Job losses in the thousands. Sales and output nosediving. Investment slowing to nigh-on nothing. The UK car industry already faces a perfect storm of challenges, and now CEOs of BMW and Vauxhall-owner PSA are threatening to leave the country if there’s a no-deal Brexit come Halloween. It’s a scary time for car makers – and their workers. “It drives a wrecking ball through morale,” says Steve Turner, assistant general secretary for manufacturing at the Unite union.”It’s devastating.”
Some 186,000 people work across the industry in the UK, of which 44,500 are employed at the six mainstream carmakers – Jaguar Land Rover, Nissan, Mini/BMW, Honda, Toyota and Vauxhall – and the rest at bus and coach makers, engine factories, and other suppliers. So far, thousands of jobs have been lost this year – 3,500 at Honda in Swindon, 1,700 at Ford in Bridgend, and 4,500 at Jaguar Land Rover by 2021 – as Brexit bites, global sales shrink, and diesel gives way to electric.
The industry is suffering, and the figures are grim. According to the Society of Motor Manufacturers and Traders (SMMT), the trade body representing automotive manufacturers, the amount of cars made in the UK in the first half of the year has fallen by a fifth to 666,000 compared to last year, the 13th straight monthly decline. That nosedive is particularly steep given only a few years ago SMMT was predicting the British car industry would swoop past two million cars annually. “Now that’s obviously not going to happen,” an SMMT spokesperson says.
Industry investment is almost non-existent, with £90 million committed in the first six months of the year, versus £347m in the same period last year and £647m in 2017. The industry normally averages £2.7bn investment annually, says SMMT, though a July announcement of £1bn investment from Jaguar Land Rover makes the situation a little less desperate. “There’s a sense that the industry is at a tipping point, squeezed by diesel’s demise, falling sales in China and Brexit uncertainty hampering growth – at the same time as the need to invest in new technology going forward,” says David Bailey, a professor of business economics at the University of Birmingham.
The money that is being spent in the auto industry, is splashed on Brexit prepping, with at least £330m spent since the referendum by manufacturers on contingency plans such as stockpiling parts. The figure could be higher, SMMT says, as the industry body only surveyed ten major companies for how much they’ve spent. Bailey pins the nosedive in investment on companies “sitting on their hands” ahead of Brexit.
It could get worse. Vauxhall-owner PSA has said that if a no-deal Brexit happens, it will shut its Ellesmere Port factory and move production to an undisclosed location in the south of Europe. BMW has echoed that, with CEO Harald Krüger saying he’d happily drive to London to meet Boris Johnson to talk him out of considering no-deal a valid option.
And Brexit hasn’t even happened yet. The uncertainty about what form the departure from the EU will take and when it will happen is already wreaking havoc. BMW, Jaguar Land Rover, and Vauxhall moved forward to April their regular summer shutdowns, when workers get a break as factory production lines are stopped to be maintained and upgraded, in order to wait out any Brexit chaos. But at the last minute, Brexit was put off until the end of October, meaning those companies shut down for no reason – and can’t do the same again without serious costs come November.
And the fact that the UK and EU car making industry is seriously entangled only makes things worse. According to SMMT, 52 per cent of cars assembled in the UK were exported to the EU, while 80 per cent of components were imported from the EU and 69 per cent of components made in the UK were exported to the EU. Rather than maintain expensive warehouses, every day some 1,100 trucks make deliveries from the EU to UK factories with £35m worth of components and parts delivered just in time – to the minute, in some cases – for manufacturers to use, according to SMMT.
“Cars are built in sequence,” says Turner, so the order in which those parts arrive matters too. He recalls working on a dock a decade ago, and seeing a helicopter picking up door seals for delivery to a Honda plant because the ship carrying them missed the tide. “And it’s moved on a lot since then, it’s even more integrated.” SMMT predicts that every minute of delay that causes a factory shutdown will cost the industry £50,000, and the absence of a single part could be enough to halt production. Turner says the Bridgend plant churns out an engine each minute, so a single delay will hit hard.
Right now, the just-in-time delivery flows work because there aren’t any customs checks, but in the case of a no-deal Brexit, suppliers will suddenly face such checks and stacks of paperwork. “Smaller companies haven’t got the human resource, they haven’t got the capital,” says Turner. “They’ve never had to do the paperwork associated with customs, because we’ve been in the European Union, and now they’re having to conduct their business in an entirely different way.”
