006
The West Midlands is proving to be one of the most viable areas in the UK to build car
dealerships. According to research from property advisors GVA Grimley, dealerships in the West
Midlands have the advantage of low new build costs and strong property and land value levels,
allowing them to recover the costs of buying land. Amanda Barber, head of automotive and
roadside at GVA Gimley, said: “The West Midlands has the strongest automotive land values in
the UK outside London and the south east at just under £1m per acre.”
Source: www.motortrader.com
Skills Needs Analysis – UK
Page 111 of 130
July 2006
The big picture: The risk to the city retailers
13 February 2006
Within two years there might not be a single independent franchised dealer left within the M25.
Already a large proportion are owned by manufacturers – Mercedes, Renault, BMW, Peugeot and
Ford run their own businesses – while several companies, including Honda, Volkswagen and
Škoda, have acquired sites that are operated by dealers. Plcs dominate the balance.
The main reason is operating costs, in particular land and property – or rather, insufficient profits
to absorb these costs and allow reinvestment. Retailers have spoken out about the situation, but
carmakers have rejected all calls to raise margins in London. They claim it would result in unfair
trading conditions for dealers in other areas of the country.
The situation in London will be replicated in other big cities. For carmakers this will present
something of a dilemma. They want dealers to offer the best service in top quality showrooms,
which costs money. Already dealers are dropping out, including in recent weeks Nissan dealers
Dicksons of Forres and Barons of Bromsgrove, and Honda dealer Jim Russell, while the number
of business failures is accelerating.
The situation could become untenable for the less attractive franchises – those with falling sales
and poor retailer profitability. If dealers withdraw, what happens if others do not want to take on
the franchise? This is happening. There are carmakers with no presence in some big cities. They
will either have to change their retailer agreements or find new routes to market.
A few are now back-pedalling on key issues – including threat of termination – when challenged.
Dealers have become so desperate they are willing to risk termination by fighting back; it can be
the dose of reality that is needed to force carmakers to realize how much they need dealers and
how difficult – and costly – it is to find a replacement. For these dealers, the balance of power has
tipped ever so slightly – but it might just be enough.
Source: www.am-online.com
Skills Needs Analysis – UK
Page 112 of 130
July 2006
Rising land values and rent costs hit retailers
7 December 2005
Author: Stephen Briers – AM Magazine
This year Sytner opened a new BMW dealership that cost £19m. Other retailers have opened
£10m-plus Mercedes showrooms; Glasgow Audi opened a £15m outlet in November 2004.
Even further down the scale, the cost of building a new outlet runs into millions of pounds. A
significant proportion of that cost is land values. Buying or renting land is becoming more
expensive – in some cases prohibitively so.
London obviously stands out: land values in the capital are typically £2m per acre. That’s way
ahead of the second-placed region, the south east, at around £1.2m per acre. It’s forcing dealers
to reconsider trading within the M25: HR Owen is selling some of its sites, while Capital Chrysler
recently collapsed.
Demand from alternative land uses is also putting pressure on automotive land values, with the
West Midlands facing pressure in this respect. Values in this area are just under £1m per acre.
Compare that to the south-west of England and Scotland, where land values are just over
£300,000 per acre.
High build costs
Research compiled by property expert GVA Grimley shows that the cost of building the
dealership also varies, from around £725 per square metre in Wales and Scotland, to £940 in
London. Also notable are the south east (£861), East Anglia and the south west (both £805).
GVA Grimley points to the relationship between land value and new build costs, suggesting that
while new build costs are noticeably higher in the south, the land value differential of such
locations more than off-sets these higher build costs.
“One notable exception is the West Midlands, which has low relative new build costs but relative
strong land value levels. This helps demonstrate why there is strong demand for representation in
this location by dealers,” says GVA Grimley.
Skills Needs Analysis – UK
Page 113 of 130
July 2006
Dealers have mixed views when it comes to freehold versus leasehold. For smaller businesses,
freehold gives greater security and a potential nest egg for the future. Many larger groups have a
combination of both, with some groups selling freehold sites to raise capital for expansion.
Pendragon last month set up a joint venture property business with Royal Bank of Scotland,
which raised £98m. It now leases back 34 of its 250 sites, while the cash raised is currently
earmarked towards acquiring the Reg Vardy business.
Sytner chairman Laurence Vaughan firmly believes his group is a retailer, not a property agent.
Most of his 92 dealerships are leasehold. “We are in business to make money from selling cars
and servicing, not from buying property,” he says. “We don’t want capital tied up in bricks and
mortar.”
