Another Blow for the UK’s Automotive Industry as Ford Steps Back
We have covered the automotive industry on a number of occasions
here in Financial Regulation Matters,
ranging from posts on emissions-related
scandals and issues with the leadership of some of the industry’s largest
companies (via Oluwarotimi
Adeniyi-Akintola) to the increased focus on the electrification
of the industry. In today’s post however, we shall focus on the current
state of the British automotive industry and examine whether the current issues
impacting the industry are related to Brexit, as most of the press suggests, or
to deeper-rooted issues that may fundamentally affect the future of the
industry in the UK.
The subject of the auto industry in the post-Brexit era is a
complex one. There are materials that are available, and indeed incredibly
useful, in order to gain a solid understanding of the issues – see the excellent
Keeping
the Wheels on the Road: UK Auto Post-Brexit developed by Prof. David
Bailey @dgbailey and others as part
of the Bite-Sized Brexit range of materials. Perhaps for us it is worth just putting
together a collection of the headlines regarding the auto industry recently.
Once synonymous with the auto industry, Britain has redeveloped itself as a hub
for auto production for international auto companies. As a result, a number of
communities within the UK are now strongly linked to the production plants they
house. For example, there is increased anxiety in Sunderland, where Nissan is
based. In February it announced that it would not be building one its flagship
models – the X-Trail – at the Sunderland plant. Nissan had originally
planned to produce the car in Sunderland after receiving Governmental
assurances about the developments with Brexit, but two years later
considered it better to build the car in Japan instead. Then, a month later,
the firm announced that it was ceasing
production of its Infinity brand at the plant. This placed 250 of the
7000-strong workforce at risk, but redeployment was thought possible. However,
today there was a massive boost for the plant with the news that the new Nissan
Juke, set for a 2020 introduction and for the inclusion of Hybrid technology, would
be built at the Sunderland plant.
Yet, other plants around the country have not received news
as good. In Swindon, Honda announced in May that it would be closing the plant
in 2021, with the entire
3,500-strong workforce at risk. Such closures are affecting suppliers
further down the chain as well, with car filter supplier Mahle
considers closing its Telford plant, whilst Unipres
in Sunderland is experiencing reductions in its profitability. However, whilst
the news of Juke being made in Sunderland is positive, today’s automotive news
is dominated by the news that Ford is
set to close its Bridgend engine plant, with 1,700 jobs expected to be lost.
The closure is part of a global cost-cutting plan and Ford today stated that
loss of contract work for Jaguar Land Rover and a reduction in demand for the
Dragon engine produced at the plant were to blame. According to the Financial Times, Ford will instead move
production of the Dragon engine to plants in Mexico and India that already
produce the model. This is, of course, a massive blow to the region. In terms
of reasons, there are many being advanced. The decision by Jaguar Land Rover to
take its engine production in-house in its plant in Wolverhampton is a
contributing factor, as is Ford’s desire to cut almost $11 billion from its
global expenditure and, in the process, losing almost a tenth of its global
workforce. Yet, there are inevitably links to Brexit being advanced as the
reason for this, and many other negative headlines affecting the British auto
industry. However, how important is Brexit to this issue?
Whilst Nigel Farage campaigns on the concept that Brexit is
an opportunity for plants like Sunderland’s Nissan plant to ‘go on doing stuff’
and also move
into different industries, like ship building and fishing, the reality is
that there has been a significant
downturn in the fortunes of the British auto industry since the Electorate
decided to leave the European Union. Uncertainty over the official leaving date
had a clear impact as ‘car
production plunged by nearly half in April as factories shut down to prepare
for a Brexit date that never came’. In terms of investment, it was reported
in January that in 2017 alone investment fell 46.5% to
just £588 million, according to the Society of Motor Manufacturers and
Traders. The SMMT’s Chief, Mike Hawes, was clear that Brexit uncertainty has ‘done
enormous damage’, although he continues by declaring that the impact so far ‘is
nothing compared with the permanent devastation caused by severing our
frictionless trade links overnight’. Politicians, although not universally,
have used such figures as clear proof of the need
to avoid a no-deal Brexit, such as Rebecca Long-Bailey, Labour’s Shadow
Business Minister. It does not need a massive leap of imagination to understand
that, for global car manufacturers, the severing of links with the EU and the
uncertainty presented by creating new trade deals with countries like the U.S.
are causes for concern. Yet, there are other factors at play.
The electrification of the sector is, perhaps, of bigger
concern. The Financial Times
discusses how fresh investment is ‘dwindling’ in Britain’s development of new
technology – i.e. to be able to meet the manufacturing demand of this increased
focus on the electrification of cars – as manufacturers ‘prioritise
their home markets’ – this is certainly an argument that Honda made when
announcing the closure of the plant in Swindon. Politicians like Business
Secretary Greg Clarke argue that Britain’s recent successes in the sector –
after investment from companies like BMW, Nissan, Honda, and others – will not be
replicated if the ability to manufacture in the new era is not developed via
investment. The FT continues by
stating that there are some grounds for hope, as the UK is already playing a
significant role in the development of battery-based technology, whilst the
Sunderland plant already makes the Nissan Leaf, the best-selling electric car
in Europe. While there are conflicting stories about the appetite for electric
cars in the UK, with some claiming such cars are not an attractive prospect
for the British motorist but others confirming that this is due to governmental
policy that is making such vehicles more expensive, the reality is that the
British manufacturing arena has very little choice but to adapt – the question
is then will the Government play a role in increasing the appetite for such
vehicles to fulfil the demand-part of the cycle.
Whilst there has been some discussion on other elements
impacting upon the electrification of the sector, like The Times suggesting that the UK risks being held to ransom on the
basis that rare materials that are required for the production of electric cars
are held by a ‘small
number of unstable countries [that] control the supply’ (something which
the ongoing trade war between Donald Trump and China is likely
to envelop), there are more pressing concerns for the British auto
industry. Arguments that skilled workers in this sector should turn their hand
to fishing can be dismissed, but in reality it all comes down to a question of
investment. At a time where there are global uncertainties facing the largest
auto manufacturers, Britain has decided to cut its seamless trade connections
to the EU and put its auto industry at risk. When we consider that the largest
firms are actually scrambling to restructure and/or merge to survive the
uncertain environment (Fiat Chrysler’s withdrawn €33
billion merger with Renault is still a sign of the times), the timing could
not have been worse. The reason is that it is abundantly clear that the UK needs the recent successes of the auto
industry to continue, and the global firms understand this. There is no
sentiment in this field and, as such, the Government will have to sweeten the
deal for all of the manufacturers in order to revolutionise the manufacturing
hubs in anticipation of the electrification of the sector. Yet, the Government’s
£60-£80 million promise to Nissan to build the X-Trail in Sunderland did not
convince. It is not surprising given the advantages to the companies of
building new manufacturing hubs in their own regions. The inference is, then,
that the Government will have to inject much more money to entice these global
manufacturers into the British sector, but at a time when the country is
undergoing its most uncertain period, economically speaking, in generations.
The reality of Brexit continues to stalk the headlines, and the British public.
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