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Group Lotus

Volume 543: debated on Tuesday 24 April 2012

Motion made, and Question proposed, That this House do now adjourn.—(Stephen Crabb.)

I am very grateful for the opportunity to draw the attention of the House to the situation currently facing Group Lotus, the largest employer in my South Norfolk constituency, and the potential threat to 1,200 local jobs. I am very pleased to see parliamentary colleagues here from Norfolk and I have received messages from my hon. Friends the Members for North West Norfolk (Mr Bellingham) and for North Norfolk (Norman Lamb), both of whom would have wanted be here in their capacity as local Norfolk MPs, but who are both sadly overseas on Government business.

Group Lotus is a local and a national icon. It is a famous sports car manufacturer with a very special heritage, and also an important global engineering consultancy. The central concern is that following the Malaysian Government’s recent sale of its stake in Proton Holdings—a Malaysian company that is the owner of Group Lotus—to another Malaysian company, DRB-HICOM, the new owner may respond to what are said to be a number of Chinese businesses that would like to buy Lotus and relocate the manufacturing to China.

The CEO, Dany Bahar, has stated publicly in a recent interview that it would “make no sense” to move manufacturing. However, he also stated the exact opposite at the Paris motor show in October 2010 and at the Los Angeles motor show in November 2010, when it was stated that production would shift abroad and that a new factory site would be decided on before Christmas. One Chinese business, China Youngman, has had a commercial relationship with Lotus for many years.  The great fear in South Norfolk is that there will be a repeat of the MG Rover saga when the remnants of a once great British car company were picked up from the scrap heap and put on a boat to China.

It is worth setting out why Lotus is so important and why its continued presence in the UK is so important. The company was founded in 1952 by Colin Chapman, a legendary designer and inventor who, it is probably no exaggeration to say, was an engineering genius. At the heart of Chapman’s philosophy for automotive design was his famous maxim, “Simplify, then add lightness.” His approach was driven by the belief that while adding power made a vehicle faster on the straights, subtracting  weight made it faster everywhere,  and so he focused on lightness and fine handling rather than on huge horsepower. To this day, Lotus is well known across the world for its unparalleled understanding of drive dynamics.

Lotus has made so many contributions to the history of automotive engineering which are still influential—and in many cases in use today in one form or another—that it is not possible to do justice to all of them in this short debate, although they include the first ever use in a Formula 1 car of a reclining driving position;  a monocoque chassis design; aerofoil wings; a wedge-shaped front; adjustable suspension; and many other important innovations. This approach was rewarded with seven Formula 1 constructors championships and six drivers championships, and Lotus’s cars have twice appeared in James Bond films, notably in “The Spy Who Loved Me”, when a Lotus Esprit memorably transformed into a submarine.

The hon. Gentleman says that there is a lot of Chinese interest. I also understand there is interest from the Formula 1 Lotus team in taking over the firm and protecting every one of those jobs. Does he agree that its bid should be the one that is chosen?

I certainly agree that it should be given the most serious consideration. I understand that the owners of Lotus F1, which by the way came second and third in the recent Bahrain grand prix, have expressed an interest and said that they would see no reason to move any of the business away from the UK. Their views should be treated with the greatest care and consideration.

The production side of the business has been doing very well and has built tens of thousands of relatively affordable and cutting-edge sports cars, employing many local people in the process. The consulting side has been so successful over the years that it is said that one in 10 cars in Europe has something in it that derives from Lotus’s intellectual property.

Lotus moved in 1966 to Hethel in South Norfolk to a purpose-built facility on the site of a former US air force airfield. The business now employs around 1,400 worldwide, some 1,200 of whom work at the Hethel headquarters.  In 1996, Lotus was bought by Proton Holdings, a Malaysian car manufacturer. Lotus has experienced financial difficulties at times, but it was profitable as recently as 2008-09, when the Group Lotus annual accounts show a profit before tax of £1.5 million.    It is important to emphasise this point as one will find many incorrect references in the automotive press to the “fact” that Group Lotus has never made a profit since it was bought by Proton, when the actual facts are that the company has been profitable quite recently. Lotus has a great story to tell and is at the heart of an innovation cluster. The recent and growing success of the Hethel engineering centre in nurturing a variety of high-tech small businesses has been due, in large measure, to the presence of Lotus nearby. There are also wider benefits along the A11 corridor that my hon. Friend the Member for Mid Norfolk (George Freeman) will address if he catches your eye, Mr Speaker.