He is, of course, fortunate to have the backing of American giant United Auto Group, which frees
up funds for investment and can negotiate long-term lease agreements. “UAG’s view is that a
dealership needs to be fit for the next 25 years – they take a longer-term view than most
companies in the UK and they aren’t scared of making the capital investment,” adds Vaughan.
Others aren’t so lucky. Dixon Motors sold most of its property prior to the acquisition by Royal
Bank of Scotland in 2002, signing 30-year rental deals.
The bank sold the business to John Haines in September, although it retains a sizeable stake.
Insiders claim RBS’s preference was to close the retail business – Haines has already sold seven
sites and is in talks to offload four more, cutting turnover by £100 – but it would have faced a
huge bill from its landlords for 27 years’ outstanding rent. It retains the stake to give it some
control over the group’s strategy.
Former franchised dealers DC Cook and Appleyard were both burnt from sale and leaseback in
the past. As Guy Harwood, chairman of West Sussex-based Harwoods, says: “Freehold means
you control your own destiny. Ten or 20 years go by very quickly if you rent and then you are in
the hands of your landlord – especially if land prices go up.
“There’s a simple principle,” he adds. “If the site is going to increase in value, don’t sell. But if it
isn’t, then by all means lease.”
Over the past five years, property values across most parts of the country have escalated. GVA
Grimley’s research shows that automotive property can be an important investment sector in its
Skills Needs Analysis – UK
Page 114 of 130
July 2006
own right, with prime yields (return on capital invested against the risk of investment) shifting from
7.75% to 5.25%.
“The higher the risk of an investment, the higher the yield an investor would expect in taking this
risk,” says Kevin Marriott, GVA Grimley marketing communications manager. “Conversely, a
secure tenant or property location would mean the yield is lower as the income from the
investment is more secure.”
So what about those groups who prefer to rent? GVA Grimley’s rent index highlights prime rates
for selected towns dotted across the UK, and represents the best likely rent for a well located
modern dealership. It includes displays and parking.
Cost per square foot is, not surprisingly, highest within the M25 – Watford returned £20. The UK’s
next two biggest cities, Birmingham and Manchester, share second place on £15 per sq ft with
Bristol.
Rent in Bristol has risen due to competition from financial institutions looking for city centre sites.
That’s pushed dealers out to the giant Cribbs Causeway retail park, where they face competition
from high street shops, which forces rents up.
Source: www.am-online.com
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July 2006
Appendix 5 Urban Rural Dynamic
From qualitative research conducted during the early part of Stage 1of the SSA it because clear
that there are some key differences in the employment and market dynamics for those employers
with an urban or rural customer base/location.
Employers advised that in more rural locations it was harder to attract employees, including
apprentices, where travel-to-work and travel-to-college times and means were restricted. At the
same time existing employee turnover was lower and staff were more loyal and the same was
true of the customer base. This appeared to reflect local market dynamics and the place the
workplace had in the community.
On the other hand employers in more urban environments tended to see higher staff and
customer turnover – in part a reflection of alternative employment opportunities and the more
transient nature of the local community. Finding new employees was said to be a little easier.
In the quantitative phase of the primary research for Stage 1 we asked employers whether they
considered themselves to have a primarily urban or rural marketplace, and the
Defra’s Rural Economy and Strategy (RES) unit were kind enough to process IDBR data by
aggregated SIC codes representing Automotive Skills’ entire footprint. An analysis of these data
by defra’s standard rural definitions has been carried out. For more information on the definitions
please click here: http://www.defra.gov.uk/rural/ruralstats/rural-definition.htm
The charts which follow show the four-type morphology as defined by defra based on the
postcodes of employers in the aggregated SIC codes covering the sector as a whole. The first of
these (Fig 44) examines employment (employee volumes) showing the share of employment by
category of establishment location.
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July 2006
Figure 44: Proportion of Employers by Location Type – England 2005
Urban/Rural Employment - by Employer Location
6%
3%
5%
86%
Urban
Rural Town or Fringe
Rural Village
Rural Dispersed
Source: defra Rural Statistics Unit – IDBR Class 4 Local Authority Data 2005
The second chart (Fig 45) highlights employer volumes broken down by size of workforce
categories.
