What follows is a short commentary in respect of a most interesting return visit I made recently to the Birmingham operations of GKN Driveline:
GKN plc is a global engineering and manufacturing group that specialises in aerospace, automotive driveline and powder metallurgy products. In my view, what has long set this company apart from its peers is not just about technology design, engineering and production skills and efficiency of operation but moreover, the achieved market leadership that the company has attained in the vast majority of the industry segments in which it operates. Even better is the manner in which GKN continues to invest in and continue to grow them.
With its roots stretching back over 250 years and employing 58,000 people GKN is today at the forefront of global technology. A massive truly global business that is engaged in the design, manufacture and service of components and systems for a great many of the world’s leading aircraft, vehicle and machinery manufacturers, through a continual process of adapting to meet ever changing market requirements, the company is today centred on three divisions: GKN Aerospace, GKN Driveline and GKN Powder Metallurgy.
Of the many product and systems examples that I could cite in which GKN has achieved and maintained market leading positions the first that springs to mind is Automotive Driveline equipment. Supplying a range of driveline related products to a majority of the world’s leading vehicle manufacturers, the best known of GKN Driveline products include the vast array of Front-Wheel-Drive (FWD) and All-Wheel Drive (AWD) driveline components and systems including Constant Velocity Joints, propshafts and more recently, eDrive systems technology. Having visited the Birmingham based operation of GKN Driveline last month I will mainly concentrate on these areas today:
GKN Driveline is a perfect example of how through a long and illustrious history the company has engaged in a continual process of adapting to changing market conditions. From a historic context GKN involvement in automotive driveline products dates back to the acquisition of Birfield Industries 50 years ago in 1967.
Birfield Industries was a company that had been formed in 1938 purely for the purposes of acquiring both Laycock Engineering and Hardy Spicer & Co. The former was a large engineering company that amongst a wide range of component production included manufacture of propshafts and universal couplings while the latter company which was Birmingham based, had a long history of producing bearings, propeller shafts, flexible couplings and Universal Joints and later, through its Salisbury Transmissions subsidiary, hypoid rear axles for motor cars.
In 1956 Hardy Spicer was responsible for the development of what we know today as the Constant Velocity Joint (CVJ). The CVJ design was revolutionary and the product would soon be being used in Front Wheel Drive vehicles such as the hugely successful Austin Mini and various other front wheel drive vehicles within the British Motor Corporation (BMC) stable. Suffice to say that Front Wheel Drive vehicles would, within the following ten years, form the basis of the majority of cars being manufactured worldwide.
Supplying major car companies such as Fiat Chrysler, VW Group, Ford, GM, Renault Nissan, Honda, Toyota, Tata Automotive, BMW, Geely and others with CVJ (Constant Velocity Joints) systems together with AWD and eDrive systems, GKN Driveline remains the largest manufacturer of automotive driveshaft equipment in the world.
With 2016 global sales of £4.22 billion last year, GKN Driveline today employs around 28,100 highly skilled personnel working in 49 different manufacturing locations in 23 countries around the world.
As a division, GKN Driveline factories produce vast amounts of ‘underfloor’ vehicle equipment that includes front sideshafts, electro-magnetic control devices, open differential gears, Electronic torque managers, electronic differential locks, power transfer Unit Disconnects, rear and side propshafts together with Crosstrack Propshaft Joints, Limited Slip Differentials, Electronic Torque Vectoring and both eTransmission and eAxle equipment and more recently, a new product known as the ECO2 Twinster –a formidable array of sophisticated automotive engineering product and of which GKN has market leadership in all.
The Erdington, Birmingham site of GKN Driveline which I had last visited in the mid 1960’s under the guidance of the then Group CEO has not surprisingly changed extensively. Significant investment in order to ensure that, being primarily an end-product manufacturing and assembly plant reliant on components built at various GKN factories across the world, remains efficient and competitive.
