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The “B” road

Brexit is already having an effect

By Christian Wolmar  

Only one Brexit outcome would truly satisfy Britain’s carmakers. Photo: MORTEN WATKINS/SOLENT NEWS/SHUTTERSTOCK

There’s a sense of panic developing among car manufacturers about Brexit. And about time too. If any industry should be expressing concern about its fate after we leave the EU, it is the automotive industry which employs 82,000 people in the UK and has a turnover of just under £5bn.

This is not “Project Fear.” The concerns are genuine and well-founded, and the only surprise is the length of time it has taken for them to surface. While behind the scenes meetings between ministers and car industry representatives have taken place regularly since the Brexit vote, the industrialists were, for a long time, reluctant to come out in public about their concerns. As one insider put it to me, “they seemed to be listening to us, but then didn’t act on what we told them and we would go back to talk to them, and they would reassure us.” Yet, all the while talk of a “no deal” Brexit was rife.

The complexity of the automotive industry means that any restrictions on frictionless trade would be extremely costly for the industry. Around 60 per cent of the components of any vehicle made in Britain come from abroad, and around three quarters of those are sourced in Europe. Many parts cross the Channel several times during the production process.

Paradoxically, at first there was some good news from the industry. Despite the referendum result, in October 2016 Nissan said that it would build two new models at its Sunderland plant. This announcement was so counter-intuitive that Jeremy Corbyn suggested that there had been a government deal about which ministers had to come clean but, although suspicions remain, no details of any arrangement have been made public. Giving concessions to an individual company over trading arrangements would, of course, not only breach EU but also WTO rules.

It was left to the likes of David Bailey, professor of industry at Aston University and an expert on the car industry, to sound the warning. He wrote in the New Statesman in December 2017 that “no deal in this sector would constitute a bad deal by default, raising serious questions about the future viability of several more UK car plants.” He added: “if the UK really does want to trade without tariffs and non-tariff barriers in sectors like auto, then the EU may well extract a ‘price’ in the form of a contribution to the EU budget, as it does from Norway and Switzerland.”

Partly, the reluctance of the automotive industry to express concerns over Brexit was the fact that it had a series of other issues to contend with, notably the continued fall-out over the Volkswagen emission scandal, the structural over-capacity in production facilities across the world and the vast investments being made in autonomous vehicles which show no sign of earning any return. As a result, cutbacks and closures continue apace and Britain is seen as an easy target because of its lax employment laws that make it cheaper for the big car companies to close a plant in this country than elsewhere.

The lack of a British owned major manufacturer also increases the vulnerability of domestic plants to decisions made in France, Germany, Japan or the US. For example, following the 2017 takeover of Vauxhall by the French Groupe PSA (Peugeot) jobs have already gone at Ellesmere Port on Merseyside even though it is more efficient than its counterparts in France. Its survival post-2021—when current commitments to produce the Astra run out—remains in doubt.

However, the imminence of Brexit led to a change in approach in September when a co-ordinated campaign was launched. First, Ralph Speth, the boss of Jaguar Land Rover warned that a hard Brexit would have a devastating effect which could “cost the company more than £1.2bn a year,” adding that “any friction at the border
puts business at jeopardy.”

This was quickly followed by Honda which gave details of its production process, highlighting the risks of any disruption. Ian Howells, the European head of Honda, warned: “We’d probably be looking at 60,000-odd additional bits of documentation we’d have to provide to get product to and from Europe. If we end up with WTO tariffs, we’d have something like 10 per cent of costs in addition on products shipped back into Europe and that would certainly run into tens of millions.” Finally, that same week, the industry body, the Society of Motor Traders and Manufacturers, waded in saying that the government should rule out a no deal Brexit. “No deal” would undermine the industry’s ability to operate and cannot be an option,” it said in a statement and has launched a “Brexit Readiness Programme” to help smaller companies in the industry cope with the complexities arising from Brexit, whether a deal is reached or not.

Although the public rhetoric from the industry has stepped up a notch, it is still far weaker than what the companies are prepared to say privately. In truth, there is only one outcome that will satisfy them which is, of course, to remain part of the European Union.

It is strange that as with many other industrialists, if they were prepared to be more courageous and make their case dramatically in public, the result they desire might actually come about.

 

Christian Wolmar is the author of “Driverless cars: on a road to nowhere” published by London Partnership Publishing

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