If Lotus were removed, it would be a body blow to the growing success of a local economy that is succeeding precisely as part of the shift away from the overdependence on financial services that the Government wish to see.

I congratulate my hon. Friend on securing this important debate on a hugely important employer and an iconic name for Norfolk. Does he agree that one reason we can highlight Lotus’s excellent forward thinking is its recent fantastic work on alternative energies for vehicles that has led to products such as the Tesla?

I can confirm that. I will talk later about the Tesla, which is a great example of the leading-edge technology that makes Lotus very interesting to a wide variety of potential financiers.

In common with many businesses since the beginning of the worldwide financial crunch, things have been more difficult, but many observers believe that Lotus continues to have a bright future and tremendous potential, particularly given the company’s expertise in areas such as those that my hon. Friend the Member for Great Yarmouth (Brandon Lewis) mentioned, including electric and hybrid vehicles. These skills make Lotus a very sought-after partner for car companies across the world.

Does my hon. Friend agree that engineering skills are vital for Norfolk and that the creation of the proposed maths and science free school for 16 to 18-year-olds will be important to the development of those skills and to Lotus and other engineering companies across the county?

I agree that the so-called STEM subjects—science, technology, engineering and maths—are vital to firms such as Lotus, and I am keen to see those developed through the proposal for a school specialising in them.

It is important to note that although Lotus’s contribution to the history of technology and innovation is already imperishable, it has not stopped. In this Olympic year, it is worth pointing out that Chris Boardman won the 4,000 metre pursuit gold medal at the Barcelona Olympics riding a revolutionary lightweight and aerodynamic carbon composite monocoque bicycle developed by Lotus. He also rode the Lotus “superbike” to smash the world 5,000 metre pursuit record by more than 8 seconds.

Tesla Motors, which my hon. Friend the Member for Great Yarmouth mentioned, is a business based in California whose investors included, among others, the owners of Google. It asked Lotus to develop a fully electric car, and the Tesla roadster was built in Norfolk and then exported to California with extraordinary success.

I congratulate the hon. Gentleman on securing this debate on a subject that is so important for Norfolk’s economy. Whenever I have visited Lotus, I have been impressed to learn about its advances in low-carbon vehicle technologies. The UK car industry is a world leader in this area. Does he agree that if Lotus were to leave Norfolk and the UK, it would risk losing access to skills and expertise and jeopardising its ability further to develop its reputation in low-carbon technologies?

The hon. Gentleman is absolutely right. I have talked about Lotus’s heritage, which is of stunning historical importance, but it is the future we are concerned about. Lotus has demonstrated, with things such as the Tesla project, the tremendous contribution it can make to the future and its expertise in hybrid and electric vehicles.

Proton, the Malaysian car manufacturer that has owned Lotus since 1996 and invested considerably in it, was founded in the early 1980s under the stewardship of the then Malaysian Prime Minister, Tun Mahathir, who, it is fair to say, is something of a visionary who has probably done more than anyone else to create the Malaysia we know today—a modern country with a powerful economy and global connections. The Malaysian Government held a large stake in Proton for many years, but made it clear that they no longer wished to retain this stake. In early January, Tun Mahathir gave his public blessing to the sale of the stake to DRB-HICOM, a major industrial conglomerate with a wide variety of interests.

On 16 January, HICOM announced that it had bought the Malaysian Government’s stake in Proton and thus become the ultimate owners of Group Lotus. Incidentally, on the same date, Group Lotus announced the opening of a major brand store in London’s Regent Street. Only three days earlier, on 13 January 2012, a UK-registered company, Lotus Youngman UK Automotive Company Limited, company number 7909455, was incorporated at Companies House—that was just three days before HICOM bought Proton—with the chief executive officer of Group Lotus, Dany Bahar, as one of its directors. Curiously, that was not announced to the Malaysian stock exchange until several months later, on Thursday 12 April.

That is of particular concern because, as has been reported in the newspapers, the CEO of Group Lotus, Dany Bahar, has a financial incentive in his contract to sell the company, and because Group Lotus no longer owns the right to use the name “Lotus” on cars sold in China. That right is now owned by a small Taiwanese company, which licenses it to China Youngman, a potential buyer of Group Lotus that is already importing Lotus cars into China. That is an odd thing for any car company to do, particularly one whose brand and the heritage are so important. The brand is a central part of the company’s value, and it is hard to imagine selling it to others so that it could not use its own brand name in a territory without let or hindrance, but that appears to be what has happened.

