Automobiles & Parts – Sector Summary

• There are thirty-one automobiles and parts companies in the UK1000 and seventy-three in the G1000. Of the latter, only one company, GKN, is UK-owned, with companies from Japan, the US and Germany dominating the list.
• The automobiles and parts sector was the fifth largest contributor to R&D in the UK1000 and the second largest in the G1000 in 2008.
• Eight of the top 25 R&D investors globally and three of the top 25 UK investors are automobiles and parts companies.
• Foreign companies continued to dominate R&D spending in the automobiles and parts sector in 2008; they again spent 92% of the sector total, and 5% of UK1000 investment.
• A comparison of R&D investment to sales in the UK automobiles and parts sector provides a mixed picture. Sales grew more rapidly than R&D for four of the ten largest investors, while R&D grew more quickly for the remaining six. However, several of these companies also reported a decline in their R&D spending in 2008.
• Globally, R&D in the automobiles and parts sector grew more quickly than sales. This is largely the result of financial difficulties in the sector in 2008. Sales and operating profits decreased for many of the biggest investors, including General Motors, Ford and Daimler.

CASE STUDY Ilmor Engineering: A bumpy road

It has been a bad recession for motor racing. In recent times, Formula One, the sport’s most elite racing circuit, has seen an exodus of manufacturers, including Toyota, BMW and Honda. Leading car companies once prized their participation in top-flight racing as an unrivalled global marketing channel, but a sharp downturn in car sales, spiralling technology costs and the withdrawal of sponsorship funds from the sport have caused them to reassess their involvement. The story is similar in other areas of motor racing, such as the World Rally Championships, where Subaru and Suzuki have also recently announced their withdrawal.

The knock-on effect of the downturn on the dozens of niche engineering firms that supply motor racing teams with everything from steering wheels to engines has been huge. “When the automotive industry catches a cold, companies like ours can easily end up with pneumonia,” says Steve Miller, chief executive of Ilmor Engineering, a company with a long heritage of designing and developing highperformance racing engines. “The only way you can protect yourself is to have long-term agreements, work with the right customers and partners, and constantly be on the look-out for new opportunities.”

Ilmor Engineering was founded in 1984 to design, develop and manufacture engines for the IndyCar series, the US racing championship. In the early 1990s, it expanded into Formula One and formed a partnership with Mercedes-Benz. This led to two World Championship titles for Ilmor-designed engines with driver Mikka Hakkinen and the McLaren team. In 2002, Mercedes-Benz began a phased buy-out of Ilmor, but two of the original founders, Mario Illien and Roger Penske, decided to retain part of the company, along with the company name. Mr Miller became chief executive of the new Ilmor in 2005.

Greener pastures

Although the company remains largely focused on the motor sport industry, a decline in demand for top-flight racing engines has encouraged it to diversify. A portion of its R&D investment is now directed at the defence industry, where it has developed launchers and engines for unmanned aerial vehicles, and marine, where it focuses on creating engines for powerboats. But perhaps the biggest prize of all is the green technology market for road vehicles. “A lot of the R&D work that we have done over the past couple of years has been about fi nding the right way to penetrate this market and to take on projects that will help us to become a more substantial player in that area,” confirms Mr Miller.

Although motor racing is not known for its commitment to fuel economy, Mr Miller believes that the company’s expertise in high-performance engine development lends itself well to this fast growing sector.

“When the automotive industry catches a cold companies like ours can easily end up with pneumonia”

In collaboration with a Belgian inventor, Ilmor has developed a new internal combustion engine, based on a five-stroke rather than conventional four-stroke model, which it believes can reduce emissions and offer fuel effi ciency that is comparable with diesel engines.

In 2008, Ilmor Engineering spent just under £1 million on R&D, with a strong emphasis on creating practical, commercial solutions. “Our R&D is directed at producing ideas that give us good leverage in the market rather than the more scienceoriented research that may or may not create some value over the longer term,” says Mr Miller. Although investment in R&D has declined slightly in line with the downturn in the motor racing industry, Mr Miller has retained all the engineering staff in the company and used the spare time and resources to innovate in other product areas. “Sometimes you’ve got spare resource because things are relatively quiet, but that is the ideal time for sharpening your tools and developing the next idea that you can take to market,” adds Mr Miller. “That way, you’ve got something tangible to show a potential customer and you give people.