The Medium Term Future of the UK Car Industry
The UK automotive manufacturing industry saw 1.67m cars built in 2017, with the sector contributing £21.5bn to British GDP in 2015. With 180,000 people directly employed in automotive manufacturing and a further 640,000 in support industries, the car industry is a significant component of the UK economy. In this context, it is interesting to consider how recent production decisions by major car companies about their UK operations will impact on the sector in the medium term and the role that new technologies and government intervention may play in shaping the future of the industry.
Japanese car manufacturer Nissan, with an annual global output of 5,556,241 units recently announced its decision to backtrack on a promise to build its new X-Trail model in the UK at its Sunderland plant, which employs nearly 7,000 workers. The firm cited continued Brexit uncertainty and a desire to concentrate production at its Japanese Kyushu plant as reasons for the move. This comes less than a month after Jaguar Land Rover (JLR) announced 4,500 job cuts from its UK workforce of around 40,000 as it seeks to streamline its management structure. This comes in addition to 1,500 job cuts by JLR last year. Ford too is planning job cuts in the UK, considering making 1,000 workers redundant as it halves its workforce at its Bridgend plant in South Wales.
"The continued uncertainty around the UK's future relationship with the EU is not helping companies like ours to plan for the future" ~ Gianluca de Ficchy, Nissan Europe Chairman.
With these recent production decisions and job cuts, as well as challenges facing the industry such as slowing global growth, weakening Chinese demand, continued Brexit related uncertainty and a lack of information of the UK’s likely future trading relationship with the EU, the UK car industry now appears to be facing considerable headwinds.
The likelihood of these factors causing longer term harm to the industry may be mitigated by the role of the UK government in the sector, innovation and new technologies and positive Brexit outcomes. There is a chance that Nissan and others may yet be persuaded to reconsider scaling back their UK operations, with government intervention to protect the sector having precedent. In 2016, the UK government offered Nissan a set of “special assurances” to secure continued investment, with the state promising up to £80m of support for research and development to help Nissan remain competitive as new technologies emerge.
Philip Hammond announced in late 2017 he aims to see fully autonomous cars on UK roads by 2021, with the government trialling self driving cars in partnership with Tata in Milton Keynes and Coventry, and with plans to extend such trials to London in the future. The £115m investment in the National Automotive Innovation Centre at the University of Warwick in partnership with JLR and Tata Motors further illustrates the potential for the private sector to work with the government and with educational institutions to drive research and innovation.
With such initiatives in place, the UK may yet remain an attractive destination for automotive investment and retain its competitive advantage in car manufacturing. The extent to which this comes to pass depends on the ability of the UK to compete with other global hubs of automotive innovation such as Silicon Valley and other areas of the US, where Uber, Tesla, Waymo and purportedly Apple are all working on self-driving car technology. In the shorter term, clarity on Britain’s future trading relationship with the EU post Brexit and likely tariff regime would probably go some way to halting the flow of jobs and investment out of the UK car industry.