Figure 45: Rural/Urban Employment by Number of Employees - England 2005
100+
51-110
100
0
99
10
85
11-49
6
80
5-10
7
72
2-4
9
69
0-1
0%
10%
20%
Urban
30%
11
9
40%
50%
Rural town or fringe
60%
Rural village
70%
4
8
13
10
74
All
5
7
9
13
80%
4
90%
7
100%
Rural dispersed
Source: defra Rural Statistics Unit – IDBR Class 4 Local Authority Data 2005
Skills Needs Analysis – UK
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July 2006
A comparison of these two sets data highlights the overwhelming preponderance of
establishments employing >50 in urban areas and that employers with smaller workforces
account for an increasing proportion of businesses in rural areas.
Overall three-out-of-four businesses are located in urban areas, compared to six-out-of-seven
employees, which goes to support the hypothesis that larger employers dominate urban
environments.
These outputs support anecdotal evidence gathered in the qualitative phases of Stage 0 and
Stage 1. Although rural (3) morphologies account for one-in-four businesses they do account for
a significant minority or organisations.
Figure 46: Businesses with employees
Fig
East
East Midlands
London
North East
North West
South East
South West
West Midlands
Yorkshire &
Humber
Businesses with Employees:
Total
Employm
ent
76%
83%
100%
93%
93%
83%
77%
91%
Total
Number
of
Business
es
62%
67%
99%
77%
83%
69%
62%
78%
0-1
56%
59%
99%
70%
79%
62%
57%
72%
2-4
59%
66%
99%
77%
83%
66%
59%
76%
5-10
70%
76%
100%
86%
88%
77%
70%
84%
11-50
80%
83%
100%
84%
91%
82%
73%
92%
51100
100%
100%
100%
100%
100%
97%
100%
100%
101+
n/a
100%
100%
n/a
100%
100%
100%
100%
87%
76%
69%
74%
81%
87%
96%
100%
Source: defra Rural Statistics Unit – IDBR Class 4 Local Authority Data 2005
Skills Needs Analysis – UK
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Appendix 6 – Block Exemption Regulation
Distribution and Servicing of Motor Vehicles in the European Union
Commission Regulation (EC) No.: 1400/2002 of 31st July 2002
Essentially ‘Block Exemption’ it is permission granted by the EC for categories of agreements and
concerted practices in the motor vehicle sector (the Block) to be exempt from the EU Treaty
under Article 81(3) – hence ‘Block Exemption Regulation’ (BER). The BER exempts the
distribution, sale, maintenance, repair and other related aftersales activities associated with
passenger cars, from EC competition rules.
The BER enables car manufacturer national sales organizations to create networks of ‘selective’
or ‘exclusive’ dealership networks.
This BER has been granted by the European Commission Directorate General for Competition
(DG IV) and is covered by the following legislation in the UK:
ƒ
ƒ
EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001
Regulation 17 of the 1998 Competition Act
The current BER replaced a previous one (No.: 1475/95).
The new BER came into operation on 1st October 2002, but the majority of the provisions did not
come fully into effect until October 2003 following a one-year transition period.
There is a clause which bans ‘location clauses’ – this limits the geographical scope of dealer
operations – and the industry was unhappy about its introduction. To reflect this, this element will
came into effect two years later than the rest of the reforms – on 1st October 2005.
In addition from October 2005, dealers could set up secondary sales outlets in EU countries other
than their own. This is designed to increase competition between dealers across the Single
Market and help to ensure that consumers get a better deal.
The new BER is intended to ensure that:
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
Dealers are now able to operate in different areas and EU countries
Sales/aftersales activities for different franchises are allowed from the same premises
with fewer restrictions.
Non-franchises dealers and brokers will be better able to compete
Greater servicing and repair market competition
Lower costs
Aftersales activities can be carried out by any retailers (whether franchised or not)
provided the retailer abides by manufacturer-approved standards
Independent retailers/suppliers will have access to necessary technical information,
including diagnostic equipment and software.
The Supply of New Cars Order 2000 was introduced following the Competition Commission (CC)
monopoly inquiry into the supply of new cars. The CC found that private car buyers in the UK
Skills Needs Analysis – UK
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July 2006
were paying about 10% too much for the average car, taking account of discounts, trade-ins and
finance deals.
The CC found the operation of the selective and exclusive distribution system permitted by the
European Union's Car Block Exemption rules to be the root cause of the increased cost of new
cars in the UK, and made a number of recommendations for fundamental changes to this system.
The CC also made a number of recommendations for immediate action, which resulted in the
introduction of the Order in September 2000. One of the main provisions of the Order requires
suppliers to offer dealers who purchase volumes of cars outright equivalent discounts to those
offered to fleet customers who purchase similar volumes. The intention of this provision is to
close the price gap between cars offered to fleet customers and those offered through dealers to
private buyers.
