The news that Honda is to close its Swindon factory and that Nissan isn’t bringing production of the X-Trail SUV to the UK isn’t surprising. It’s as predictable as it is sad. The UK has to face facts and accept that the ‘business model’ that underpins the presence of Honda, Nissan and Toyota in the UK is in the process of being destroyed.
That’s in part down to our own Brexit decision which (even if a deal avoids the imposition of WTO tariffs (10%) on car exports to the EU) would still make the UK a poor place to build cars destined for the EU market due to issues such as ‘Rules of Origin’ (which risk preventing the export of such cars to third countries under the EU’s existing Free Trade Agreements (FTAs) as they would not qualify as ‘EU manufactured’).
The other reason is that the new EU-Japan FTA progressively removes tariffs on direct imports from Japan to the EU, thus reducing the incentive to manufacture ‘in region’.
The Japanese presence in UK car manufacturing won’t disappear overnight (the car industry doesn’t work like that) but, ten years from now, it’s unlikely to be more than a shadow of today. Remember, Honda, Nissan and Toyota already have production in place around the world, so exporting to ‘global markets’ from the UK instead of exporting to the EU is of limited appeal to them – and they don’t benefit from devaluation either as they import a high percentage of components.
‘This represents the collapse of an economic pillar built up with the strong backing of Margaret Thatcher in the ’80s under the influence of her Policy advisors, key among whom was (a little ironically) John Redwood.’
Encouraging inward Japanese investment was seen (probably rightly) as a better bet than continuing subsidies to support an ‘indigenous’ car manufacturing industry and never was that thinking more explicit than in the mid-1980s when Nissan was given £125m of Government support to help open Sunderland while simultaneously the funding requested by Austin-Rover (in its 1985 Corporate Plan) was not approved in full – instead that company was forced to abandon development of new ‘all-British’ cars (such as the AR6 Metro replacement) and instead become essentially an offshoot of Honda (which dovetailed beautifully with the plan).
It may have upset traditionalists, but backing the Japanese has worked (until now) in that they have provided the output, the balance of payments benefits, the employment and the support for a UK-owned supplier base which Austin-Rover (formerly British Leyland) once did (but was struggling to do by the ’80s). Nissan alone produces over 500,000 vehicles annually in Sunderland, equivalent to the entire output of Italy’s motor industry, and exports 80% of them, mostly to the EU.
However, standing a long way back, we are doing something incredibly stupid as a nation. We have chosen one horse to back over another, seen that horse sustained by Government grants and loans and grants from the European Investment Bank that might have otherwise gone to an ‘indigenous’ British company (Nissan UK has received £450m in loans from the EIB plus £347m in grants and other funding from the UK and the EU since 1986 according to the study by Farnsworth of York University).
And now, having backed that horse and let our indigenous volume car industry wither away (I’m not including relatively ‘premium’ JLR and MINI in that) – we are shooting the horse that we have backed.