How will Brexit affect the UK’s car industry?

Analysis: Falling out of the EU without a deal would, says Sean O’Grady, lead to the inexorable decline of a once great British industry – although the impact would not be immediate

A no-deal Brexit could put the brakes on the UK’s automotive industry (Getty)

There is no doubt in the British car industry – among manufacturers, competent suppliers and the retail trade – that Brexit is bad, at best a matter of “damage limitation”. They welcome Theresa May’s deal, but only because it is better than the “existential” threat that no deal, trading on Word Trade Organisation terms, would involve.

This, for example, is what Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, said on the eve of the meaningful vote: “As MPs prepare to vote on the government’s Brexit deal, we urge them to remember they hold the future of the British automotive industry – and the hundreds and thousands of jobs it supports – in their hands. Brexit is already causing us damage – in output, costs and jobs – but this does not compare with the catastrophic consequences of being cut adrift from our biggest trading partner overnight.”

“A managed no deal is a fantasy,” Hawes concluded.

To understand the interconnectedness of supply chains, consider that some 1,100 trucks loaded with parts cross the English Channel every single day, to deliver their goods direct to “lineside”, for car giants such as BMW, Toyota, Nissan, Honda, Jaguar Land Rover and Vauxhall.

Today’s factories are run on “just-in-time” principles – so any delay, and certainly delays of days or weeks, would cripple production, ramping up costs and shredding thin profit margins.

For example, in its journey from a basic casting to its place revving around inside a new Mini Cooper S, a Mini crankshaft will travel from France to the UK to Germany and then back to the UK, and probably then back to the continent to be seen in a showroom. Stockpiling parts is old-fashioned and prohibitively expensive and unwieldy, and disruption to production is intolerable. Sooner or later plants will be run down and volumes reduced to cut losses.

Second, consider the position of Vauxhall at Ellesmere Port. With Peugeot having last year taken over GM Europe, of which Vauxhall was a part, it must soon choose where to place production of its next mid-sized models – the new Vauxhall Astra, Peugeot 308 and derivatives. With overcapacity, it has a choice to locate production – and secure jobs – in any of range of plants in France, Spain, Germany or the UK.

The UK, particularly through Nissan, has worked hard to build up expertise in electric and autonomous vehicles. This will also disappear with the investment that will no longer be flowing into Britain. A promising growth industry is already doomed

With no certainty about the future of the UK’s relationship with Europe, and a need to concentrate production, Ellesmere Port, which narrowly missed closure before (a German plant went instead in an EU-wide effort to deal with the recession), is obviously threatened. Even Jaguar Land Rover is opening new production facilities in Slovakia. Toyota and Nissan (with its Renault alliance partner) could move new investment to the much bigger market in the EU.

Third, a no-deal exit will mean tariffs on parts and finished vehicles which will substantially add to admin and to costs. The UK exports far more of its production to the EU than the EU does to the UK, although Britain is a large and profitable market for EU-based firms. VW Group, for example, commands more than 20 per cent of British new cars sales; BMW/Mini is on about 10 per cent; and Mercedes-Benz 7 per cent, meaning that about four out of every 10 new cars from German brands alone.

For UK exports, adding 10 per cent to a car’s cost as it crosses the Channel would, again, destroy profitability.

Last, the UK, particularly through Nissan, has worked hard to build up expertise in electric and autonomous vehicles. This will also disappear with the investment that will no longer be flowing into Britain – and is already down significantly. Geely of China, which owns the maker of London cabs, shelved a plan to build an electric van plant in the Midlands. Thus, a promising growth industry is already doomed.

“Project Fear” for cars would proceed at slow speed. No one scraps a car factory overnight. The decline will be gradual, but inexorable. Makers such as Jaguar Land Rover, which tend to export more to the US and the rest of the world than the EU, might suffer less; and Rolls-Royce and Bentley (owned by BMW and VW Group respectively) might for the same reason feel less pressure; but all rely on materials arriving from Europe, from engines, gearboxes and frames to braking systems and switches.

Again, it would be relatively easy to transfer operations, even for quintessentially “British” brands. It would probably take five to ten years to relocate the auto industry abroad, much of it to EU bases in eastern Europe.

After all, HP sauce, complete with its portrait of the Houses of Parliament, is made in the Netherlands nowadays.

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