The new EC Cars BER is intended to help reduce UK prices, or at least lead to a levelling out
across Europe of pre-tax prices, by increasing competition and providing greater freedom to
import cars from other member states. There is evidence that the process of levelling prices
across the EU has been proceeding.
Since 1st October 2005 there has been little evidence of changes in distribution networks across
the UK. There are risks attached to moving into another dealer’s territory, especially given the
slim margins in the sector. Many buyers are prepared to shop over a wide area to get a good
deal, a task made much easy over the internet.
There are a number of possible approaches that a retailer (or retailing group) could take including
delivery points in city centres.
Such approaches will require strong marketing skills and brand recognition to give consumers
confidence.
UK retailers are in a strong position to take advantage of the scrapping of the clause. The
consolidation that has seen the likes of CD Bramall, Reg Vardy and potentially Lookers
swallowed up by Pendragon has not taken place on the continent
In 2004 registrations per new cars per site totalled 444 in the UK, 330 in Italy, 236 in Spain, 173
in Germany and just 158 in France. New car dealerships on the Continent tend to be smaller and
greater in number and industry commentators suggest that similar consolidation is likely there too
over time. There is a possibility that UK-based businesses may wish to take part in any such
consolidation.
“This overlooks one important fact: Britain is a small island, most mainland countries are
far bigger with a much wider population spread. France is more than three times the size
of the UK, with roughly the same size population. City centre locations will be attractive,
but it will be piecemeal expansion. Unless consumers are willing to travel for several
hours to buy a car, these smaller dealerships will remain: consolidation does not work in
this model.”
Source: Department of Trade & Industry, AM magazine, The Society of Motor Manufacturers and Traders, The Office for
National Statistics, Automotive Skills.
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July 2006
Block Exemption rules clarified
7 April 2006
Author: Tim Rose
The European Commission has given dealers the green light to question some of the demands of
car manufacturers regarding showroom design and performance targets.
Separate investigations into complaints against BMW/Mini and General Motors from dealers
concerned about their freedom to multi-franchise (AM, March 24) have prompted Brussels to
issue an important clarification on the 1400/2002 Block Exemption Regulation.
It advises that dealers can refuse to implement a manufacturer’s branding in parts of the
dealership not dedicated to that brand, are not forced to use a manufacturer’s recommended
dealer management system, and that sales or performance targets must not restrict a dealer’s
ability to sell another brand.
“This is a classic example of European legislation being used in a purposeful way,” says Neil
Baylis, competition specialist at City law firm Kirkpatrick & Lockhart Nicholson Graham LLP.
“The European Commission and the courts are determined to ensure that the aims of this law are
achieved. Many of the points included in the Block Exemption Regulation have needed some
interpretation in order for dealers and manufacturers to be able to put them into practice. This
case could have a significant impact on dealers because it clarifies exactly where they are able to
save on costs with their multi-franchise businesses.”
Memo 06/120 has been issued by the Commission following complaints from the European BMW
Dealers’ Association and French, German, Spanish and Italian Opel dealers’ associations. Both
BMW and GM have agreed to remove certain elements from their franchise contracts that the
Commission determined were restrictive.
The Commission also identified a potential deterrent to multi-branding in the way carmaker’s set
and evaluate sales targets and dealer performance – one of GM’s measures was based on a
comparison of a dealer’s local market share with the brand’s national market. GM has now
agreed targets will be mutually agreed with dealers, subject to arbitration if a dispute arises.
“The changes ensure that dealers and repairers are not restricted in selling or servicing cars of
competing brands (multi-branding) and that all repair-shops who fulfil the necessary quality
standards can become members of the authorized network,” says a Commission spokesman.
Freedom for repairers
While Block Exemption regulations already allow any workshop to join a carmaker’s authorized
repairer network providing it meets the requirements, the Commission has reminded
manufacturers that these standards should be based on quality of repair and service, not quantity
and capacity.
Both GM and BMW have now introduced an ‘opening clause’ to servicing contracts telling
repairers that they are free to source all workshop equipment, tools and IT systems from
alternative suppliers providing that equivalent functionality and quality is assured.
Skills Needs Analysis – UK
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July 2006
It also makes explicit that repairers are free to cooperate in joint initiatives concerning spare parts
purchase and warehousing in order to save costs. This follows the Commission’s clarification that
carmakers can only require repairers to keep stocks of fast-moving replacement parts on their
premises.
