If there is a single industry in the UK which is at the forefront of high-tech R&D then it is the automotive business and car manufacturing is resurgent despite the recession. However not all is rosy in the garden.
Last week Rolls Royce announced it is lending money to one of its suppliers to ease its cash flow problems. There is also a problem with money being available for investment in smaller technological firms. The difficulty does not arise from a lack of cash – the private equity world – is awash with it, but rather the automotive business model.
Developing products is often a long-term and funding-heavy operation, and the extended cycle of bringing vehicles to markets does not neatly fit in with the short-term need of many private investors to quickly release cash from those firms they support.
Nor are there clear exit strategies. Unlike the high-profile computer and telecoms IPOs, these are few and far between in the car industry, thus presenting investors with a double whammy: an inability to take cash out of the business while they own it and few options for selling it on when they are ready to turn their attentions elsewhere.
Not that the problems are limited to a shortage of financial capital. There are also concerns about a scarcity of intellectual capital. At a breakfast meeting this morning some of the bigger car makers said that while they generally managed to attract as many engineers as they needed it was often at the cost of other firms further down the supply chain.
As an aside somebody noted that Lloyds Bank had actually started sending some of their managers on an engineering course – not so they could change careers, but so they could better evaluate calls from those in the automotive sector for loans. Surely that is some progress?