Brexit isn’t done: What next for the UK’s car industry?

The automotive sector is concerned about complete collapse.

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“These things happen.”

Leaning back in his seat, arms casually hooked over the chairs either side of him, economics professor Patrick Minford of Cardiff Business School shrugged at the room of MPs in a Foreign Affairs select committee hearing on the future of the European Union in 2012. He had just advocated the death of the UK’s car industry.

Rory Stewart, then just a little-known Tory backbench MP, was asking the avowed eurosceptic academic if leaving the EU customs union would mean “the collapse of the entire UK car industry”.

“You are going to have to run it down,” the professor replied. “It will be in your interests to do it, just as in the same way we ran down the coal and steel industries. These things happen as evolution takes place in your economy. In the long run they are in your interest…”

Four years later, in the build-up to the EU referendum and as a key member of the Economists for Brexit lobby group, Minford wrote in The Sun in March 2016:

“Over time, if we left the EU, it seems likely that we would mostly eliminate manufacturing, leaving mainly industries such as design, marketing and hi-tech. But this shouldn’t scare us.”

But scare us it does.

Over the years since the EU referendum result, there has been an avalanche of bad news stories regarding the UK car industry: job losses, plant closures, share slumps, profit warnings, cutbacks on investment, production of new models relocated abroad.

In January this year, Britain’s biggest carmaker Jaguar Land Rover revealed that 500 jobs are at risk at its Halewood factory near Liverpool. The company had already announced cuts to 1,000 jobs at its Solihull plant in the West Midlands in 2018. An update of the Land Rover Defender will be built in Slovakia over the UK, its manufacturer confirmed last July – following the decision to relocate the construction of the Discovery model to Slovakia the previous year.

Despite Nissan’s secret offer in 2016 from Theresa May of up to £80m state aid to coax it into building future generations of two models at its Sunderland plant, the Japanese carmaker decided against building the X-Trail there last February, citing Brexit. Last March, it announced ceasing production of the Infiniti model at Sunderland, and it warned last October that it could drop its production of the Qashqai in the UK in the case of no deal.

This has been a big blow to the northeast; Sunderland’s Nissan plant is the biggest factory in the history of the UK car industry, exporting more than half of its production to EU countries.

Last February, Honda confirmed the closure of its Swindon plant in the southwest, with the loss of about 3,500 jobs, and Ford is set to close its factory in Bridgend, south Wales, in September this year with the loss of 1,700 jobs.

Jobs at the Vauxhall plant in Ellesmere Port have hung in the balance ever since its owner threatened to pull all production in the Cheshire factory last July if Brexit were to make the conditions too difficult.

In September last year, Northern Ireland’s bus maker Wrightbus (the company behind the new Routemaster buses brought into London by Boris Johnson as Mayor) fell into administration, resulting in 1,200 redundancies.

Last November, Tesla boss Elon Musk cited Brexit as a factor in his company’s decision to build its first European factory in Germany rather than Britain.

Following a boom in the first half of the decade, the British car industry has witnessed its worst period of decline since 2001, according to the Society of Motor Manufacturers and Traders. This is longer than the 13-month slump during the global financial crash of 2008-9. British car manufacturing dropped 14 per cent year-on-year in March last year.

Brexit is just one factor, however. A fall in demand from China, carbon emission standards, a shift away from diesel, a move to electric vehicles, and the new EU-Japan trade deal are all reshaping the European car market.

This has created a “perfect storm”, in the words of automotive industry expert Professor David Bailey, of the Birmingham Business School and UK in a Changing Europe senior fellow for the Economic and Social Research Council.

Brexit’s impact, he tells me, is its uncertainty – hitting car sales and reducing investment in the industry.

“Individuals and companies will hold off on big-ticket expenditure when faced with a lot of uncertainty,” he says.

“The longer that stalling in investment goes on, the more we lose the new technologies that are coming, and that potentially undermines the competitive state of the industry.”

The car manufacturing sector employs 168,000 people in the UK (which rises to 800,000 when you add all the jobs in related industries), and is responsible for 12.8 per cent of the UK’s goods exports.

The industry contributed £16.6bn to the economy in 2018 – 1 per cent of total UK output, and 8 per cent of the UK manufacturing sector’s output. In 2018, 83 per cent of the UK’s motor vehicle manufacturing imports came from the EU, while 43 per cent of export went to the EU.

In terms of the upcoming negotiations with the EU, the industry wants the UK to have as close a relationship as it does now.

“Ideally, it wants to stay inside the customs union, to avoid customs delays,” says Bailey. “It wants to stay as close as possible to the European market, so ideally it would want to see some sort of sectoral deal for the industry.”

This would be a tariff-free deal, because the 10 per cent tariffs on imports and exports in the event of no deal would “have a huge impact on the industry in the UK”. The industry would also like it to mean “preferential treatment as components and cars cross the border”, according to Bailey. This would, ideally, all be stated in a formal and binding agreement with the EU.

“It [the industry] also wants to stay in the single market with regulatory alignment – this is something the industry’s been saying vocally,” says Bailey. “The more regulatory de-alignment there is, the more likely it is that there will be checks on products coming in and out.”

This is so important because of the complicated “just in time” system for importing car parts and components – they arrive in the UK when, and in the order in which, they’re required.

Delays at the border would make the running of this supply chain more difficult; car companies in the UK would probably have to start stockpiling parts, which would add to costs and make the UK a less attractive place to build cars.

“A two-minute stop for ever JLR [Jaguar Land Rover] wagon that comes into the country causes a 32-hour delay over a couple of days,” says Des Quinn, a Unite union national officer for the automotive sector. “When you’re working just-in-time, if a part’s not there, the production lines stop and it’s just too late.”

He calls for as much alignment and as little bureaucracy as possible when the UK begins negotiating with the EU this year: “In terms of Brexit, they [the government] certainly don’t get that what we’ve got now is the ideal, and anything less than that is a difficulty to the automotive sector and potentially harms jobs.”

But with the Chancellor Sajid Javid’s comments earlier this year that the UK will diverge from EU rules, it looks like the sector won’t get what it wants.

In the event of no deal at all (whereby the UK fails to reach any agreement on its future relationship with the EU by its deadline of December 2020), Bailey warns that the “mass industry will effectively disappear in the UK”.

Alternatively, if there is what he calls a “bare bones deal that just eliminates tariffs”, the crucial questions of customs delays and regulatory differences remain.

Hundreds of thousands of people’s livelihoods are also at stake. The car industry is important in terms of good quality jobs, as well as exports and productivity. After tracking the future of the 6,000 MG Rover workers who lost their jobs when Birmingham’s Longbridge plant went into administration in 2005, Bailey found them “in many cases going into low-pay retail”.

“Large car factories employ large amounts of people,” says Quinn. “You only have to look at the former mining areas and look at the state they’re in due to Thatcher, and it could be the same with Boris Johnson if he gets this wrong. He’ll never be forgiven for it.”

This piece is part of the New Stateman's Brexit isn't Done series.

Anoosh Chakelian is the New Statesman’s Britain editor.