Opinion : UK car manufacturing doing just fine (until lately). So, does foreign ownership matter?

MINI Electric production leaves Cowley

The issue of the strength of the UK Automotive sector comes up regularly – and Robert Leitch’s recent piece bemoaning the loss of a British-owned (or ‘indigenous’) industry ultimately asks the question: where did it all go wrong?  For me, it demands us to ask: why do we actually want a motor industry?

Is it for reasons of national prestige? The loss of an indigenous industry would, in that case, indeed be a humiliation. Or is it to deliver economic benefits? Answer that in the affirmative and the UK automotive sector – certainly until the very recent past – has been delivering in spades.

Why? Well just think in terms of employment, business for UK suppliers, tax revenues from companies and employees, R&D (see Keith’s article about the new Nissan Qashqai if you think the UK industry is conducting merely ‘assembly’) – and the Balance of Payments.

A matter of balance

In his article Robert mentions the Balance of Payments as a core reason why Governments have been keen to retain car manufacturing in the UK.

Indeed – if you look into (for example) the reason why the 1970s Labour Government and, later, the Thatcher Government underwrote a huge public investment in building the Austin Metro – it was import substitution and export potential – in other words the beneficial impact on the Balance of Payments, that swung it.

It needs to be emphasised the export of cars from the UK by foreign-owned companies is – broadly speaking – just as beneficial to the UK Balance of Payments as when conducted by an ‘indigenous’ firm.

After wracking up dreadful Balance of Payments deficits on cars in the 1980s, the UK totally eliminated the Balance of Payments deficit on cars (if briefly) in 2012. Car trade ceased to be a ‘drag on the economy’ and (see below) it still currently is less of one than in France.

A quiet success

That achievement (which went almost without comment at the time) represented a huge success for the policy-makers of the 1980s who judged (in a nutshell) that the seduction of companies like Nissan might reap bigger economic benefits down the line than supporting the indigenous industry represented by Rover.

That policy was never more clear than in 1986 when Nissan opened the Washington (Sunderland) plant assisted by £125 million of state funding while the Government simultaneously refused to underwrite the investment plans being tabled by Rover (for the AR6 Metro replacement – for example).

A decision was taken, and we have seen the results in the 21st century, when – as recently as 2016 – it was possible to argue that the UK car manufacturing sector was as strong as it ever had been. Production was only slightly below the all-time 1972 peak and the product mix a lot richer than 1972 (when three of the ‘Big Four’ were already foreign owned), and car exports broke all records in 2016 with 21st century exports far out-stripping the levels of previous decades. (See the graph at the end of this article).

Nissan Washington

Foreign ownership: no bad thing…

Nissan (to take that example) as a huge exporter was – in Balance of Payments terms – delivering all that the policy-makers could have wished for.

That, in turn, raises another point rarely touched on: foreign ownership of car manufacturing in the UK has brought the very tangible benefit of access to the well-developed overseas distribution networks of the companies concerned.

Exports and therefore production of certainly Nissan, Toyota, BMW-MINI and (until recently) Honda cars in Britain has undoubtedly been helped by the ability to distribute those cars through networks worldwide which, by the 1980s certainly, the ‘indigenous’ industry lacked. That needs to be added to the ledger of “positives” concerning foreign ownership.

There are, of course, many other aspects to foreign ownership of the car manufacturing sector.

Some will argue a high percentage of imported components minimizes the economic benefit for the UK, though others will argue a finished car is worth more than the sum of its parts and ‘value added’ in the manufacturing process must be taken into account.

However, ignoring that, UK content averages close to 50% which though lower than in the past (for 1980s Austin Rover it was closer to 90%) – is far higher than the ‘assembly’ industry composed of ‘screwdriver plants’ which is what some will tell you we have.

And a high level of component imports effectively cushions the car manufacturing sector from the impact of a high pound – which massacred BL’s business during 1978-81 and sounded the death-knell for Rover after 1997. Because when the pound strengthens, imported components become cheaper in sterling terms. In that sense, it’s an advantage.

But Toyota, Nissan, BMW and Jaguar Land Rover all build engines in the UK (as did Honda) – and many of those engines get exported including the BMW engines built at Hams Hall which end up not just in MINIs but in BMWs coming off the line in Germany, South Africa and the USA – a sort of collateral benefit of having BMW as a car manufacturer in the UK.

The UK would not be the major engine exporter it is if inward investment by such companies and by Ford (which still exports vast quantities of diesel engines from Dagenham) had not been encouraged in the past.

