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Post-Brexit UK car manufacturing looks safer

May we prevail: Renault-Nissan Alliance chairman Carlos Ghosn met British prime minister Theresa May to seek assurances that would help secure British car manufacturing (such as Nissan’s Sunderland plant) after the country leaves the European Union.

Honda, Toyota commit to UK factories after Nissan deal but Pound plummet hurts

3 Nov 2016

HONDA and Toyota are looking increasingly committed to continue producing vehicles in Britain after it leaves the European Union, after assurances given to Nissan over export tariffs and other factors that could affect competitiveness post-Brexit.

For production line workers, it is promising news in the wake of potentially revived free-trade talks between the EU and Japan, which could further erode Britain’s advantage as a prime access point to the single market for Japanese car-makers.

Nissan, which employs 7000 production workers at its recently expanded Sunderland plant in northeast England, announced last week that it will produce the next-generation Qashqai and X-Trail SUVs in Britain, securing the facility for at least a decade.

The decision, made soon after Renault-Nissan Alliance chairman and CEO Carlos Ghosn said he was “confident the government will continue to ensure the UK remains a competitive place to do business”, after a meeting with British prime minister Theresa May last month, has set a precedent for manufacturers.

In an interview on BBC television, UK business secretary Greg Clark said the assurances offered to Nissan by the British PM applied to all automotive manufacturers.

“Our objective would be to ensure that we have a continued access to the markets in Europe and vice versa, without tariffs and without bureaucratic impediments,” said Mr Clark.

“That is how we will approach the negotiations. It is important to manufacturing they get the minimum or no tariffs and no impediments … This was not a haggle over money. This was a vote of confidence in the future of the automotive sector.”

Toyota employs 3400 people in Britain across its plants at Burnaston, in Derbyshire, and Deeside, North Wales.

Executive vice president Didier Leroy told The Financial Times the company has a “fighting spirit and we fully trust in the people in our UK plant”.

“It will be a big negative impact in terms of competitiveness if we have trade taxes,” he said. “But at the same time, does it mean that we should give up everything? No.”

Mr Leroy had previously told Reuters that it would be “very, very tough” if trade duties were imposed post-Brexit, as 85 per cent of British production is exported to the Continent.

During Honda’s quarterly earnings press conference this week, executive vice president Seiji Kuraishi said the company had no intention of ceasing UK production, easing the minds of more than 3000 employees at its Swindon factory in southwest England.

The British pound has plummeted in value since the Brexit vote, forcing a number of car-makers, Honda included, to increase prices, and putting pressure on the cost of imported raw materials and components used for manufacturing.

“We need to carefully watch currency exchange and sales trends,” said Mr Kuraishi. “But we have no intention of withdrawing from the UK, and will continue doing business there.”

Although domestic buyers are suffering, the currency fluctuation has led to an influx of interest from other right-hand-drive markets including Cyprus and Malta, according to data from car-buying website Motors.co.uk.

The profitability – or affordability depending on how importers approach the situation – of British-made new cars in Australia has also improved, with the pound dropping almost 20 per cent against the Aussie dollar since the Brexit vote result was announced.

A spokesperson for BMW, which makes Mini and Rolls-Royce cars plus small-capacity engines in Britain, told Autocar the uncertainty surrounding Brexit “is not helpful when it comes to making long-term business decisions”.

“However, unlike Nissan, we are not in the situation where a major UK investment decision needs to be taken imminently,” said the spokesperson.

“Of course, we continue to monitor the situation very closely but for the moment, the BMW Group continues to operate ‘business as usual’ at its four manufacturing bases in the UK."Last year Indian-owned Jaguar Land Rover overtook Nissan as Britain’s biggest car-maker with almost half a million units produced across its three plants.

JLR employs 35,000 workers in Britain.

A JLR spokesperson told Reuters the company wanted a level playing field in Brexit negotiations.

"We are talking to government at every level and asking for a tariff-free trading environment, access to talent and the same legislative framework we have now.”

Former UK business minister Vince Cable told Reuters his 2012 talks with General Motors to keep Vauxhall’s Ellesmere Port plant open in northwest England were based around the Detroit giant’s confidence “that we would stay within the European single market and the customs union”.

“I think (the government) almost certainly made it clear that British negotiating objectives will be to remain within the customs union,” said Mr Cable. “I can't see how anything other than a customs union arrangement would satisfy the car industry.”

Vauxhall employs more than 2000 workers at the Ellesmere Port factory that produces Astra small cars. Its Luton factory, where it makes the Vivaro mid-size van, employs 900.

Speaking on BBC radio, Ford of Europe president Jim Farley said the Brexit deal “has got to be something that is not custom-made for each manufacturer”.

“I can imagine that the UK government is looking at the auto sector as a whole.”

Ford employs around 3800 people at its two British engine plants, but pulled out of UK vehicle manufacturing in 2002.

According to Bloomberg, an anonymous source familiar with the Nissan discussions said Carlos Ghosn made it clear to the British prime minister that Nissan would eventually shut down the Sunderland plant if it was unable to competitively build the Qashqai and X-Trail there.

The comments echo Mr Ghosn’s remarks at the Paris motor show in September: “If I need to make an investment in the next few months and I can't wait until the end of Brexit, then I have to make a deal with the UK government," he told journalists.

“You can have commitments of compensation in case you have something negative," he said. “If there are tax barriers being established on cars, you have to have a commitment for carmakers who export to Europe that there is some kind of compensation.”

Automotive accounts for 12 per cent of all UK goods exports and invests £4.0 billion ($A6.4b) a year in research and development.

Figures compiled by the Society of Motor Manufacturers and Traders (SMMT) show 169,000 people are directly employed in British automotive manufacturing, with 78,000 of those in the supply chain.

A record 1,587,677 cars were manufactured in Britain last year, up 3.9 per cent year-on-year. Of these 1,227,881 were exported, another record-breaking amount owing to growth of 2.7 per cent.

The European Union soaked up 57.5 per cent of British car exports, a 11.3 per cent volume increase. British factories also produced 94,479 commercial vehicles and 2,368,477 engines during 2015.

Australian demand for British-built cars grew 53.7 per cent in 2015. More than 30 manufacturers around the UK build more than 70 different models.

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