Much ink and brainpower has been expended since June 2016 examining the potential impact that Brexit – and the many different types of Brexit on offer – would have on various industries across the UK. The Automotive industry has been at the heart of some of the debate’s most pitched battles, with some voices in the industry declaring that Brexit – and worse, a no-deal Brexit – would sound the death-knell for Britain’s last remaining manufacturing industry, with other parties insisting this is not the case.
Certainly, the impact so far has not been positive. In 2019 Nissan pulled its plans to produce the next X-Trail model at its plant in Sunderland in the North-East, while Honda confirmed last year that it will close its plant in Swindon from 2021. British manufacturers like Jaguar Land Rover have warned that it was becoming harder to ‘justify investment in the UK because of the uncertainty’ caused by Brexit.
As we move forward into 2021 and the new landscape of a ‘Brexited Britain’ perhaps now is the time to see if we can see more clearly the likely impact of Britain’s exit from the EU on car manufacturing, and examine some of the options for our beleaguered industry.
We can start by looking at what we know. Undoubtedly, manufacturing costs will go up as additional costs come into play. By agreeing a trade deal (as opposed to exiting without a deal and all trade operating on WTO rules), the anticipated 10% tariffs on import and export have not come into play. However, with additional duties, customs declarations, certification costs, etc manufacturers are still anticipating a 2.5 – 4.5% increase in the cost of producing a vehicle. Adrian Hallmark, Chair and CEO of Bentley anticipated that absorbing these charges would “cost about a quarter of global profits.” The alternative of passing these costs on to the consumer will have to be considered, but at the cost of the end product becoming more expensive. Disruption to supply chains from increased checks will also have a knock-on effect for a system that relies on ‘just in time’ delivery at every stage. It still seems likely that if vehicles can be manufactured more cheaply elsewhere – most likely in mainland Europe – the manufacturers will soon be under pressure from shareholders to move their operations.
The key benefit that the deal brings the automotive industry is time to adapt. With changes that are less dramatic, the decline of the industry may also slow. It offers a glimmer of hope, that, for example, decisions which have been held up by uncertainty – Nissan starting Qashqai production in 2021 in Sunderland, or PSA bringing their Astra assembly line to Ellesmere Port – may finally be decided. The deal also offers UK-based automotive businesses the time to adapt – be that adjusting supply chains, flexing business models, or developing new product lines.
Some businesses will be better placed to weather the storm than others. The UK has a strong tradition of manufacturing luxury and high-end vehicles. The likes of Bentley, Aston Martin, Maclaren, and Jaguar Land Rover will be better positioned to absorb the additional costs as well as having a client base willing (and able) to pay more for luxury goods. The challenge here is the size of that market – luxury items are by definition only available to niche audiences, and with the increased cost of exporting to Europe, they may find themselves with a large share of a small consumer base.
From a consumers’ perspective, the price of new vehicles will inevitably increase. Not a problem if you feel like investing in a luxury sports car, but more of a challenge for the average UK consumer. We believe this will open a gap in the market for an affordable, British-built electric family vehicle. The green economy is one area where with the right support, the British automotive industry could adapt and become world leaders. It seems there is some faith in this avenue – new firm BritishVolt has brought £3.6bn worth of investment to the UK, seeking to become a world leader in the battery industry, both in the manufacturing of Lithium-Ion batteries and developing new technology to service the needs of the green transport and renewable energy sectors. It offers a glimmer of hope that there is scope for the automotive industry to develop and grow despite the challenges posed by Brexit. Ingenuity, research, and development has long been a strength of British manufacturing, thanks in part to a strong academic base and this offers the chance to establish Britain as world-leaders in this growth area.
There is no doubt that there is a long, challenging road ahead for the 900,000 people and their families in the UK currently employed by the automotive industry, and industry bosses will have to work hard to ensure businesses remain effective and viable in the face of increased challenges and costs. However, if there is one thing the COVID-19 pandemic has taught us in 2020, it is that those businesses who dare to adapt are more likely to survive – and even thrive – than those which wait and hope for everything to ‘go back to normal’. It remains to be seen where the green shoots may come from for the automotive industry, but there is no doubt they will be somewhere to be found.
If you would like to discuss this article in more detail, the wider market and /or your people challenges and hiring plans for 2021, please feel free to contact John Begley, Managing Director, via
john.begley@normanbroadbent.com