UK auto industry under siege as Brexit escalates
London – Gregory McDonald strides across the spotless factory floor at his company, Goodfish, glowing with pride. He plowed his life savings into the injection-molding equipment that churns out plastic parts for everything from aircraft to sprinkler systems and disposable medical devices. He’s ready to do anything necessary to protect that investment.
Worryingly for McDonald, some 30 percent of the parts ultimately go to carmakers who say they will face a catastrophe if Britain leaves the European Union without an agreement on future trade.
So Goodfish, a nine-year-old company with three plants in England, is preparing to expand in Slovakia, an EU country where Volkswagen, Kia, Peugeot-Citroen and Jaguar Land Rover produce more than 1 million vehicles a year. It’s a pragmatic decision for McDonald, who says he can’t afford to be influenced by sentiment or nationalism.
“There’s too much at stake for me, in owning this business, to just stay within Brexitland,” he says at the plant, surrounded by the smell of molten plastic. “And that’s what I decided to do: set up a business in Slovakia.
McDonald’s decision illustrates the huge pressures facing Britain’s auto industry while the government struggles to negotiate a divorce deal with the EU ahead of Brexit day on March 29. As Prime Minister Theresa May tries to balance competing political interests and hammer out an agreement Parliament will support, people in the car business are making decisions based on production cycles, not politics. At stake are 856,000 jobs, most of them at smaller companies like Goodfish that provide parts and services ultimately destined for the likes of Honda, Nissan and Ford.
Carmakers are being forced to weigh uncertainty about possible tariffs and border checks at a time when the industry faces a wholesale overhaul amid changing consumer habits, concerns about global warming and the shift to electric vehicles.
Investment in Britain’s car industry fell 46 percent last year and is down 80 percent over the past three years, partly because of Brexit, according to industry figures. Production dropped 9.1 percent last year to 1.52 million vehicles. Britain’s carmakers have warned that two-thirds of the country’s global trade could be affected by higher tariffs if the U.K. leaves the EU without an agreement, as Britain would also fall out of free trade deals the EU had in place with other countries, like Japan.
“The car industry is at a tipping point,” said David Bailey, an economist at the Aston Business School known for his expertise on Britain’s car industry. “We risk ‘carmaggedon.’”
While businesses from banking to food services have demanded certainty about future trade rules, Britain’s auto industry is particularly vulnerable to Brexit because cars are assembled, not forged in a single place.
Modern manufacturing techniques mean carmakers have plants in several locations – often in different countries – with each relying on the “just-in-time” delivery of parts from others in their supply chains to make the most efficient use of workers and investment.
This means tariffs and border delays, which don’t exist within the EU but could become a reality in a no-deal Brexit, are an oversized threat to carmakers because they could be applied each time components cross borders on their way, ultimately, to the showroom.
McDonald believes it’s unlikely that the U.K. will get investment in manufacturing the way it did in the past, when it was appreciated as an English-speaking gateway to the EU.
“There’s a level of uncertainty that goes with being in the U.K. that never really was here for the last 40 years,” he says.
And so far, the bad news keeps piling up.
This month, Nissan canceled plans to build a new diesel-powered X-Trail sports utility vehicle at its U.K. plant. That reversed a decision announced two years ago after May’s government offered some 60 million pounds in incentives to ensure the carmaker’s ability to compete after Brexit. Jaguar Land Rover has announced global cuts of 4,500 jobs, with many in Britain. Honda plans to close its U.K. assembly and engine plant, with a loss of 3,500 jobs. Dyson, a homegrown firm known for vacuum cleaners and hair dryers, has said it will build its new electric car in Singapore.
Altogether, big carmakers have announced more than 10,000 British job cuts in the past two years, figures that don’t include the supply chain, Bailey said.
The loss of models made in the U.K. would see output in the latter part of the next decade drop to levels not seen since the global financial crisis, Bailey said.
“In short, the stakes for U.K. auto from on-going Brexit uncertainty are very high indeed, just at a time when the industry is starting to transform itself towards an electric future,” Bailey said in a recent blog post. “The U.K. risks losing a wave of investment, and with it, a raft of new technologies.”
Business leaders are getting ever more frustrated with delays in the Brexit talks, their fury spilling over in interviews as they express concerns about foreign investment, jobs and economic growth.
Though May agreed to allow lawmakers to vote on a possible delay if she can’t get an agreement through Parliament, she has refused to rule out a no-deal Brexit, saying that doing so would weaken her position with EU negotiators.
Carolyn Fairbairn, director-general of the Confederation of British Industries, described the tactic as reckless.
“No business would go into a room negotiating on a platform that says: ‘If you don’t give me what I want I’m going to shoot myself in the foot,’” she told the BBC last week, her voice quaking with frustration. “It is not a negotiating tactic that is working. We know the impact on the economy. We’re seeing it. Jobs and investment are leaving us daily.”
Investments, in other words, like the one Goodfish is making.
McDonald, a former hedge fund manager who employs 125 people, has a picture of the Slovak plant he’s got in mind for expansion. He has set up a company there and is ready to finalize the expansion when the time is right.
“By hook or by crook, I think I’ll survive,” he says. “It doesn’t necessarily mean the journey will be easy… I’m quite prepared to do difficult as well.”