By coincidence, my right hon. Friend the Prime Minister was in Malaysia recently, and he spoke to the head of Proton, Dato’ Sri Syed Zainal. Unfortunately, it appears that only hours after our Prime Minister had spoken to the head of Proton to emphasise the importance of British jobs at Group Lotus, Dato’ Sri Syed was in China seeking a buyer for Group Lotus. That has naturally caused immense worry and concern for the 1,200 employees at Group Lotus. It is also unnecessary, because there are well-capitalised potential buyers for Group Lotus with a credible plan to keep the business and the jobs in the UK.

When I raised the issue with the Prime Minister last week at Question Time, he emphasised the importance of Lotus, saying that he had raised the issue with the Malaysian Prime Minister and that the Government were monitoring the situation closely. My fear is that, even if an agreement is reached, any guarantees that might be provided about British jobs will later turn out to be worthless. The Kraft Foods takeover of Cadbury comes to mind in this respect.

One way of accomplishing a transfer to a Chinese owner against the wishes of many of the interested parties would be to reach an agreement in principle to sell Group Lotus but to present it as a joint venture rather than a sale, then to wait until after the Malaysian elections—Lotus is rightly valued by many in Malaysia as a jewel in Proton’s  crown and the issue could become politically divisive—and have a Chinese buyer such as China Youngman acquire 100% of the business after the Malaysian elections were safely out of the way,  transferring manufacturing to a new Chinese owner later. One could even have a private side agreement to that effect.

People in Norfolk, most notably the loyal and hard-working Lotus employees, want to ensure that that does not happen. I have asked HICOM to consider carefully its responsibilities to local employees and I hope that it will do so. However, I remain extremely concerned. The fact that KPMG has been appointed with a mandate to sell Group Lotus to the Chinese is not an encouraging sign. Nor is the fact that the Malaysian banks want their money back from Proton. I fear that Proton will say that it has decided to keep Lotus, while negotiating with the banks for as long as possible to write off or reduce debt, then either hand what is left of Group Lotus to the Chinese or liquidate it. The question for Proton in such circumstances would be: is it planning to pay the suppliers? That is relevant because there are tens of millions of pounds of accounts receivable outstanding, and many further jobs in the supply chain beyond those at Group Lotus itself are affected.

Following my hon. Friend’s logic, what does he think our Government can actually do, apart from using persuasion and nudging the people who might be carrying out the actions about which he is rightly pessimistic?

The job of Her Majesty’s Government is to make it very clear to the Malaysian Government and to the company that is the ultimate owner—DRB-HICOM—that we take this matter very seriously, and that if it goes the wrong way, there will be serious consequences for our relationship with Malaysia.

To sum up the situation, the CEO of Proton Holdings—who is now in any case only a temporary figure—was in China seeking a buyer for Group Lotus only hours after our Prime Minister spoke to him in Malaysia recently. A UK-registered company, Lotus Youngman, was set up in January 2012, only three days before HICOM bought Proton, with Group Lotus CEO Dany Bahar as a director, but this was not announced to the Malaysian stock exchange until a fortnight ago. The CEO of Group Lotus is incentivised in his contract to sell Group Lotus and has recently been in China. Any letter of comfort guaranteeing jobs in Norfolk that might appear from a Chinese buyer is unlikely to be worth much, if anything at all, especially given that KPMG has a mandate to sell the business. However, there are well-capitalised would-be buyers of Group Lotus who would definitely keep the business and the jobs in Norfolk, and 1,200 jobs are at risk in my South Norfolk constituency if this goes the wrong way.

I would urge the Minister and all his colleagues, including the Secretary of State and the Prime Minister, to put all possible pressure on the Malaysian Government to ensure that DRB-HICOM permits the sale of Group Lotus only to a bidder who will provide credible guarantees for the future of the business as an ongoing concern in Norfolk. I would like the British Government to make very clear to the Malaysian Government, and to DRB-HICOM, that they consider the issue of local jobs in Norfolk to be of crucial importance and that a betrayal of the kind we have seen elsewhere in the corporate sector is unacceptable and would have far-reaching consequences.

I am grateful for this opportunity to speak. While Lotus is in the constituency of my hon. Friend the Member for South Norfolk (Mr Bacon), it is only a mile over our shared boundary and many of the 1,200 employees and the affected families live in Mid Norfolk, particularly around Wymondham. I congratulate my hon. Friend on securing this debate and on setting out the arguments so clearly. I am keen to give the Minister as much time as possible to address the important issues, so I shall make just three simple points.

