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Brexit steers UK cars into unknown territory

 peter Campbell and kana inagaki | financial times | 14 july 2016

Walking the length of Nissan’s car plant in Sunderland takes substantially longer than it did a year ago.

A £250m expansion of the site — already the UK’s largest car assembly line — introduced a new wing that enables the factory to make luxury saloons sold under the Japanese carmaker’s Infiniti brand. Nissan said in December that the investment heralded a “new chapter” for the plant.

Now, however, the factory is one of several in the UK that face an uncertain future following Britain’s vote last month to leave the EU.

Some car industry executives have expressed concerns that if the UK struggles to retain good access to the EU single market after Brexit, then British car plants risk becoming uncompetitive, leading to lost work on refreshed models and, in time, possible closure.

A senior manager at one UK car plant, speaking on the condition of anonymity, says: "At the point when we need the next round of investment, if we can't compete and if the British government doesn't help us then I will be very, very worried [about the future of the factory]. We're a global company, we have to make a decision that makes economic sense."

The UK car industry - which employs 800,000 people - has enjoyed an extraordinary renaissance in the last two decades, following major investment by overseas automobile makers.

Much of that investment was premised on the UK's membership of the EU - under the single market arrangements, overseas carmakers dispatch their UK-made vehicles for sale on the continent without incurring tariffs.

New prime minister Theresa May faces the tricky task of trying to maximise UK access to the single market in forthcoming negotiations with the EU, while also seeking to control immigration by curbing free movement of people.

Two big challenges posed by Brexit for overseas carmakers with UK plants are flagged in a new report by PA Consulting.

First, a period of uncertainty during talks between the UK and the EU over Brexit - the formal negotiations may not start until 2017, and could last two years - may prompt these carmakers to place important work on model upgrades with their operations elsewhere in the world.

Second, that if the UK's access to the EU single market after Brexit is deemed to be inadequate by these carmakers, then some of their UK factories could ultimately close because they would be uncompetitive.

Not everyone is fearful about the future of the British car industry. Stephen Booth, a director of the Open Europe think-tank, predicts there will be a tariff-free trade agreement between the UK and the EU after Brexit.

"Given that it's likely that the UK will have tariff free access we would expect the UK car industry to cope over the long term," he says.

The PA report argues that of the British plants owned by overseas carmakers, those operated by Japanese companies - Honda, Toyota and Nissan - are at greatest risk of eventual closure if the factories become uneconomic after Brexit.

Managing through the Brexit automotive sector - report July 2016


UK car factories face uncertain future – post Brexit research on the carmakers most likely to leave the UK


download report



The three companies' factories, which PA says have a "high reliance on exports to Europe and relatively low margins", account for roughly half the vehicles made in the UK.

Tim Lawrence, head of manufacturing at PA, says Honda and Toyota have struggled to extract meaningful profits from their UK operations since the late 1980s because the plants are running at low capacity, reflecting how the factories are making some of the companies' less popular vehicles. 

Honda's Swindon site will become the global manufacturing hub for the five-door Civic car in 2017, but within three years the company must take a long-term decision about whether to renew this or move the work elsewhere.

Ian Howells, a director of Honda in Europe, says the Swindon plant "plays an important role in our global manufacturing operation". "Honda remains committed to its manufacturing activity in the UK," he adds.

Toyota is unlikely to make any new investment in the UK until there is clarity on tariffs with the EU, says one person close to the company.

Johan van Zyl, head of Toyota's European business, said after the Brexit vote that the long-term future of its two UK plants was dependent on the outcome of trade negotiations with the EU, although he stressed the company was "committed" to Britain.

Toyota officials say it is premature to discuss the possibility of the company moving production outside the UK, with some hoping Britain can reach a compromise with the EU that would keep the status quo mostly intact.

PA meanwhile highlights how Nissan has the option to shift work from its Sunderland plant to factories in continental Europe run by its global alliance partner Renault, and that this move may become attractive following Brexit.

Arnaud Deboeuf, a director of the Renault-Nissan Alliance, says the Sunderland plant "is key for Nissan in Europe with the production of [the] Qashqai [SUV] and the production of Juke [a compact SUV], so in the short term there will be no impact".

The Vauxhall plant in the UK, owned by General Motors' European arm Opel, is less likely to close than those British factories operated by Japanese carmakers, according to PA.

However, PA says the lack of certainty about tariffs places a "question mark" over the Vauxhall plant's future.

Vauxhall says the company "fully supports [the UK] remaining part of the European Economic Area" and wants to see trade negotiations "concluded in a timely manner".

PA also places a question mark over the future of BMW's Mini plant in the UK, but says the company will face a strong pull to retain the factory because of its British heritage.

BMW says there will be "no immediate change to our operations in the UK" but that it "will not speculate about the outcome of these [Brexit] negotiations".

Jaguar Land Rover, the UK's largest carmaker with 40,000 staff and owned by India's Tata Group, will stay in Britain, predicts PA.

Adrian Hallmark, JLR strategy director, said this month the company was "committed to Britain, and will stand by that decision". 


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