Brexit highlights uncertainty as UK automotive investment drops

03 July 2017

03 July 2017

Investment in the UK automotive industry has fallen to just £322 million (€392 million) in the first half of 2017, in a sign that companies are delaying or cancelling spending ahead of the UK leaving the European Union.  

In 2016, almost £1.7 billion (€1.9 billion) was invested in the automotive market, which was also down on 2015, when £2.5 billion (€2.8 billion) was put in. This was in part due to companies delaying their investments until after the EU referendum held in the country in June 2016. The figures, released by the SMMT, suggest that the total 2017 investment could total just £644 million (€733 million), a quarter of the amount invested two years ago and a sharper fall than many experts expected.  

Mike Hawes, chief executive of the SMMT, comments: ′It is very difficult to cost investment if you don’t know what your output price is going to be. The industry wants a lot more certainty.’ 

The SMMT is asking the UK Government to seek an arrangement that would maintain membership of the EU single market and customs union until a final agreement on a new relationship is negotiated and implemented. It believes a final agreement could not possibly be reached by March 2019, when talks are expected to finish, and wants a five-year plan to help protect the automotive industry, which relies heavily on the import and export of parts and vehicles.  

Up until the end of May 2017, over 575,500 vehicles had been shipped abroad during the year, a 0.8% increase year-on-year. This is despite production for overseas customers falling by 9% in May 2017, as manufacturers prepared for new model launches. In total, around 80% of vehicles built in the UK are exported, with more than half going to Europe. 

This has worried Japanese carmaker Honda. The company has called on British politicians to keep a trade deal between the country and the continent in place, but believes these pleas are falling on deaf ears.  

Honda said no deal after two years of talks would likely damage suppliers and disrupt output and said it was discovering more cost and complexity as it examined the consequences of leaving the European customs union. 

Manufacturers are worried that just-in-time delivery of parts, which allows for efficient production lines, could be slowed down by new regulations, border checks and even tariffs if there is a cliff-edge Brexit with no interim deal. This could not only cause problems in production, but also raise the cost of parts, and therefore the cost of vehicles, which may themselves be subject of further tariffs when exported.  

Speaking to Reuters, Ian Howells, Honda Europe senior vice president, said: ′Whether they [UK Government] are listening or not I really don’t know. We will see I think as the negotiations progress how closely they have been listening to us and industry in general. There are huge amounts of unknowns.’ 

There are also concerns that regulation changes in the EU may not be taken up by the UK, and vice versa, as both parties diversify their law making processes. There could end up being a point whereby vehicles need to be built with different specifications depending on the market they are being shipped to.  

Howells added: ′At the moment of course, we produce cars that, apart from what side the steering wheel is on, are all virtually identical. If that divergence starts to happen because regulatory-wise, Europe doesn’t recognise the UK, then potentially we end up with a more costly production process that starts to hit our efficiency.’ 

This echoes a call by British supercar manufacturer McLaren Automotive. CEO Mike Flewitt comments: ′Right now, all of the EU has one homologation standard and you can use the UK authorities to homologate and it is recognized across the whole of Europe. It would add cost and it would add complexity if they start diverging slightly.’ 

McLaren is also worried that special rules, which exempt them, as well as other small volume manufacturers such as Aston Martin, from strict guidelines concerning the emissions levels from their range of vehicles. Should the UK decide to implement its own guidelines, it could cause trouble for the companies, which would need to invest heavily in technology to ensure their vehicle can meet targets despite their low production output.  

Flewitt also announced that the company was looking into a way of mitigating any effects on immigration, which could see talented workers barred from entering the country. He adds: ′We are looking at extending our graduate programs, our apprenticeship programs to develop more people internally in case there is any restriction on the mobility of skilled labour.’ 

This follows the announcement in June 2017 that Jaguar Land Rover is looking to recruit 5,000 skilled engineers to boost its production, especially as the company looks to develop its electric vehicle range further. This recruitment drive could need to be completed before the country leaves the EU in March 2019 so that JLR can get the engineers, including some from abroad, that it needs. 

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