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Analysis

Car industry could be devastated by May’s hard Brexit

by Stewart Fleming | 13.11.2017

Pulling out of the single market and customs union will mess up both the auto industry’s exports to the EU and its just-in-time manufacturing. And yet that’s precisely what the prime minister wants to do.

The clouds are darkening over the industry. Last month, Vauxhall, which was recently taken over by France’s PSA group, said it was cutting 400 jobs at its Ellesmere Port factory. Shortly after, Japan’s Toyota said the “fog” of uncertainty over Brexit threatened its Burnaston factory in Derbyshire. Even Japan’s Nissan, which was famously bought off last year by the government with undisclosed promises in order to build the next generation of the Qashqai and the XTrail cars at its Sunderland plant, isn’t so sure and says it could change its mind depending on what deal the UK finally strikes with the EU.

In this context, a report this month by the National Institute for Economic and Social Research (NIESR), long the UK’s leading independent economic think tank, makes worrying reading. The UK car industry supports 800,000 jobs, output has increased by 60% since 2010 and new investment in the industry has totalled £8 billion in the past five years.

But, far from being “the best of British,” not a single volume car assembly plant in the UK is operated by a British-owned company. It is dominated by foreign-owned firms; Nissan, Toyota and Honda of Japan, India’s Tata (which owns Jaguar Land Rover), Germany’s BMW, France’s PSA and America’s Ford.

These companies are not here primarily to service the British consumer: 80% of cars assembled in the UK are exported and over 50% of these exports go… you guessed it… to Europe. So, as the NIESR puts it, for the sector, “the trade issue is critical.”

What’s more, it’s not just exports that will be affected by Brexit. The industry’s supply chain could be gummed up. The report takes the example of GKN, one of the UK’s few remaining world-leading large engineering concerns. GKN is in the forefront of global suppliers of automotive driveline technologies and systems.

A typical driveline incorporates specialist forged parts from Spain, France, Germany and Italy, imported for assembly at GKN’s British factory. To function well, trade must be frictionless. If the import of components is held up even for a short period of time, car makers will either have to stop their assembly lines until the right kit arrives or hoard extra inventory. Both options are extremely costly.

The UK’s car industry, by the way, sources only 40% of its components from the UK, compared with 60% for the German industry. A frictionless supply chain is, therefore, vital.

Moreover, since the manufacturers are foreign owned they are especially footloose. Indeed, the supply chain model facilitates relatively swift decisions to shift investment or component supply sources from one country to another.

To ensure the long-term health of the industry, the UK needs to keep full access to the single market and the customs union. But since that’s exactly the opposite of government policy, it’s no surprise that in the first half of this year, investment in the motor industry slumped to only £322 million – putting it on track to be roughly a quarter of what it was the year before the referendum.

Theresa May is doing a brilliant job of destroying one of our most successful industries.

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Edited by Hugo Dixon

One Response to “Car industry could be devastated by May’s hard Brexit”

  • How long can this madness go on ? Clearly until Brexit actually happens the anti Brexit campaign cannot prouve what a disaster it will be. But to deny the evidence which is building up of the consequences of Brexit, such as explained in the above note on the motor industry is quite extraordinary and is indeed proof that we are no longer in a rational situation any more.

    Brett and its supporters deny rational argument. Brett is a deep seated belief, a pseudo religious belief that England ( because it is the English who are pushing this ) is superior to everyone else and is better off without any attachments to Europe. It is literally impossible to engage in a rational discussion of the issues involved with them. One might be talking about the respective claims to superiority of Manchester United and Chelsea.