First, the presence of Lotus and its legacy has led to the creation in the area of a world-class cluster of engineering, manifested in both the world-class factory and the expertise around it, and in the Hethel engineering centre—a successful and now full incubator of successful start-up businesses, feeding off and around the centre of excellence around Lotus. A cluster of former Lotus employees, many of them successfully trading and innovating, often from small premises around the area, provide an important part of our local economy.

Secondly, the engineering cluster is central to the Norfolk economy and, indeed, the wider East Anglian innovation economy and to the wider rebalancing mission that I know is central to the mission of the Department for Business, Innovation and Skills.

Thirdly, these engineering and manufacturing skills are central to unlocking the full value of the wider innovation economy—in particular, the science we have on the Norwich research park in the form of biomedicine, agriculture and environmental science, and indeed, dare I say it, down the A11, in the innovation corridor in Cambridge. We have huge intellectual property skills in our area. In the past, we have sometimes been weaker in the ability to turn that intellectual property into products that we can sell. The skills in this cluster are central to developing and retaining that value within our Anglian economy.

I am sure I am speaking for other hon. Members across East Anglia, some of whom are in their places and some of whom are not, in urging the Minister to do all he can to ensure that the points raised by my hon. Friend are given all possible attention, and to bring as much pressure to bear as possible to keep this iconic and important business in the UK.

I congratulate my hon. Friend the Member for South Norfolk (Mr Bacon) on securing this debate and on his energetic advocacy on behalf of his constituents, not just today, but previously. He is right to say, as other Members have pointed out, that Group Lotus is one of largest private sector employers in the area, so I understand the importance that he and––as is plain from the attendance this evening––the vast majority of Norfolk representatives attach to the issue. They want to ensure that we as a Chamber understand how importantly their constituents view this matter.

Today’s debate follows on from parliamentary questions from my hon. Friend, from correspondence and, indeed, from considerable speculation in the media. I know that he will appreciate that I cannot comment on media speculation, but as I made clear to him last night, when we had an opportunity to discuss the issue—with him having raised it and me wanting to ensure that I understood the detail of his concerns—he should understand that the whole of the Government take this matter extremely seriously, and we are already actively engaged in it.

Let me respond to the sensible points, if I may say so, about the calibre of the company that we are dealing with. Lotus is a world-class design engineering company, and, as we have heard, a manufacturer of highly desirable sports cars, supported of course by a dedicated and experienced work force. The group, which has more than 60 years of history behind it, comprises Lotus Cars, Lotus Engineering and Lotus Racing. As my hon. Friend observed, its journey was from humble beginnings. I think it was in the late 1940s that Colin Chapman was first in a lock-up garage developing a trial racing car, but that has led all the way to a globally renowned company manufacturing high-performance products.

This is a business that has always been at the cutting edge. It makes an important contribution to the UK automotive sector, not just through the exports of its iconic cars but through the world-class design engineering to which my hon. Friend referred, which, although particularly relevant to the automotive sector, is—as he said—also relevant throughout the engineering field. Lotus is a globally respected business which works with many of the world’s most prestigious car manufacturers and tier 1 suppliers. Lotus engineers spearhead research in crucial areas such as hybrids, electric vehicles and renewable fuels, which is one of the reasons why many people understand that the business has a very strong future.

The Government believe that the company’s work must continue and that it should continue in Norfolk, but, as a number of Members have pointed out, it is important to view Lotus in its wider context. This country has one of the most diverse and competitive automotive sectors in the world. When considering the prospects of both individual businesses and the sector as a whole, we should take account of the key investments that have been made. Some £4 billion has been invested in the last 18 months. That sends the important signal that international investors recognise the calibre of the work force, and also the opportunities that they can gain by basing their firms here.

The sector is strong and growing. Vehicle production has risen by 5% in the last year, and more than 1.4 million vehicles have been produced. Engine production has also increased. I am thinking particularly of the strength of powertrain in the UK automotive sector: some 2.5 million units have been produced in the last year. One of the encouraging features of the whole sector is that not only is its productivity strong and its work force capable, but it exports a significant proportion—some 80%-—of what it produces. Last year exports were up by 15%, and they are now at an all-time cash high of just short of £30 billion. Lotus is part of that: last year it recorded production of 1,458 cars of which 1,189 were for export, so it clearly has a strong export programme.