Main points of Memo 06/120 at a glance
ƒ
ƒ
ƒ
ƒ
Manufacturers must accept the non-exclusive use of all facilities other than the part of a
showroom, which is dedicated for the sale of their brands
Dealers can use generic IT and management systems across all brands to save costs,
providing those systems have equivalent functionality and quality as those recommended
by the carmaker
Sales and performance targets must not restrict a dealer’s ability to sell competing
brands. Targets agreed with a solus dealer can be reviewed if that dealer later multifranchises
Contracts for authorized repairers cannot include restrictive quantitative criteria, such as
minimum turnover targets and minimum throughput capacity demands, minimum stock
and warehouse capacity
Source: www.am-online.com 7th April 2006
Skills Needs Analysis – UK
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July 2006
Appendix 7 – Employers Validation Survey
Results Summary
Figure 47: Employers Validation Survey
Employers Validation Survey
1. If businesses are to become more prof itable, t he proportion of managers qualified to degree level (or above) will need t o
increase f rom it s current very low level.
17. The need f or fitt ers and basic maintenance and repair mechanics is unlikely t o decline from present levels.
5. Employees will universally see an increase in the qualit y and quantit y of t raining as an additional benef it, over and above basic
pay and bonuses.
11. Smaller employers will need the HR/ personnel management tools already being used by larger, bett er-resourced employers.
22. Spending more money on training will lead t o a noticeable increase in profit ability.
15. The increasing complexity and changes in body st ructure designs, mat erials and technology will completely alter t he skills
needed in bodyshops.
9. Pay and condit ions will need t o catch up with other sectors if we are going to retain employees.
19. To gain successf ul ent ry into the sect or, school leavers will need f ar bet ter lit eracy, numeracy and lif e skills than today’s school
leavers.
10. M ore employees will need t o be welcomed f rom out side the mot or indust ry if we are going t o get all t he high-quality recruits
we need.
7. In addition t o a motivated workf orce, t here needs to be f ar more honesty and integrity right across t he workf orce.
21. Unless Further Education colleges raise the standard and the method of training delivery, manufact urers and other private
t raining providers will dominate training provision for the sector.
20. To meet the needs of employers, t he f unding of apprenticeships must chang to f ocus on improving t he qualit y of t raining
delivery.
6. It will be necessary to have a broad range of career pat hs laid out if we are going t o att ract and retain more high-quality recruits
and apprentices.
14. Increasing numbers of vehicles with hybrid and alternatively-fuelled engines will need more highly-trained t echnicians to carry
out t heir maint enance and repair.
3. The breadth of training and development of skills will need t o grow beyond what is currently f unded.
4. Employees will need t o respond more to cust omer needs than t o short -t erm targets.
8. It will be up to the sector itself t o take responsibility f or behaving more prof essionally in order t o improve its image and
reput ation.
2. M anagers in t he sect or will need far bett er developed leadership skills.
16. The ability t o use diagnost ic IT equipment will be an absolut e minimum requirement in all aft ersales operations.
18. Capabilities in generic skills like communications, t eam working and problem solving will need t o increase significantly for
businesses wanting t o stay compet itive.
12. New employees will increasingly need the right att itude and mot ivation over and above just t he hard, technical skills.
13. Ever increasing technology and complexity of vehicles will result in a considerably increased need for new training and upskilling.
0%
10%
20%
Definitely Agree
Skills Needs Analysis – UK
Page 124 of 130
30%
40%
Tend to Agree
50%
60%
70%
Tend to Disagree
80%
90%
100%
Definitely Disagree
July 2006
Figure 48: Employer Validation Survey Respondent Geographical Breakdown
SAMPLE
ENGLAND
SCOTLAND
WALES
NORTHERN IRELAND
LOCATION NOT GIVEN
TOTAL
Skills Needs Analysis – UK
N
83
9
7
3
18
120
PROPORTION
69%
8%
6%
3%
15%
100%
Page 125 of 130
July 2006
Appendix 8
A final version of the technical report will appear here
Skills Needs Analysis – UK
Page 126 of 130
July 2006
Appendix 9 Bibliography
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‘Fairer deals for women workers’. AM Online, 17th March 2006.
Rising land values and rent costs hit retailers. AM Online, December 2005.
Dealers hit by troubled consumer finances. AM Online, May 2006.
Location Clause is no more. Did the earth move for anyone? AM Online, October 2005.
Automotive Skills Needs Survey, Automotive Skills, 2005.
Automotive Skills Employer Validation Survey. Automotive Skills, 2005.
