IHS Global Insight Perspective | |
Significance | The UK's car manufacturing industry has received two major boosts in the space of 24 hours with the news that BMW is committing GBP500 million of investment over the next three years for the manufacturing of the third-generation BMW Mini. Meanwhile Nissan has committed finding of GBP192 million to manufacturer the next generation Qashqai at its Sunderland plant. |
Implications | The investment is key to maintaining the UK's strategic position as a major European centre of passenger car production at a time when most new investment in production in the region is being made in lower-cost Eastern European locations. |
Outlook | The investment will help guarantee 11,000 manufacturing jobs in the UK and is an important sign of BMW and Nissan's commitment to manufacturing in the country. It is also a sign that Western European manufacturing locations can remain competitive in a time of unprecedented investment in emerging economies and lower cost production locations. |
BMW has announced that it is committing GBP500 million (USD731.9 million) of investment over the next three years to prepare the plant in Oxford to manufacture the third generation of the New Mini. According to a company press release, the new commitment will take BMW's combined investment in its UK manufacturing operations since they opened in 2000 to GBP1.5 million. Commenting on the announcement, BMW's chairman Norbert Reithofer said, "We have started preparing our UK plants for production of the next generation MINI and this investment underlines that the UK will remain the heart of Mini production. The Mini brand has made a significant contribution to BMW Group's success in markets around the world and we anticipate that this will grow further in the future." BMW's Oxford plant manufactured 216,302 units in 2010 and exported to more than 90 countries, Mini was the third-largest vehicle manufacturer in the UK, accounting for 17% of the country's automotive production. As part of the expansion of the Mini product line-up, the Mini Coupé will be launched in 2011 (see United Kingdom: 7 June 2011: Mini Announces Coupé Line-Up), followed by the Mini Roadster in 2012—both being produced in Oxford.
The BMW pledge came just after Nissan announced its plans to produce the second-generation of its hugely successful Qashqai model at its plant in Sunderland, which is where the current model is manufactured. Sunderland will also be responsible for designing and engineering the new model, due to be launched in 2014. The company will invest GBP192 million in the Sunderland plant which will help safeguard the 6,000 jobs the company provides in the UK. The second-generation Qashqai will be designed at Nissan's Paddington design centre in London, which technical development and testing taking place at its technical centre in Cranfield. Sunderland is also responsible for building the Note and Juke models and will start production of the all-electric Leaf from 2013. A stand-alone factory will also be built at the Sunderland site to construct lithium-ion battery packs for Renault-Nissan's range of EVs.
Outlook and Implications
By committing to maintaining the heart of Mini's manufacturing operation in the UK, BMW is acknowledging the importance of maintaining the manufacturing connection with UK for quintessentially British brands like Mini and Rolls-Royce. From a brand and marketing point of view, it remains important to maintain a link with the heritage of these brands despite the fact that they have both been under German ownership for some time now. It is also in line with BMW's strategy of aligning production with its biggest markets for individual models. The UK is the BMW Group's fourth largest market overall, behind Germany, the US and China, while the UK is the Mini brand's second largest sales market after the US with sales reaching just under 44,000 units last year.
The choice of words that BMW uses in its statement is interesting. It said that the UK will be "a" production location for Mini, which does not rule out investment in overseas production for the brand. The Mini Countryman sport utility vehicle (SUV) is already made in Graz, Austria, by Magna Steyr and production in China cannot be ruled out as a long-term possibility if the brand gains traction in an increasingly sophisticated and fashion-conscious market, with a huge growth potential in the young professional demographic that eh Mini targets in the rest of the global markets it operates in. Sales in China are expected to triple according to IHS Automotives latest forecast between 2010 and 2015 to around 30,000 units by that point. However, the US would also be a logical place to extend Mini production given that it is by far the biggest market place for the brand, with sales forecast to double from 45,000 units in 2010 to over 90,000 units by 2015.
The news that Nissan will maintain production of the Qashqai in Sunderland is another highly positive development for the UK industry. It proves the faith that Nissan has in Sunderland as its biggest European production centre and that Western European production location can remain competitive through employing the latest manufacturing technology and just-in-time production techniques. The Qashqai has been a phenomenally successful model for Nissan, with the crossover now spawning a host of imitators from rival OEMs. The Sunderland plant has manufactured over a one million units of the model and the investment in Juke and Leaf production at the plant will safeguard Sunderland's place in Nissan's global production network for many years to come. However, the company's UK operation now faces a big responsibility to ensure that the second generation replicates the magic formula of the first model while advancing its dynamic qualities and overall efficiency to match the growing competition in the segment.