Despite a difficult international economic environment and a contracting European market, global demand for UK-made vehicles has risen, which shows that UK producers are generating what customers throughout the world are looking for. That is why our car trade deficit is at its lowest for more than 36 years. There are a number of good examples. Nissan has invested £250 million, creating the possibility of some 3,000 new jobs in both its own business and its supply chain. Jaguar Land Rover has announced that it will take on a further 1,000 people and increase shifts at its Halewood plant. Honda is to double production at its main European plant in Swindon. Those are all important investments in the sector. It is important for everyone—both the existing sector and potential investors—to understand that the UK automotive sector has real strength and depth, and is backed by a Government who are actively supporting those who seek to invest here in the United Kingdom.

My hon. Friend briefly mentioned ultra-low-carbon vehicles. As he said, Lotus is a key participant in that regard, as it is clear from its world-class range-extended electric vehicle technology and its role in the development of the important emerging technology of hydrogen fuel cells. The Government are pursuing a programme which seeks to ensure that we have a marketplace in which those technologies can develop, because we cannot assume that past technologies will be revived. As the new generations of ultra-low-carbon vehicles develop, it is important for those who wish to invest to recognise that the expertise and know-how are resident here.

Let me turn to the details of the current situation, which my hon. Friend mentioned. The takeover by the Malaysian company DRB-HICOM of Lotus’s parent, Proton, was begun in January, as we heard, and completed around the middle of March. DRB-HICOM is one of Malaysia’s leading companies; indeed, it is the country’s leading automotive manufacturer. Its values, stated clearly and openly, include excellence, innovation, quality and teamwork. Since then, DRB-HICOM has been carrying out what we understand to be standard due diligence checks on Lotus and other assets related to its takeover of Proton. As my hon. Friend mentioned, the Prime Minister raised the issue of Group Lotus with the Malaysian Prime Minister and Proton while he was in Malaysia recently. He stressed, as I do today, that the Government continue to wish to work with the company.

In response to media speculation, DRB-HICOM issued a press statement last Saturday stating that no decision had been taken on whether to sell Lotus. In the meantime, DRB-HICOM has also stated that it continues to support the company, including through management help. I understand that additional funds have been made available by DRB-HICOM to enable Lotus to resume production while the due diligence continues. That would follow on from the £100 million invested in Lotus at Hethel in recent years.

May I ask my hon. Friend to interrogate closely the question of how much support is being provided so that manufacturing can “resume”, as he puts it? My understanding is that DRB-HICOM is drip-feeding small amounts of cash to the business, that there is little manufacturing going on and that there might not be too much manufacturing going on in future unless we are careful. If he could press the Malaysians—indeed, the Government of Malaysia—on that point, so that they put pressure on DRB-HICOM to reach a resolution in the interests of workers in Norfolk, I would be very grateful.

I am more than happy, as we continue our close contact with the companies, to ensure that those questions are tested. My hon. Friend will know that I do not generally take no for an answer, and I intend to ensure that we as a Government have the full facts before us.

My hon. Friend is right that although the statements we have heard are important, we also need to recognise that this is a rather unsettling time for the work force, their families and the business community locally. Let me make it clear to him that we as a Government—all the Ministers engaged—intend to maintain close contact with all the key stakeholders. That is why the British high commissioner in Malaysia recently wrote to Proton, following on from the Prime Minister’s meeting. It is also why this afternoon the Secretary of State spoke to Mr Dany Bahar, the Lotus chief executive, making it clear to him that the Government are fully behind ensuring that the company and its work force remain an integral part of the Norfolk economy. The Government will seek to make further contacts with the Malaysian Government, as my hon. Friend requested, because we recognise that we need to be talking at all levels on this important issue.

Let me turn briefly to the regional growth fund. My hon. Friend will understand that we have made a conditional offer of financial support for Lotus’s growth plans. That offer has been on hold since the acquisition of Proton by DRB-HICOM in January. We have made it clear to Proton and the companies that the Government stand ready to reactivate the RGF grant offer—subject to the normal due diligence—but only if the vehicle development programme goes ahead in Norfolk. That is an important principle to establish.

I thank my hon. Friend for bringing this important issue to the attention of the House. I understand that this is an unsettling time for the employees, and I trust that the situation will be clarified shortly. I want to make it clear again that the Government wish to see Lotus continuing to build on its rich industrial heritage in Norfolk, and we stand ready to use the regional growth fund if it seeks to do that. In conclusion, Ministers at the highest level are taking the matter very seriously. I can tell my hon. Friends here this evening that we will remain in close contact with the companies and will work to ensure that the new owners understand that Norfolk is the home of Lotus.

Question put and agreed to.

House adjourned.