Brexit: Boris Johnson can ‘never be ready’ for no-deal, warns car industry

No-deal Brexit threatens the very viability of the UK’s greatest single foreign currency-earning sector, says SMMT chief executive

Sean O'Grady@_seanogrady
Wednesday 31 July 2019 09:18
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Boris Johnson: The Brexit backstop is dead

In a pointed rebuke to Boris Johnson’s Brexit strategy, the British car industry has said that, so far as it is concerned, “you can never be ready for no deal”.

Mike Hawes, chief executive of the UK’s Society of Motor Manufacturers and Traders (SMMT), also reported on Wednesday that UK car production in the first half of 2019 is down by a fifth on the same period last year, while investment is at a standstill.

Mr Hawes warned that the industry in the UK has already spent more than £330m on contingency planning for a no-deal Brexit, increasing stockpiles of parts, insuring against losses, training staff, investing in additional software and so on.

However, he stressed that nothing can be done to deal with the impact on tariffs on UK exports of cars to the EU, for example, or the massive disruption to seamless “just-in-time” supply chains across the English Channel that the industry relies on.

The absence of even a few key components during assembly can cause production to halt and rack up costs. In a media briefing, Mr Hawes was clear that no-deal Brexit threatens the very viability of the UK economy’s greatest single foreign currency-earning sector.

Uncertainty and the possibility of a no-deal Brexit have already depressed investment in the British car industry. Set against an annual average level of net new investment of around £2.5bn to £2.7bn over the last seven years, a mere £90m was ploughed into new plant and machinery in the first six months of 2019.

Welcoming the recent announcement of a major £1bn initiative in battery technology in the West Midlands by Jaguar Land Rover, Mr Hawes called it a “rare piece of good news” and was anxious to place it into the perspective of cutbacks and announced closures at Honda, Ford and Nissan.

Car production in the UK has been also hit by the effects of Brexit on fragile business and consumer confidence, the continuing diesel backlash after the VW scandal and uncertainty about tax treatment of diesel cars, and subdued demand from key markets such as China and the EU, with the latter taking 57 per cent of UK car exports.

Some 666,521 cars rolled off production lines in the first six months of this year, a year-on-year loss of 168,052 units. The reduction was due largely to falling demand in key markets, including the UK, exacerbated by factory shutdowns pulled forward in anticipation of the March Brexit deadline.

With eight out of every 10 British-made cars going abroad, the industry is vulnerable to drops in global demand. The SMMT noted that demand is down across continents: by 15.6 per cent in the EU, 53.1 per cent in China, 12.9 per cent in the US, 10.5 per cent in Japan and 93 per cent in Turkey.

‘No-deal Brexit is simply not an option’

Mr Hawes said: “Today’s figures are the result of global instability compounded by on-going fear of no deal. This fear is causing investment to stall, as hundreds of millions of pounds are diverted to Brexit cliff-edge mitigation – money that would be better spent tackling technological and environmental challenges.

“The industry’s foundations are fundamentally strong, however, and we’re ready to work with the new government to build on these through the industrial strategy. Automotive manufacturing is one of the UK’s most important economic assets.

“This success is dependent on free and frictionless trade afforded by the EU single market and customs union. A no-deal Brexit would mean the immediate imposition of tariffs costing some £4.5bn a year and an end to the seamless movement of goods. Any potential disruption at the border would throw just-in-time manufacturing into chaos, undermining the sector’s competitiveness and putting profitability and jobs at risk.”

Jobs at Vauxhall’s plant in Ellesmere Port are in immediate jeopardy. Now under the ownership of Peugeot, the firm has warned that if a suitable deal is not reached by 31 October then the production of the new model Astra will be switched to continental Europe.

In a letter to Mr Johnson sent last week, the SMMT said: “We need a deal with the EU that secures frictionless and tariff-free trade. No-deal Brexit is simply not an option.”

Number 10 is yet to reply. However, Mr Johnson did reject Michael Gove’s declaration that the government is proceeding on the “assumption” of a no-deal outcome by 31 October.

If such an eventuality did arrive, the SMMT would be looking to the government for support in such areas as energy costs, R&D credits, capital allowances, business rates and other major operating cost items. Mr Hawes remarked that “the jury’s out” on the new Business Secretary, Andrea Leadsom, a long-term no-dealer who has promoted the idea of a “managed no deal” – a notion the SMMT does not accept. Mr Hawes said her predecessor, Greg Clark, was a “big ally” of the industry.

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