Occupying a 48,000 m site, one that is half the size of that visited by me all those years ago and yet, an operation that probably churns out maybe three or four times as many finished products as it did back then, GKN Driveline in Birmingham employs around 847 personnel of whom 540 are engaged in direct manufacturing and around 255 are either indirect or staff. Sales last year were approximately £195 million.
CVJ Systems products accounted for approximately 61% of total GKN Driveline sales in 2016 with AWD and eDrive the remaining 39%. In respect of global sales, the Americas account for 36% of sales, Europe 37% and the rest of the world 27%. Since 2010 sales have risen by close to 50% and the company is still anticipating significant growth in the years ahead. It is worth noting that Fiat Chrysler, VW Group Ford and GM each account for in excess of 10% of GKN Driveline product sales worldwide with Renault-Nissan at 9%, Toyota 7% and Tata Group which includes Jaguar Land Rover 5%.
In Europe GKN Driveline has manufacturing plants in the UK, France, Spain, Italy, Slovenia, Turkey Sweden, Poland and Germany whilst in Asia the company has manufacturing and/or joint venture plants in Japan, Malaysia, Singapore, Thailand, China, South Korea and India. GKN Driveline also plants in Russia, Australia, Brazil, Mexico and seven in the USA together with a joint venture plant in Columbia.
As exemplified by the introduction of eDrive products such as the eAxle and eTransmission, the technology involved in Driveline has certainly not stood still. The same is true of the optimised in-line AWD modular design and the VL3 CVJ system and GKN Driveline are proud of the continuous development of software and integration capabilities.
The company’s level of investment in the eDrive technology reflects confidence and it is worth remembering here that hybrid and full electric vehicles which we will be seeing more of over the coming years continue to require driveshafts and all-wheel drive technology. Indeed, GKN Driveline are of the view that ‘electrification’ of vehicles will add required content to each vehicle produced.
With over one quarter of total engineering investment now put in electrified drivetrains and this vehicle type accounting currently for maybe 3% of total vehicle sales the benefit of the significant investment made in this technology is clearly yet to come. But come it will and GKN Driveline is ready and well prepared across all forms of ‘electrification’ and harvesting of regenerative power. GKN has recently opened a new UK innovation centre at Abingdon.
For all that, there remains plenty of life in conventionally powered vehicles and the company maintains a high level of research and development across all its product areas. This research and development efforts can bring other crossflow advantages as well. Examples of what is emerging from the investment could be found at the most recent Frankfurt Motor Show where GKN Driveline launched what it has called the eTwinsterX together with the announcement that it was joining forces with the Panasonic Jaguar Racing Formula E team.
Of course, as with other large engineering firms based in the UK that import product from subsidiary companies across Europe and export finished product from the UK, GKN Driveline is clearly being impacted by the large amount of Brexit uncertainty. The hope is that negotiations between the EU and UK Governments will establish a satisfactory outcome that benefits all the various countries concerned and that this in turn establishes a long term trade relationship between the EYU and UK.
The most urgent need is clarity on what any future relationship between the EU and UK will be. Clearly, for a business such as GKN, one that despite being global in every sense of the word is also one that remains a very significant part of the UK engineering and manufacturing establishment, the dangers of failing to agree a satisfactory Brexit outcome – one that remains based on free movement of talent together with tariff free import/export taxation and tariffs is crucial. GKN has continued to invest heavily in all of its plants including the UK but the continuing lack of clarity is bound to impact or at the very least delay future investment decisions.
As to the potential impact of Brexit on the UK economy and domestic market, it is worth noting that for GKN Driveline and despite the operation being headquartered in the UK, the domestic car market, important though it is to GKN, accounts for less than 10 per cent of the automotive division sales. Actual car sales in the UK have quite definitely slowed although exports have remained strong. Clearly, continued UK presence is also dependent on there being a strong UK market for the company’s many products. While there are, as yet, few if any sign that transplant operations in the UK might disinvest due to Brexit, GKN as a company will never shy away from moving to where the market is.
CHW (London – 3rd November 2017)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785