Low-carbon vehicles a stop-start business against background of recession

By Jonathan Guthrie
Published: March 2 2009 02:00

Weaning UK motorists off high-carbon vehicles and onto low-carbon alternatives is an aspiration of the UK government and of vehicle manufacturers. But the recession threatens to disrupt that shift, with the problem nowhere better illustrated than in the West Midlands, heartland of the British automotive industry.
LDV, the troubled van maker, and Jaguar Land Rover, the much larger luxury vehicles company, have been pursuing a future as green vehicle manufacturers. But they have been badly hit by falling sales, putting the future of their low-carbon programmes and their very survival in doubt.
Difficulties are most acute at LDV, a Birmingham business that has struggled to make profits for years and now faces closure. It announced plans to make its products environmentally friendly last spring. This has not stopped critics from accusing LDV and its Russian owner GAZ of applying a liberal coating of greenwash to its appeal for a £20m-£30m government bridging loan needed to keep the company in business while it seeks longer term assistance from the European Investment Bank.
LDV, which managers are seeking to buy out from GAZ, is participating in a £100m government programme to develop greener vehicles. The manufacturer is one of a group of manufacturers competing to develop new electric vans. The Department for Transport will shortly announce £20m in grants for this purpose, with a further £30m allocated over the next three years. The far more important prize will be substantial orders from the public sector for the best vehicles. Electric vans are seen as having an important role to play in reducing kerbside emissions in towns and cities, where diesel-powered delivery vehicles are ripe for replacement.
LDV has adapted eight of its Maxus vans, half of which are currently on trial with a large supermarket chain. London councils are also interested in testing the 3½-tonne vehicles. "We have what the market is screaming out for," says one LDV official.
But supposing that LDV can even survive, it is likely to find that profits can be as tough to generate from electric vans as from the conventional diesel-driven kind. Growth has been frustratingly slow for Modec, the pioneering green vans manufacturer based in Coventry. Jamie Borwick, former chairman of black cab manufacturer Manganese Bronze, set up the business in 2006 with the aim of making 2,000 vans a year. Modec sold just 100 vans in 2008, a figure it hopes to quadruple in 2009.
"The electric vans business is a lot tougher than people think," says Mr Borwick, who has invested £30m in the venture. He had expected the UK to be Modec's main market. Instead he exports most of his production to countries that give generous subsidies to green vehicles. Most UK customers have ordered a few vehicles for trial purposes, and that is all. Mr Borwick hopes that two small orders from distribution groups UPS and Fedex will pave the way to greater things.
Julia King, vice-chancellor of Aston University and an expert on green vehicles, believes that uptake of electric vans has been impeded by the suspicions of fleet drivers. "There is a hearts and minds campaign to win," she says, "Often the first drivers to arrive at a depot in the morning choose the diesel vans in preference to the electric ones."
The financial commitment made by Jaguar Land Rover to green research and development - £800m over five years - dwarfs the £100m that the government promised to the whole automotive industry last summer. Its problem has been a slump in sales that has threatened viability. This has triggered a request for state aid reckoned by pundits to exceed £500m.
In January, Lord Mandelson promised £2.5bn in emergency support to vehicle makers undertaking green research, over half of it from the European Investment Bank. While JLR would be eligible for grants from this pot, the manufacturer would still need targeted support to stay in business. But the government is wary of assisting a struggling manufacturer, particularly one with a big foreign parent, in the form of Tata of India.
JLR says that it was pursuing green research before Greenpeace protesters chained themselves to its production line in Solihull in 2005. However, the incident appeared to jolt the manufacturer into stepping up its programme. JLR wants to make its vehicles more attractive to environment-conscious consumers, as well as compliant with increasingly stringent emissions legislation.
This year, manual versions of the Freelander, a small 4x4, will feature "stop-start" technology, which switches the engine off and on quickly to cut the emissions of stationary vehicles.
Prof King believes that JLR could usefully speed up its green programme. In her view, climate change means that "the customer base is going to have to shift its priorities at an accelerating rate". In time, JLR hopes to sell hybrid vehicles whose rear axles are fitted with electric motors.
Flywheels are another technology with which the West Midlands manufacturer is experimenting, although it is hard to classify a familiar feature of steam engines as an "innovation". With hindsight, the real wonder may be the length of time it has taken modern carmakers to revive such a simple energy-storage device.
Copyright The Financial Times Limited 2009