SMMT: ‘No-deal Brexit catastrophic for British car industry’
The Society of Motor Manufacturers and Traders of Great-Britain sounds the alarm bell: “A no deal Brexit would be catastrophic for the British car industry”, confirms Mike Hawes, CEO at SMMT.
Prime Minister May has been sent to Europe again by her Parliament to renegotiate the Brexit deal, but the appetite to do so in Europe is very low and the clock is ticking. If in 55 days there is no coordinated scheme for the UK to step out, many people expect chaos.
The happy years are gone
The years before the Brexit referendum (2016), the British car industry was in full progress. In 2015 car manufacturers invested 2,8 billion euro in the car industry. In 2016 it fell back to 1,6 billion, in 2017 it was 1,1 billion and last year it was 0,6 billion.
“The manufacturers pushed the pause button”, says Hawes, but there is worse to come. Everybody is preparing for a ‘no deal’. Jaguar Land Rover announced it will shut down for a week and BMW will close its MINI and Rolls Royce factories temporarily in April. They will do the annual maintenance earlier (usually done in summer).
Stocks at a cost
By doing so, they hope to avoid the most chaotic period just after the 29th of March when long waiting queues are expected and delivery of parts will be very difficult. Other manufacturers have speeded up production to do as much as possible before the end of March. All are building up stocks instead of functioning just-in-time.
Of course, all these preparations cost a lot of money. Ford has already announced that a no-deal Brexit would cost the company 700 million euro. Others still struggle with the possible consequences. “Honda has calculated that if it wants one week of stock they’ll have to build the third biggest storage on the planet”, says Hawes.
The British car industry has become the symbol of the whole industry, which would loose a lot due to Brexit. At the moment, 80% of British car industry production is exported and 50% goes directly to the EU. Another 16% ships to countries that have free trade deals with the EU.
Apart from that, almost every factory works on a just-in-time scheme. Most parts for the factories arrive from all over Europe in a lean supply chain. Every day 1.100 trucks arrive in the UK. Border controls would seriously obstruct this complicated mechanism.
Brexiteers accuse the car industry to create unnecessary fear by exaggerating the problems. The answer of Mike Hawes is clear: “No, we are talking reality, look at our figures and statistics.”
After the booming years in 2015 and 2016, business has already become more difficult. Automotive production has receded 9,1% in 2018 to 1,5 million vehicles. Part of this can be explained by the demise of the diesel and the slowing down of the Chinese market (especially important for Jaguar Land Rover).
One hopeful tendency
There is one hopeful tendency: the demand for cars produced in the UK (at the moment) has risen in certain countries, like Japan (+26%), South-Korea (23,5%), Russia (10,3%) and the States (+5,3%).
But the customer is getting nervous too and becomes more prudent before deciding to buy. This uncertainty has already caused Jaguar Land Rover to announce a 4.500 employees cut in January.
At the moment there is no decision yet to close plants and move out of the UK. Mike Hawes: “The situation is too uncertain now. You don’t move a whole factory just like that. The scenario which is worrying us most, is a sort of slow erosion of things, with too low investments for years.” In the end that could effectively result in the closing of factories.