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A look at a key feature of Manganese Bronze Holdings business

A big fish in a small pond?

LTI produce 2500 taxis every year. This makes the company a 'micro-producer' in comparison to other vehicle manufacturers. The key benefits that the larger vehicle makers are seeking are economies of scale; put simply, component suppliers are more willing to offer lower prices to firms that make 250 000 vehicles per year, than they are to firms like LTI. This is because suppliers can make components at a lower unit cost when they produce them in greater quantities. They are also more inclined to offer lower prices if they have guaranteed business with large producers, as long as they meet manufacturers' demands.

The effect of this can be judged by comments in an article in the 'Guardian' by Manganese Bronze's chief executive, Ian Pickering. Speaking about the cost of dashboard switches, he said, "We pay as much for them as you would if you went into Halfords and bought them as a spare part". ('Global Fare': Interview with Ian Pickering, The Guardian, May 1st 2004)

So what can a firm like LTI do about this? There appear to be a number of options:

• Boost production in order to gain purchasing economies of scale. Remember that they only make 2500 taxis per year. Have a look at the company Web site to find out how many taxis they sell annually. (http://www.manganese.com/financial_info.php)
• Relocate production to a low cost environment. Read the report on the firm's activities during 2004. Look for evidence of distribution agreements or plans to manufacture in developing countries. (http://www.manganese.com/presentations/2004_interim_results/index.html)
• Target new growth markets. Opening up new markets in North America is part of this strategy. See the London Taxis of North America Web site for more information. (http://www.ltna.com/index02.htm)

The impact of regulation

Transport for London's Public Carriage Office (PCO) produces 'Conditions of Fitness' that regulate taxi services in the Capital. These conditions were reviewed in 2003, which was the first full review since 1961. No 'toothless' regulator, this. Here's a shortened list of aspects covered in the conditions of fitness:

• vehicle dimensions
• taxi turning circle
• tyres and brakes
• interior lighting
• vehicle emissions
• seatbelts
• floor covering
• taxi meters
• display of information

These are aspects that deal with access, safety, comfort, driver security, fare and other information, and the environment, among other issues. The conditions are agreed to involve either no change in taxi vehicles or a date/dates by which vehicles should comply.

LTI's London taxis also comply with ancient requirements that pre-date the advent of motorisation: rather than having a seat on the front passenger side, LTI's cabs have a space large enough to accommodate a bale of hay. As if that was not sufficiently eccentric, the cabs' ceilings are high enough to allow 'gentlemen' to enter the taxi without first removing their top hats.

But regulation of 'black cabs' goes further; even to the structure of the industry that supplies London with its taxis.

Dominant supplier

The demise of Metrocabs, as LTI's only competitor leaves LTI in a very strong position: the only taxi maker whose product meets the requirements of the market regulator. But the regulator has taken steps to warn LTI not to abuse its powerful market position. The PCO has encouraged LTI to work closely with driver and passenger representatives to improve their vehicles.

In certain circumstances the PCO has the power to carry out a further review of the Conditions of Fitness. The next full review was intended to be conducted by 2013. But at the time of writing (May 2004) there is in fact a second limited review of the London Conditions of Fitness. This is as a result of an application for a judicial review of the first decision by one of the larger van converters.

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