JAMES BALL: Brexit will leave the UK’s car industry running out of road
PUBLISHED: 00:01 28 February 2018
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In his latest column JAMES BALL describes the fear stalking the UK car industry.
The UK’s automotive industry employs nearly one million people, from those in car-assembly plants, to those making components, repairing vehicles in local garages or selling them on the forecourt. And after being brought to the brink amid the 2007/8 financial crises, the industry is now often referred to as the jewel in the UK’s manufacturing crown.
It is also an industry as fine-tuned as the high-end sports cars it builds: components and electronics travel across the globe before finally being assembled, arriving just as needed, sometimes after crossing the UK border four times or more. Brexit risks making each one of those finely-honed processes fall apart.
The car industry will be affected by the decisions the government makes in dozens of ways, industry figures warn, and the consequences will be felt right through, from Britain’s steel industries to its consumers.
Nissan drew headlines early in the Brexit process when it expanded UK manufacturing after the decision was made to leave the EU, having reportedly been given secret assurances or guarantees as to its operations. But many other manufacturers have not had similar assurances, and the problems they face are manifold.
The most obvious problem, according to Tony Burke, the assistant general secretary of Unite the Union – who regularly meets with car manufacturers and government ministers – is tariffs and hold-ups at the border.
“It’s not just the finished car rolling off the production line, it’s the steel we make the bodies from, it’s the interiors, it’s the cockpit, the seats, the breaking systems,” he said.
“And increasingly these are reliant on imported components such as satnavs and electronics, and cyber technology that are brought in – could you imagine if there are big queues at the ports?”
Any Brexit deal which did not involve staying in the single market and customs union – or somehow getting EU agreement to keep frictionless borders – could hold up the travel of components coming into and out of the UK, which would quickly render many major manufacturers’ current supply chains untenable.
This would get worse for components that enter and leave the UK multiple times if tariffs were imposed. Burke noted some sophisticated car components made by the Birmingham-based manufacturer GKN crossed the channel up to five times before being assembled into a finished car. If these were charged tariffs of 4% leaving the UK, and 10% each time they returned into it, the increase in cost could ruin the entire business model – and until the UK and EU work out a deal, there is no way to formally assure the industry this won’t happen.
These issues help explain the uncharacteristically stark comments made by Japan’s ambassador to the UK outside Number 10 earlier this month, when he was asked about whether Japanese companies could leave the UK after Brexit. “If there is no profitability of continuing operations in the UK – not Japanese only – then no private company can continue operations. It is as simple as that,” ambassador Koji Tsuruoka said. “This is all high stakes that all of us, I think, need to keep in mind.”
Burke noted that many cars manufactured in the UK – for example, by Nissan – are made for sale into EU markets, and these can’t just be swapped and sold in the USA, where tastes in cars differ greatly.
“Nissan are a big exporter for some of their models, tariffs on those sales could be, say, 10%,” he said.
“That would add enormous amounts of cost to the units they sell into the EU – and they do sell them into the EU. They can’t just switch to America, the European market is the key.
“That is why Nissan was really, really concerned.”
The car industry is also set to be transformed by two major upheavals, both happening at the same time: self-driving cars, and electric vehicles. Both require not only huge investment from car companies in transforming their plants – and deciding where to make them – but also significant infrastructure investment into charging points, or working out ways to safely adopt self-driving cars on the UK’s road networks – work which is being left on the sidelines thanks to Brexit.
“What we’re arguing for very strongly is inward investment – our government needs to get moving very quickly on getting ready for electric vehicles and autonomous vehicles,” said Burke.
“The UK is behind Germany, who are far behind America and China. This will need massive investment – if those companies feel they don’t have a future in the UK, then they’re hardly likely to invest in those things here.”
These are only the most obvious of the UK industry’s problems – and they wouldn’t end if the UK got a free trade agreement, says David Bailey, professor of industry at Aston University. The EU single market and customs union allow countries to ignore complex ‘country of origin’ rules, which can make trade of complicated products much more difficult.
The rules are designed to stop countries avoiding tariffs through trickery – making sure that if the EU had tariffs on, say, televisions, China couldn’t just ship TVs to the UK post-Brexit, which then would claim they were made in the UK and avoid the tariff. To prevent these, manufacturers have to provide proof that at least 60% or so of the components that make the product came from the UK.
“At best, only 40% of the content of a British-made car comes from the UK, and of the rest around 75% of those parts come from the EU and so anything that affects that will have an impact,” Bailey explains.
“If we land a free-trade agreement, we’d have to up the locally-made content to around 55% or 60%. Our supply chain just isn’t geared up for that, and to do it would take a much deeper industrial strategy than we’ve seen so far from government, and it would be a huge task for the industry.”
In whatever deal the UK secured, Britain would also need to keep its regulatory rules closely aligned with the EU – with which the car industry supply chain is entirely entwined, as well as being the major export customer. This would mean even if the UK wanted to strike out on its own and divert from EU regulations concerning cars and vehicles, it could only do so by jeopardising its ability to make and sell cars.
The potential for misery for the car industry doesn’t end here: as a high-tech manufacturing sector, the industry needs workers with specialist skills to fill its vacancies, of which it had around 5,000 at the start of the year.
The sector is a major employer of apprentices, making it important to UK skills training, but also relies on the ability to take in migrant workers, with one analysis noting only around 12% of EU workers currently in the UK would meet the country’s criteria for non-EU workers. This means the car industry could join others facing a post-Brexit skills shortage, unless the government can be persuaded to make immigration rules more lax following Brexit.
Several firms need to make decisions about where they will build future car models during 2018 and have, so far, not been given the assurances and clarity they might need to commit to the UK. This has led to an unusually unified series of messages from companies, managers, workers and unions: this is not workers versus bosses, but rather everyone versus the government.
What they are calling for most frequently is more information and certainty – with the GMB, another union which represents workers in the automotive sector, calling on the government to publish the sector’s impact assessment in full.
“Whilst government may have given secret letters to Nissan, there are almost a million workers in the UK automotive industry and its supply chains who have been given no such assurances and GMB is concerned that those in power do not understand how this crucial industry works,” Justin Bowden, the union’s national secretary told The New European.
“GMB believes that ministers should publish in full the Brexit impact assessments for the automotive industry and sit down with unions and employers to plan the way forward.”
And there is one final headache: cars are one of the biggest purchases – other than a house – that most consumers will ever make, and in periods of economic uncertainty, people tend to keep their hands in their pockets. The direct consequence of that is a fall in sales (or slower growth) for car manufacturers, at a time when they’re already trying to manage dozens of other Brexit-related issues.
But it also highlights the way damage caused by Brexit in just one sector can ripple out across the whole of the UK economy. Losing a carmaker doesn’t just impact the thousands who work in one particular company. Instead, threats to the industry run right from the steelworkers producing steel to use in the chassis, to the workers making components which later end up in cars, to the manufacturers themselves, then on to the people making and selling them. And, if Brexit hits sales of new cars, even the banks who would lend the money to finance the purchases.
In the car industry, as in dozens of other sectors, everything is connected – but the people working in it every day are waiting for the government to notice, and time is running out.