April 21, 2021

The Brexit leaves idle cars 'made in Britain' | Economy

The Brexit leaves idle cars 'made in Britain' | Economy

The British automobile is experiencing an unprecedented crisis due to uncertainty created by the Brexit. In 2018, the production of vehicles plummeted by 9.1%, exports to the rest of the European Union fell by 9.6% and, what is far more significant, investments in new projects sank by 46%, according to the data disclosed by the SMMT (acronym in English of the Society of Producers and Sellers of Automobiles), an organization that represents practically all of the sector.

In the opinion of Mike Hawes, CEO of the SMMT, "it would be catastrophic" for the UK to leave the European Union without any agreement. The automotive sector, whose production system is deeply linked to the continent, has always opposed Brexit, but now faces, in addition, the nightmare of a disorderly march that threatens to paralyze in just a few days the assembly lines, which work synchronized with the continental suppliers.

80% of the components used come from the EU; 65% of the components manufactured in the United Kingdom are exported to the EU; almost 55% of the vehicles assembled each year are exported to the EU market (two thirds, if the countries with which the EU has trade agreements are included) and almost 80% of the vehicles registered each year in the United Kingdom come from the EU. "I think it was Honda who did a study to accumulate components for a week of production, but it would have needed a warehouse so bulky that it would be the third largest building on earth," Hawes explained days ago, at the presentation in London of the annual report of the sector.

The transboundary movement is very intense. Every day, 1,100 trucks from the EU enter the United Kingdom with vehicles or components, 1,300 cars and 4,700 engines arrive every day and 6,400 cars and 10,500 engines go to Europe.

The uncertainty that the sector is experiencing Since the referendum in June 2016, when the British opted to leave the EU, it is mainly reflected in the collapse of the investment figures. In 2015 it exceeded 2,500 million pounds (2,850 million euros); at the end of 2016 it was reduced to 1,660 million, in 2017 it was 1,100 million and in 2018 it was 590 million pounds, according to the data calculated by the SMMT according to the decisions of investment in factories and plants publicly announced by the manufacturers .

"Leaving the EU without any agreement would be catastrophic because it would undermine our competitiveness. Adhering to the rules of the World Trade Organization we would add a cost of 5,000 million pounds on the invoice of the United Kingdom trade with the EU and the average cost of each car sold in the United Kingdom would increase by 1,500 pounds, an additional cost that manufacturers would move consumers. Inevitably, that would affect demand, portability and employment, "warns Hawes.

Not all the problems in the sector are due to Brexit. The fall of the market is also driven by uncertainty about the future of diesel, the fall in confidence in companies and consumers or the contractions of consumption in China. But the Brexit is a fundamental factor because the sector needs trade without border barriers and long-term certainty about the rules of the game to plan their investments. None of that is guaranteed in the immediate future.

That explains Nissan's resignation to manufacture in his plant of Sunderland, in the northeast of England, the new model of the SUV X-Trail, thus giving reverse gear to the commitment that acquired in 2016 with the British Government. The decision has a lot to do with the diesel crisis, which has made the project rethink the Japanese firm and prefers to take the model to Japan because there the gasoline engines of the X-Trail are produced. This is the explanation given by Nissan: "Although we have made this decision for business reasons, the continued uncertainty about the future of the UK's relationship with the European Union is not helping companies like ours to plan for the future."

"Companies make financial decisions well in advance," explains David Bailey, professor of Industrial Strategy at the Aston Business School in Birmingham. "The models are usually six years in production and you have to decide in advance which model will replace it or what alternatives there are three or four years ahead," he adds.

The scared of Nissan

In the case of Nissan, there is another key factor: the new trade agreement between the European Union and Japan has just come into force, which in seven years will dismantle the tariffs on the car. That is, Japanese cars will enter the European market without tariffs while those manufactured in the United Kingdom will have to earn tariffs when the country is out of the domestic market. Does it make sense for a Japanese automaker, or even a European manufacturer, to invest now in new projects in the UK? That question will be especially relevant if in the end the United Kingdom leaves the EU without an agreement. "In that case we are going to see a slow decline because new models are not going to replace the current models and, when they are finished, they will close factories," says Bailey.

"We still do not have a withdrawal agreement, we still do not know what our future long-term business relationship will be, we still do not know what will happen on March 30. The political negotiation goes by its side, but the businesses move by certainties, laments Mike Hawes. The companies "can not wait much longer to make their decisions," warns Bailey. "They are thinking about production in 2020 and 2021 and they have to decide where to assemble a model in the United Kingdom but they do not know if the United Kingdom is going to be in the Customs Union or in the Single Market."

One of the paradoxes of this crisis is that it threatens to affect, above all, the regions that most enthusiastically voted for the Brexit. In a country with large territorial imbalances, the automobile is one of the few industries scattered throughout the territory. It is a sector that employs more than 850,000 people (185,000 directly in the production of vehicles); that in 2017 it generated revenues of 82,000 million pounds, net capital investments of 4,000 million and investments in R & D of 3,650 million; a sector that exports 44,000 million annually, 12.8% of all merchandise exports of the country. A sector that goes downhill and without brakes because of Brexit.


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