Any calculation of the net impact of having a foreign-owned as opposed to indigenous car industry, as that affects component production, demand and exports, is therefore a calculation with very many moving parts.

Others will tell you (and I’ve heard this a lot lately) that, in times of trouble or war, the UK needs to be in control of its vehicle manufacturing sector, and thus strategically allowing foreign ownership is a blunder. However, if inward investment (usually seen as a good thing when it happens) has resulted in Britain being dotted with modern, well-equipped car manufacturing factories, as it has, then surely that’s a strategic plus?

There’s a huge skilled workforce, and those factories aren’t going anywhere. In extremis they could be taken over by the State – which is what has just happened in Russia with the modern Renault car plant.

Niche building in volume…

The phrase from Robert Leitch’s recent article that was chosen to be highlighted in bold: ‘In Britain the last vestiges of our national volume car manufacturer, once the world’s fourth largest, are two foreign-owned companies producing niche products…’ distorts things a little.

Why? Well, if Jaguar Land Rover and MINI are the two ‘foreign-owned companies producing niche products’ referred to, then their combined UK output in recent years (if not 2022) has approached British Leyland’s peak output of cars (916,218 cars produced in the UK in 1972 including a lot of reduced value CKD kits).

JLR has built over 500,000 vehicles annually in Britain in recent years and MINI around 250,000. Even in 2018 (not a great year) their combined UK output was 683,487 cars. The 2016 figure was 754,000.  Forgetting Halewood and (also formerly BL) Castle Bromwich, JLR’s Solihull site (even in depressed 2022) builds more vehicles than it ever did under British Leyland (or Rover before).

And Cowley has built more cars since 2001 (over four million) than it did in the previous 20 years under BL/Rover – to describe JLR and MINI as ‘vestiges’ is therefore a little misleading.

Are our competitors doing better?

If I could just finish by pointing out this: France is often held up as an example of a country that has protected its indigenous car industry and thus – one would imagine – is today better-placed than the UK.

Yet, in reality, in 2021 French car production was only a whisker ahead of Britain (even though 2021 was a dreadful year for the British industry). From a level of 3.5 million cars annually not so long ago, they were down to one million cars built.

French ownership or no, the production of most of the popular and smaller Citroën, Peugeot and Renault models has been (totally) off-shored to places like Slovenia, Spain and Turkey – and, allied to that, the French deficit on trade in cars is worse proportionally than the UK’s All those ‘patriotic’ French people buying a Citroën C3, Peugeot 2008 or Renault Clio and many more are, in fact, buying imports, and – by the same token – exports are weaker.

Trouble in paradise

There’s a great deal of hand-wringing in France over how the car industry is not the ‘motor of the economy’ it once was, and how a shift towards more premium priced models that could be viably built inside France and exported worldwide (rather like Jaguar Land Rover and BMW-MINI do) might help.

One could undertake an intriguing study as to which industrial strategy for the car industry has delivered the best results over the last 40 years – the British or the French?

That’s all, of course, ‘looking in the rear view mirror’ a bit. Since 2016, UK car production has halved (a collapse as steep as the sharp contraction of the late 1970s – see the graph below) and the future looks bleak with the combination of missing EV battery capacity and post-Brexit ‘Rules of Origin’ realities threatening a near complete elimination of volume car manufacturing in the UK within a decade.

That’s for another chapter, though…

UK car production (line) including exports (red) 1948-2020

 

Chris Cowin

2 Comments

  1. Not forgetting many so called German cars being made in other countries with lower costs. Someone buying a Mercedes A class might not know it’s made in Hungary and many E class cars are made in South Africa, while BMW builds most of its SUVs in the land of the SUV, American, and large numbers of Opels, Audis and Volkswagens are made in Eastern Europe and Spain. Yes it’s true most of these companies are still German owned and these cars have a large German content, but the assembly and production of ancillary components is done in other countries.

  2. It’s worth considering the actual value of the cars produced, not the raw numbers.

    I am always amused looking back at reports from 60s/70s BMC/BL where they say they have a target of building X-hundred-thousand cars in the coming year.

    Turnover = Vanity

    Profit = Sanity.

    You can proiduce a hell of a lot of cars but if in the round [production costs and subsequent warranty-claims] they don’t make a profit, well, history shows where that led.

    BMC/BL seemed always focussed on making cars when they should have been focussed ruthlessly on making profits.

    BMW/MINI and JLR seem to have got this right over the last decade and a half; producing premium cars that people actually want to buy.

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