No-Deal Brexit could mean ‘Carmageddon’ for UK Auto

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Professor David Bailey 
Birmingham Business School
ESRC UK in a Changing Europe Senior Fellow

 

UK auto output slumped by almost a half in April as firms shut down plants in case of a No Deal Brexit that didn’t come, leading to renewed warnings from the industry over the damage being caused by Brexit uncertainty.

That Brexit uncertainty is also damaging investment in the UK auto industry; the very real danger is that the longer uncertainty goes on, investment in new technologies in UK will be lost.  And there are calls for the government’s industrial strategy, which is all about building electric vehicles, to be rethought in the wake of the Honda decision to shut its UK plant.

Downturn in the UK auto industry

So far this year, Nissan has reversed its 2016 decision to assemble the X-Trail SUV in Sunderland, Ford is looking at alternative options to the UK for engine production in case of a No-Deal Brexit,  Jaguar Land Rover has announced 4,500 job losses plus a ₤3.6bn loss, and Honda has said it is ending UK production.

In total, we’ve seen over 10,000 job losses announced by big auto players over the last year, and that’s before we consider the impact on the supply chain. Factor in the latter, and we’re looking at 5-10% of UK auto assembly and components jobs having being lost over the last year. 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 – plus the need to invest in new technology going forward.

Investment in UK auto has stalled and is down by 80% in the last three years according to the Society of Motor Manufacturers and Traders (SMMT), as auto firms sit on their hands given the undetermined outcome of Brexit. Honda’s recent confirmation that it will close its UK assembly and engine plant in Swindon adds to a growing sense of crisis in the UK auto industry.

Of course, the Honda closure decision is related to a mix of factors, including the new EU-Japan trade deal  – which means that Honda can make cars more easily in Japan and export them to the EU – and Honda’s own poor European performance.

Despite what Honda has said in public recently, the company itself warned at a Business Select Committee hearing last year that a hard Brexit posed big risks for the firm’s Swindon operations in terms of tariffs, non-tariff barriers, customs delays and bureaucracy.

The future of UK auto production

From the Japanese point of view, there has been a breach of trust. It’s worth recalling that the big Japanese investors came to the UK when Margaret Thatcher offered them the UK as a launch pad into Europe. Now that deal has been ripped up, Japanese auto assemblers no longer feel obliged to stick to the agreement.

Next up on big investment decisions amongst the Japanese players is Toyota, which began new Corolla production last year at its plant in Burnaston, Derbyshire (an investment decision which goes back before the 2016 Referendum). Like Honda, the plant has been operating below capacity in recent years, and there are big question marks over its future when production of the current Corolla ends in 2024. It’s worth noting that Toyota will have another EU option by then. From 2021 it will take complete control of a plant in the Czech Republic which has so far been used as joint venture with Peugeot Citroen.

Nissan, meanwhile, has committed further into the future at its UK operations. Its Sunderland plant made over 440,000 cars last year. The firm has already planned for a new small SUV – the Juke – to be made there this year along with the new Qashqai from 2020.The latter is pivotal for the plant as it’s the most produced and exported car in the UK and enables the firm to produce at high volume and low cost.

While Sunderland’s scale and efficiency count in its favour, Renault-Nissan has plenty of other production options in France and Spain.

Adding to the concerns around the UK auto industry, there are big investment decisions looming at both Jaguar Land Rover and Peugeot over their Vauxhall brand at Ellesmere Port, where the Astra ends production in 2021.

Repercussions of a no-deal Brexit on UK auto

In our recent book Keeping the Wheel on the Road: UK Auto post Brexit, Ian Henry of AutoAnalysis forecasts a short-term production hit from a No-Deal of at least 175,000 cars a year (that’s not including the Honda closure). Henry notes that in the longer run, that would be much worse as investment in new models in the UK would be lost, a point also explored in our book by Justin Cox and David Oakley of LMC Automotive.

They stress that if decisions on where to build new models go against the UK under a No deal scenario then annual UK auto production could be over 500,000 units lower in the second half of the next decade than under a managed, orderly Brexit Deal.

In short, the stakes for UK auto from ongoing Brexit uncertainty are very high indeed, just at a time when the industry is starting to transform itself towards an electric future. The UK risks losing a wave of investment, and with it, a raft of new technologies.


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