Countdown to Brexit: 35 days – Auto industry reflects sombre outlook for UK manufacturing post-Brexit

On Tuesday morning, 19 February, Honda announced its decision to close its Swindon plant in 2021. This follows several high-profile announcements from car manufacturers about closures or capacity reductions in their UK plants – including Nissan’s decision to produce its new X-Trail in Japan not Sunderland.

This post gives an overview of UK car manufacturing – and looks at some of the factors behind recent announcements.

The table at the end of this post quotes production and direct employment figures for: Jaguar-Land-Rover; Nissan; BMW-Mini; Honda; Toyota and Vauxhall.

In 2017, Chair of the Parliamentary Business, Energy and Industrial Strategy Committee, Rachel Reeves MP, described the automotive sector as “a UK success story.”  A year on, the Government stated: “automotive firms from around the world choose to set up shop here, citing our history of excellence, skilled workforce and world-leading supply chains - sentiments supported by production and trade data”.  But car production had already fallen by 9% in 2018 compared to the previous year.

The UK is presently the fourth largest manufacturer of cars in the EU - and the 13th largest in the world:

  • the UK automotive industry produced 1.8 million cars in 2018;

  • the post-war all-time peak was 1.9 million cars in 1972

  • the post-war all-time low was less than 1 million in 1981.

The table at the end of this post breaks down production and employment figures for: Jaguar-Land-Rover; Nissan; BMW-Mini; Honda; Toyota and Vauxhall.

Since the 2008-9 recession, car exports from and imports to the UK have increased strongly – mainly driven by trade with other EU countries.  In 2017, 79% of car imports to the UK came from the EU - with 54% of car exports sold to other EU countries at a value of £33bn. 

The UK automotive sector is also an important part of the international automotive parts supply chain.  In 2017, the industry imported parts worth £12.8 billion - and exported parts worth £5.1 billion.  Whilst the car plants employ 153,000 directly, the wider automotive supply chain employs 856,000 people in the UK.

Behind the cutbacks and closures, Brexit is seen as a major issue by the automotive sector – its industry body describing the UK’s exit from the EU as a “clear and present danger” to the sector.  It argues that uncertainty around the nature of the future relationship between the UK and EU “has already done enormous damage to output, investment and jobs,” - and that loosing frictionless trade links with the EU could cause “devastation”.

The recent trade agreement between the EU and Japan came into force on the 1 February 2019.  It is a key issue for Japanese car firms that have plants in the UK - such as Nissan, Honda and Toyota.  The trade deal reduces economic barriers - such as tariffs - to manufacturing in Japan and importing to the EU.  There is now less incentive to base manufacturing plants in the EU in order to access EU markets.  Once the UK leaves the EU, barriers for cars made in the UK will be higher than for cars made in Japan.

after-four-decades-of-not-talking-trade-with-the-world-the-uk-is-finding-that-its-not-that-easy

 ‘Prestige’ UK car manufacturing brands - such as Jaguar-Land-Rover - have also suffered recently due to a Worldwide industry decline in car sales in markets such as China - the largest market for UK-built luxury cars.

Brexit has come at a time that many of the manufacturers were facing ‘company-specific’ issues.  For example: Jaguar-Land-Rover is addressing over-supply issues; Nissan’s management and strategy has been radically overhauled following the arrest of CEO Carlos Ghosn in 2018; Vauxhall - part of the PSA Group which also owns Peugeot and Citroen - is currently undergoing restructuring to reduce overlap between the many similar cars the group manufactures.

And Brexit comes on top of several ‘structural’ challenges that are causing disruption to all car manufacturers:

  • The dramatic fall in the popularity of diesel cars caused by the ‘emissions scandal’ of 2015 - and the wave of diesel bans around the world - have provoked rapid changes in decisions on future capital investment;

  • The fast-growing popularity of electric cars, and interest in autonomous vehicles – which has generated new investment challenges for the industry.  The speed of shifts in consumer preference for new kinds of vehicles has taken many manufacturers by surprise.

  • The rise in popularity of ride-sharing (through apps like Uber and Lyft) – which is forecast to depress demand for cars of all kinds in the coming decades.

The UK Government’s response is the ‘automotive sector deal’ that sets out a framework of policies in an attempt to “mitigate many of these challenges” noting that the industry “has weathered headwinds in the past, most recently after the global financial crisis of 2008 and 2009 - but the combination of factors at play now is unique and could more be more damaging to the sector”.

A no-deal Brexit – with its instant application of tariffs on both parts and assembled cars – will create a further shockwave for the owners of the marques made in Britain.  Whilst the momentum of present investment in plant means continuity of production for now – it will surely shift the balance when it comes to future investments away from the UK.

Background

There are presently 6 Automotive Manufacturers with production bases in the UK that, together, account for 98% of cars produced.  Figures are for 2018: number of cars produced; % of UK cars produced; Employees in the UK

Jaguar Land Rover          449,304              30%       19,000

Nissan                                442,254              29%       7,000

Mini (BMW)                      234,183               15%        7,000

Honda                                160,676               11%        4,000

Toyota                               129,070               8%          3,000

Vauxhall                           77,481                5%          4,500

References

Jaguar Land Rover          4,500 reduction in jobs in the UK by 2021

Nissan                               Move production of X-Trail model from Sunderland to Japan

Mini (BMW)                     Scheduled month-long Cowley plant closure brought forward to April 2019

Honda                               Permanent closure of Swindon plant in 2021

Toyota                               Possible temporary closure of Burnaston plant in event of No Deal Brexit

Vauxhall                           240 redundancies at Ellsmere Port plant in 2019

John ShuttleworthComment