What does Brexit mean for the UK car Industry?

In the last few years the UK automotive manufacturing industry has been labelled ‘the star industry’ in the UK economy having grown considerably in the past decade. But does the impending triggering of Article 50 risk the motoring industry suffering the same destiny as the ill fated BMC (British Motor Cooperation) as in the late 1980’s?

If you were to glance at a simple list of all the individual car manufacturers and part suppliers based in the UK you may feel we have little to fear, after all the most prestigious brands like Rolls Royce, Jaguar and Aston Martin are world renowned with massive sales in Asia and an increasing presence in the Indian markets. However, at a closer glance it is obvious how multilayered and dependent the British car industry is on international investment.

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Take the Jaguar/Land rover group for example, most of the company’s assets belong to the Indian based TATA motors group. This is also the case for Lotus, with the Hethel based company being owned by Malaysia brand Proton. The risk is as Britain’s relationship with the EU becomes inevitably more complicated, and potentially less competitive to full EU member states, the benefits for the overseas companies owning the brands decline.

It is not just exclusive brands that depend on foreign investment. Both of the UK’s most productive car manufacturing facilities, Sunderland based Nissan and Vauxhall in Ellesmere are all part of big multinational co-operations.  The Nissan plant was reassured of continued investment by Nissans headquarters in Tokyo with 2 new models; the Qashqai and the X-Trail to be built in the north east from 2017. However, dig a little deeper and you discover that the ‘New Qashqui’ is only a facelifted version which will require very little new tooling in the Sunderland plant. Also the brand new X trail isn’t due for a full 12 months. It seems that despite the government claiming ‘Nissan is committed to UK investment’ Nissan themselves understandably still have doubts over the upcoming trade negations and have opted to sit on their hands until it becomes clear what the real Brexit plan is, and crucially if the UK is going to stay in the single market.

However, there is even further uncertainty beyond Nissan. If mainstream media is to be believed, then the Nissan plant was the only real ‘risk’ of Brexit. But if previous stories are anything to go by then potentially it is the General Motors owned Vauxhall factories of Luton and Ellesmere Port that are in real danger. Back in 2011 the Swedish car firm Saab owned by GM went bust ,admittedly due to very different factors potentially faced by Vauxhall, but nevertheless the Detroit giants of GM pulled the plug due to Saab having a poor bankroll history. All this suggests that if Vauxhall were to have financial difficulties in the future then GM could have a repeat of the Saab style downfall. This is particularly unnerving when you realise that Vauxhall’s sister brand, Opel based in Russelsheim Germany produces rebadged Vauxhall models for the European market at a much more efficient rate. This means Vauxhall is purely a British sold brand with no overseas markets. So should the currently stable UK market significantly decline (unlikely but in the face of a hard recession still possible) then GM could cut its ownership of Vauxhall leaving the brand with an uncertain future.saab9506112_794_529_70

Perhaps the most present threat to the UK car industry is the potential introduction of trade tariffs if Britain were to pull out of the single market. This could put the UK at a significant disadvantage to the rest of the European Union’s plethora of mainland European car manufacturers. Companies like Milan based Fiat and Cologne based Ford will continue to have access to one of the biggest economic trading blocks in Europe, and in the immediate aftermath of Brexit, Britain will immediately loose it’s credibility as a sound economic foundation from which to build and export cars.

For sure Brexiteers will immediately claim ‘Europe needs us more than we need them’. The problem is if Britain fails to briskly reaffirm strong trade links with vitally important countries like Germany, then the assumption that Europe ‘needs’ the UK could be extinguished. This is because large scale manufacturers like the big 3 German automakers of Audi, BMW and Mercedes who currently enjoy large sales figures in the UK, may only change their sales ambitions and plans to have more emphasis across mainland Europe; a preferred option to battling against an uncompetitive trading market that the UK could end up lumbered with.  And as for the UK raising its own import tax to boost growth in retaliation to the EU tariffs, it will only push the prices of the imported car market even higher.

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To add to this there is one obscure but potentially chaotic pending issue– the law restrictions/ requirements cars need to meet to be sold within the UK. At present the UK enjoys a relatively hassle free system called ‘Euro’ regulations, where cars are rated 1 to 6 in Euro ratings for efficiency;  6 being the newsiest and greenest set of regulations. However, were Britain to pull out of this set of legislation and the government to follow an opportunistic line of rhetoric to state Britain is ‘a greener nation than Europe’ then a completely new set of legal requirements for new car imports could be implemented.

This, in a worst case scenario, could mean the UK ends up with a similar set of regulations like America, and by similar I mean totally different to the rest of Europe. In America’s case the legal requirements a new car must meet are so subtlety different many car manufacturers do not even bother to sell in the American market, for example the PSA Peugeot/ Citroen group. Changing the legal requirements to introduce a new car in Britain would be disastrous considering our biggest car importers are mainly European. Even Japanese brands like Honda and Toyota and state owned Korean brands Kia/Hyundai conform to Euro emissions standards as it is considered the most applicable set of regulations. It would only be for political gain and following an anti Europe ‘Bring back control’ agenda for Britain to blatantly remove itself from the greenest and most widely used set of new car legislation

 

It is not just the sales revenue that keep the UK motor Industry alive, some of the best brains behind the latest new models and in particular some of Britain’s world beating motorsport and research programs are EU nationals. For example, a number of the engineers and technicians in Oxford’s motorsport valley (where F1 teams like Force India and Williams are based) are from overseas. Certainly all major research and motorsport projects hugely benefit from the access to EU funding and engineers. It, therefore, looks doubtful Britain will be able to retain its reputation as a nation for world class automotive research and development if so much knowledge is sourced and brought in from the EU.

 

Therefore all this EU derived skill and source of knowledge along with essential investment leads to the realisation that Britain cannot simple hark back to the 1950’s where British car manufacturers were fully independent or state owned. It only requires a brief glance at the vast amount of overseas ownership and investment from foreign companies to realise that Britain requires the free trading block of the single market (from where the majority of sales originate ) to make British car firms attractive to shareholders and the big multinational owners. This in essence keeps the British car manufacturing business stable and secure. If the British government fails to recognise why the UK motor industry is currently stable and growing, they could all too easily cause limitless collateral damage to British car manufacturing by pursuing a more narrow minded view of Brexit.

 

Image source: guardian, google.

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