Days of future past?

Andrew Marsh considers the future of UK-based vehicle manufacturing, suppliers and the impact on the aftermarket in the UK towards 2025

Published:  31 July, 2019

Some of us remember the 1970s, where the prevailing feeling was that automotive sophistication usually came from abroad unless one spent a huge amount of cash, that our industry was led mainly by endlessly upset activists, and that our biggest vehicle manufacturer – ‘British Leyland‘ at some point – represented what the UK was all about. This was for the most part utter rubbish.
Of course, much of the above does not stand close scrutiny, but it is true that British Leyland kept giving Fleet Street a continuous supply of headlines which money simply could not buy. Red Robbo, for example was an odd man, who sincerely believed in his cause and did not apparently connect that disruptive work patterns simply made poor manufacturing processes (the cause of the dispute) much, much worse. Who could forget the geniuses who placed a brand-new manufacturing line at Cowley (now called ‘Oxford’ by the present occupiers) where the established time for people to work underneath vehicles was gloriously exceeded? Or the star who invested in the Rover 800 based on volumes of 400,000 units, yet failed to sell a fraction of that even with a facelift? Or that the very same star would later arrive to drive the rump of British Leyland (MG Rover) into the ground?
It has taken decades to shake off the implosion of UK automotive manufacturing, even though in reality the companies that needed to shape up or fail were mostly shaping up. Our national preoccupation with failure seemed to eclipse the success of the UK building 1.6 million vehicles and more than 2.7 million powertrains in 2018, even though it did take quite a few years to build those volumes back up.    
Behind vehicle manufacturing is a series of suppliers, and suppliers to those suppliers. When vehicle manufacturing disappears from a country – or in the case of many – was never present, the aftermarket becomes 100% reliant on imported components, as well as vital expertise. We need to be aware of what is happening in vehicle manufacturing even though the changes in manufacturing take place over several years.

Brexit and deals
Much is made of the uncertainty around Brexit.  Some of that is very real, but as Her Majesty’s Government knows full well the impact may be mostly concentrated on taxation. Those who remember past events will recall, the government can impose new tax levels or even new forms of tax at lightning speed. Effectively ‘such is life’.
The Brexit ‘negotiations’ have taken against a backdrop of significant international financial instability, namely the USA’s insane debt bubble and the combination of China’s vast debt bubble combined with significant over extended state investment. You can add to this potent mix long-standing internal company issues. Nissan, for example, really do not like to be reminded that they exist today thanks to the investment and technology from Renault.

Anarchy in the UK
For fans of anarchy, we seem to have apparent utter anarchy. There were three important developments.

  1. The China consumer market for relatively small numbers of high-price SUVs imploded overnight, thanks to tightening of credit control from central government and imposition of new taxes. Remember, small quantities of luxury SUVs is relative to the whole new car market in China, and such volume are very significant to vehicle manufacturers exporting into China. JLR was badly exposed to this risk
  2. The economic slow-down in the USA may be masked by endlessly printing money, but the reality is an increase in available new vehicle stock. Again, this hurts high-margin luxury vehicle sales
  3. The European Union managed to complete a long-standing negotiation with Japan, to end specific taxation on vehicles imported to the EU by vehicle manufacturers headquartered in Japan.

Set alongside this, we know that the UK had more investment and manufacturing capacity from Japan headquartered vehicle manufacturers than any of the other 27 member states. So, in Euro-economic terms, reducing the specific import tax burden targeted at vehicle made by Japan headquartered vehicle manufacturers made little difference to most of the other 27 EU member state, compounded by the fact that the state most affected would be leaving the EU anyway.
There are three Japanese car assembly plants operated in the UK. They represent the lion’s share of the UK manufacturing output, roughly north of one million units per year.
 Toyota Burnaston: During the depths of the 2007 financial crisis, the company bent over backwards to keep the plant ticking over, but the products it builds are not in high demand and can be sourced from other plants around the world. Toyota have not declared their position for Burnaston or Deeside (which makes engines)
Nissan Sunderland: The jewel in the crown, accounting for around 500,000 vehicles per year. However, investment in EV production has been a dead end, the plant is quite old and to keep it in contention with other plants around the world it needs huge investment. Add to that the spat with Renault and the outlook does not look great
Honda Swindon: Once upon a time this was a highly productive plant making vehicles in demand not only in the UK but in Europe too. A series of odd product decisions, poor company-wide financial health and establishment in the public’s mind that ‘Hondas are for old people’, even though the products work well, led to market collapse. Add to this the plant has been under-invested for years, so needs major investment. We now know what Honda decided to do.

JLR, having been far too over reliant on selling expensive barges to China, failing to roll out PHEV technology fast enough, and failing to incorporate modular construction in a scatter-gun product technology portfolio, are vulnerable. The parent company, having lost more than £1 billion each year it has owned the company, is apparently suffering from deep pockets with short arms syndrome. Help from Tata is not arriving any time soon. That’s means close to 400,000 vehicles built in the UK are at some risk.

Sober message
I really hope I’m wrong, but we might see more vehicle manufacturers leave the UK in the next five years, even if we remain inside the EU. Brexit is not the main reason. Economics is the main reason.

Meanwhile our sector, made up of internationally owned divisions such as Bentley,  Rolls-Royce or Mini, along with a gaggle of manufacturers ranging from Aerial to JCB, continue to be successful thanks in no small part to hard work. The UK remains the centre of many, many motorsport activities too.

This is a sober message. We can become accustomed to the existence of vehicle manufacturing and their supplier base as if it is an entitlement, but the reality is just like any business,  economics prevail. If the vehicle manufacturing base does gracefully collapse, then many suppliers will move away or cease to exist.

Let us in the aftermarket not forget. Regardless of where a vehicle is made, we are in the driving seat for most of the vehicle’s life after initial creation. We just need to be aware of activities and consequences from other parts of the industry.

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