Some 70 per cent of the industry is made up of those smaller companies with ten or fewer staff, says SMMT, and they don’t have millions of pounds to spend on contingency plans like the larger manufacturers. “There’s a knock-on effect down the supply chain as well, with much smaller suppliers that haven’t got the resources of the big manufacturing companies to deal with the fallout from a no-deal Brexit,” says Turner.
And then there’s tariffs. The last version of the British government said it would remove tariffs on components, but finished cars and passenger vans being imported will see a 10 per cent tariff, which SMMT predicts will cost the industry £4.5bn annually. The price of imported cars will go up, and the price of cars built here and exported will go up, hurting sales. While adding a tariff to cars made outside may make sense in some ways, Turner notes that vehicles assembled in Europe use British-made components. “The best selling cars in the UK are the Ford Focus and Fiesta,” he says, and both are assembled in Germany. “The engines are built in Dagenham… if you make that car so expensive that no-one buys it, who pays the cost of that? It’s as much the supplier in the UK as it is the manufacturer itself.”
Because of such hurdles, avoiding a no-deal Brexit should be a top priority, says Bailey. “Staying inside the Customs Union is essential for fine-tuned automotive supply chains to run efficiently, and avoiding non-tariff barriers will be key in the longer term; the aim should be to effectively give UK auto something like access to the Single Market.”
However, Brexit isn’t the only problem, merely an unnecessary complication in already challenging times. Indeed, Ford’s CEO said the Bridgend factory would have closed regardless of Brexit, and the company is slashing 12,000 jobs across its European division. Those job cuts at the other manufacturers are also part of wider global job losses. “Nothing has been blamed on Brexit so far,” the SMMT spokesperson says.
So what’s behind the industry’s wider woes? There’s the demise of diesel in the wake of the VW scandal, leading to factories needing to flip to new models, which means a temporary downturn in output while they rejig their production lines. There’s also been a fall in sales in China and the US, the second and third largest markets for British manufacturers, after the EU.
While Brexit and wider economic challenges have battered Britain’s car industry, perhaps it’s the first victim of an even wider shift: the end of combustion engines. With all sympathy to those losing their jobs, perhaps it should be a tough time for car makers – combustion engine cars and trucks make up a fifth of US emissions as we all face a climate crisis. The UK has banned the sale of petrol and diesel cars in favour of electric by 2040, so factories making combustion engines would have started to shut down in the next decade or so regardless of Brexit and the other challenges. That is, of course, good news for our air and climate; perhaps the British government should be accelerating the shutdown of combustion engine factories ahead of that deadline by encouraging and supporting electric manufacturing.
That’s what some in the industry would like to see. That £1bn investment by Jaguar Land Rover is for electric vehicles, and SMMT notes the Nissan Leaf and hybrid version of the Toyota Corolla are both built in the UK, while the electric Mini is set to be manufactured here. Pivoting to battery manufacturing and electric vehicles could help drive the industry to a brighter future, environmentally and financially. “One thing is clear: if batteries go out of the UK, then also the automotive production will go out of the UK,” Jaguar Land Rover CEO Ralf Speth said at the time. Because batteries are so heavy, it makes sense for them to be manufactured next to where cars are assembled, notes Turner. Speth has called for a gigafactory – a factory to make batteries – to be built in the UK. Perhaps Bridgend or Ellesmere Port would like it.
But the UK government is lagging its European counterparts when it comes to encouraging electric vehicle takeup, says Bailey. “Government needs to think about how to encourage consumers to drive EVs and encourage firms to make EVs and batteries in the UK,” he says. “That means much more of a broad-based industrial policy than we have seen so far, encouraging investment in production as well as innovation, skills and the supply chain.” He also called for better infrastructure to encourage electric vehicle takeup, with SMMT echoing that with a call for more charging points and financial incentives to help create demand for such cars. Turner called for retraining for workers left behind by the death of combustion engines, as well as support through public procurement – the government should be buying electric. “There have been some good steps through the government’s sector deal for automotive but the funding involved has been peanuts compared to what is going on in the US, Germany and China,” says Bailey.
Accelerating the switch to electric could help avoid the community devastation that comes with massive job losses and slash emissions from combustion engines. It’s a win-win, for an industry that’s otherwise seeing nothing but losses.
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