Bodyshop Sub-Sector Research. Automotive Skills Ltd, July 2005
Graduate and Extra-Sector Experience Research, Automotive Skills, January 2005.
Lookers' qtr 1 results well ahead of expectations. AutoWired, 18 April 2006.
Carmakers eye dealers for profit chop. AutoWired, 09 June, 2006
Better used car demand cuts rates of depreciation. AutoWired, October 2005.
Grant-less green cars difficult concept to sell. AutoWired, June 2006.
6-months paternity leave will be too costly. AutoWired, October 2005.
Engines, prestige and niche models is way forward. AutoWired, June 2006.
Kia dealers to get honest appraisal of performance. AutoWired, May 2006.
RMIF car dealer attitude survey says manufacturer standards cost too much. Auto Industry, April
2006.
Consolidation and the rise of the east. Business Money, April 2006.
Equal Opportunities Statement. CITB-ConstructionSkills, June 2006.
Debt facts and figures. Credit Action, June 2006.
The car service and repair market in the UK – 2005. Mfbi, CMS 2005.
Britain’s Automotive Industry Leads the World. Carsource, 2006.
‘Five year strategy for children and learners’. Department for Education and Skills, July 2004.
Super-complaints Fact Sheet, the Department for Trade and Industry, 2005.
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The 2006 Budget Changes to Cost of Vehicle Tax, the DVLA 2006.
Lustre lost. The Economist, March 23rd 2006.
Scottish Employer Skills Survey, FutureSkills Scotland and is for 2004.
Welsh Employer Skills Survey, Future Skills Wales, 2005.
Diversity and the Skills for Business Network – How the Sector Skills Councils are Addressing
Diversity and Some Good Practice case Studies. GHK Consulting, January 2006.
The World Economic Outlook Database, International Monetary Fund, April 2006.
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Needs Survey 2005.
Sectoral Management Priorities: Management Skills and Capacity. Research report prepared for
the Sector Skills Development Agency by the Institute for Employment Research, January 2005.
Working Futures National Report 2003 – 2004. R. Wilson, K. Homenidou and A. Dickerson,
Institute for Employment Research, University of Warwick.
Working Futures 2004-2014 (SSDA WF2), Institute for Employment Research and Cambridge
Econometrics.
Dealer Consolidation - When size matters for the watchdogs. The IMI Magazine, 2006.
National Employer Skills Survey 2003, the Learning and Skills Council.
National Employer Skills Survey 2004, the Learning and Skills Council.
National Employer Skills Survey 2005, the Learning and Skills Council.
Dealer profitability slumps to record low. Motor Trader, 20 March 2006
Franchised dealers embrace technology. MotorTrader, 21 Apr 2005.
Skill and Training Requirements in the Vehicle Maintenance Industry in Greater Manchester &
Devon and Cornwall. Geoff Mason and Matt Osborne, National Institute of Economic and Social
Research, London. Prepared on behalf of Sector Skills Development Agency and Automotive
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Employment Outlook 2006, The Organisation for Economic Co-operation and Development, June
2006.
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and Development, 2005.
Economic Outlook No. 79.
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2006.
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Annual Business Inquiry, 2004. Office for National Statistics, updated 15th June 2006.
Labour Market Statistics Group the European Labour Force Survey. Office for National Statistics,
March – May 2005.
The Labour Force Survey, Office for National Statistics, 2006.
Economic Trends, No.631. Office for National Statistics, June 2006.
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Acquisition of Reg Vardy PLC. News, Pendragon Plc, 2006.
Abolition of location clause under block exemption regulation draws near.
Pricewaterhouse-
Coopers LLP, 2005.
Old computers leave dealers struggling to make the most of their software investment. Pinewood
Research, on www.pinewood.co.uk, 11/04/2006.
Forward Drive. RMSI, Issue 09, April 2006.
Dealers Wave White Flag On Manufactuer Standards. RMIF, 2006.
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EU Productivity and Competitiveness: an industry perspective. O’Mahoney and van Ark 2003,
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the Sector Skills Development Agency by the Institute for Employment Research, January 2005.
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article ‘Car Sales Execs Feel Pain In The Wallet’, Retail Motor Industry Federation 2006.
The Retail Motor Industry Pay Guide 2005. Sewells Information & Research, 2005.
Motor Industry Facts and Figures 2006. SMMT, 2006.
The Automotive Industry Handbook 2005. Sewells, 2005.
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Handbook 2005.
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reference 143, 2005.
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Skills Needs Analysis – UK
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July 2006