How will Brexit impact the UK Automotive industry?
As negotiations for the UK to leave the EU continue, automotive leaders are publicly expressing deep concerns at the impact of Brexit. VP of Content Tim Coulthard looks at the positions of the biggest auto-makers and what they mean for the future of the sector
In the past four weeks, a cavalcade of automotive leaders have publicly expressed concerns at the impact of a no-deal / bad-deal Brexit. While details vary from company to company, the common theme is that if the UK lurches out of the EU in March 2019 without a favourable trade agreement in place, production will stop in their facilities. When and for how long remain the significant unknowns.
The issue is both symbolic and practical. The UK has a deep, emotionally rooted automotive heritage. While most of the British-owned marques of the past have disappeared, its automotive legacy lives on as a production base for global brands, through research and development expertise, and as home to thousands of suppliers.
The issue of production stoppages, and how long they last, varies by company, and also requires some digging into the subtext – how much is a simple explanation of fact and how much is designed to strong-arm the UK Government’s negotiating position. The frequency and timing of these recent public statements from automotive leaders is surely no coincidence.
There are historic, structural reasons why the automotive sector will be particularly hard hit by customs, border and trade issues. It is a truly international industry, through the global reach of major makers into highly interconnected supply chains and skills networks. Production, of course, centres on Just in Time and related philosophies, with an agile, frictionless supply chain critical to its effectiveness. As one automotive leader told me recently, a delay of just a few minutes for parts at the border can have a profound (and costly) impact on production. The nightmare scenario of significant border delays would cost millions in the sector.
EU countries are already competing for inward investment from automotive makers, who themselves are highly unlikely to abandon decades of Just in Time philosophy to revert back to a warehousing and inventory model. If they can’t operate as they want in the UK, the ultimate sanction is for them to look elsewhere. But that risk should be weighted against the vast expense and upheaval of relocating huge facilities to new locations.
Whatever the odds of moving a plant, there will be plenty of suitors in the EU hoping to lure production away from the UK. Earlier this month, French President Emmanuel Macron began the charm offensive with a private dinner at the Elysée Palace, where leaders from Renault Nissan, Vauxhall and Jaguar Land Rover were reportedly present.
Most major brands have now made a recent statement on their Brexit position, which are summarised below.
Toyota produces the Auris and Avensis models in the UK, principally at its plant in Burnaston, Derbyshire. "My view is that if Britain crashes out of the EU at the end of March, we will see production stops in our factory," said Marvin Cooke, Managing Director at at Toyota Burnaston.
“If just one supplier part is missing, we will not be able to produce cars in that time. We can’t predict if the impact of a hard Brexit would be hours, days, weeks or months.”
The German owners of the iconic Mini brand are taking practical steps to anticipate and mitigate the effects of a post-Brexit economic landscape. The annual month-long shutdown of the plant for planned maintenance and equipment updates is being brought forward to 1 April, the day after the Brexit deadline, in an effort to minimise disruption.
“As a responsible organisation, we have scheduled next year’s annual maintenance period at Mini Plant Oxford to start on 1 April, when the UK exits the EU, to minimise the risk of any possible short-term parts supply disruption in the event of a no-deal Brexit… While we believe this worst-case scenario is an unlikely outcome, we have to plan for it.”
However, the firm is adamant that it will remain loyal to the UK further forward. “We remain committed to our operations in Britain, which is the only country in the world where we manufacture for all three of our automotive brands,” the company says.
Japanese giant Honda has gone further than some firms by floating a rough figure for the financial impact of Brexit. It estimates costs would rise by 10% if the UK reverts to World Trade Organization tariffs in the absence of any agreement with the EU.
“That impacts our productivity, certainly in terms of the flow of product, but also it does hit potentially our competitiveness. Of course if we are shipping and competing against a European manufacturer in Europe, they’re not incurring those tariffs,” said Ian Howells, Honda’s Senior Vice President.
Ford describes a no-deal Brexit as the “red line” that would force it to reconsider future UK operations. “While we think this is a worst-case scenario and that a UK-EU deal will be reached, we will take whatever action is necessary to protect our business in the event of a hard Brexit,” said Steven Armstrong, CEO of Ford Europe.
JAGUAR LAND ROVER
Jaguar Land Rover Chief Executive Ralf Speth said a bad Brexit deal would cost Jaguar Land Rover more than £1.2bn profit each year. "As a result, we would have to drastically adjust our spending profile. We have spent around £50bn in the UK in the past five years - with plans for a further £80bn more in the next five… This would be in jeopardy should we be faced with the wrong outcome."
Nissan has pushed back wage negotiations at its Sunderland plant from Autumn 2018 to later in 2019, citing uncertainty over Brexit. “In agreement with our employee representatives, the 2019/2020 pay negotiations in our UK plant and technical centre will commence in 2019 when we have better clarity on the future business outlook,” a spokesperson said.
Automotive trade body The Society of Motor Manufacturers and Traders says the Brexit impact is critical to the future of its members. Mike Hawes, SMMT Chief Executive, said: “There is no escaping the fact that being out of the customs union and single market will inevitably add barriers to trade, increase red tape and cost. Settling for “good” access to each other’s markets is not enough as it will only damage the UK’s competitiveness and reduce our ability to attract investment and the high-quality jobs that go with it.
Outcomes and endgames: where next for automotive and Brexit?
The glib answer to this and numerous other Brexit-related issues is “nobody knows”, but of course, some people know something, despite public utterances. The car makers will be mapping out multiple risk models and contingency plans, given the uncertainty over what the UK and Europe will be left with.
They’ll also be lobbying the UK government, individually and collectively, both to influence current negotiations and secure assurances post-Brexit, however that unfolds.
It’s not unlikely that in trying to shore up the economic and political landscape, the UK Government will make significant concessions to keep the automotive firms in the UK, whether through investment assurances or tax breaks.
Can anyone say unequivocally that every car plant will remain open in the UK? No. But it’s equally unlikely that every major maker will announce plans to move on 1 April. What is likely is that the UK automotive sector will be a different, probably smaller player in the global industry, and that the multiple suppliers and associated industries will be hit as a result.