End of the road for UK manufacturers?
The factory is due to close permanently in September 2020 with the loss of 1,700 direct jobs with many more in the supply chain and local economy worrying about the effects on their livelihoods.
This is in addition to Honda announcing that it will close its Swindon plant with 3,500 jobs going; Jaguar Land Rover offering voluntary redundancies after ending production of its XJ Saloon model at its Castle Bromwich facility in the Midlands and Nissan scrapping production of the X-Trail at Sunderland.
The latest UK GDP figures for April are bad enough showing a 0.4% contraction, the second in a row, while manufacturing output fell by 3.9%, its largest amount since 2002 and for the motor industry specifically things were even bleaker.
Car production fell by 24% for the month which was the single worst performance since the 1970s.
The effects have been exacerbated by several manufacturers including Jaguar Land Rover, BMW and Peugeot stopping production and bringing forward their annual maintenance stoppages from the summer.
The Society of Motor Manufacturers and Traders (SMMT) said earlier this month that car production fell by almost half in April, with an “extraordinary” drop from 127,970 cars rolling off production lines in April 2018 to 70,971 this year, a fall of 44.5%.
Falling demand in the UK and globally is just one of the headwinds the industry is being buffeted by. The world’s largest automobile market is now China but demand there has slumped which filters through to the already subdued American and European markets.
In Europe, environmental factors have formed a two-pronged challenge to be overcome. Emissions issues have come to the fore with once prized diesel cars seeing sales fall 7% in 2018.
New EU CO2 emissions standards designed to tackle climate change make it more expensive to build compliant new models and from 2021, manufacturers will face huge fines from the EU if fleets break agreed emissions limits, and these limits get aggressively tougher.
A possible solution to emissions is the electric car but this is also a challenge for manufacturers. Customer demand is increasing but production is still nowhere near comparable to petrol or diesel powered cars. Last year 1.3m electric cars were sold, an increase of 73% which is promising growth but still only a fraction of the 86m total car sales in 2018.
Private and public charging infrastructure in Europe and the US remains inadequate and most of the cars themselves are still limited to a range of 100 miles or less.
The shadow of disruption has also suddenly fallen on a complacent motor sector. Self-driving cars might still seem like the stuff of science fiction movies but autonomous vehicles from Waymo and Uber are driving on public roads today.
Experts predict that within 15 years, the industry’s wholesale model will be undermined as millions of consumers will have the choice of renting or hiring a driverless vehicle for their journeys rather than purchasing one to stand in a car park or driveway for the majority of the day.
Ford and Volkswagen have already instigated a joint venture to help pool research and development costs but manufacturers would do well to learn the lessons of the music industry and high street retailers who were completely blindsided and overwhelmed by the disruption the internet brought to their business model and ultimately their existence.
The final elephant in the room is probably the most immediate for British based manufacturers – Brexit.
While Brexit will be the “get out of jail free” card for every unpopular business decision or badly run company to play in the next few years whenever anything goes wrong, it has genuine ramifications for companies relying on imports and exports today.
Since the 2016 referendum, investment in the UK car industry has fallen, by 46.5% in 2017 alone. The current popular manufacturing model sees British car plants heavily relying on components imported from the EU at very short notice – the “just-in-time” manufacturing method.
The completed vehicles are then exported back to the European mainland, so any tariffs and disruptions to the supply chain will all have negative effects for an industry already trying to handle multiple simultaneous challenges.
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