For a couple of centuries, up until the early 1970s, Britain was the world’s biggest per-capita manufacturer. It was a global leader in autos. In 1972, it made almost two million cars, a remarkable achievement for a small country that didn’t even have a trade deal with Europe.
Then it all fell apart. Competition from far more reliable marques such as Datsun (now Nissan), BMW and other automakers that rose from the ashes of the Second World War flattened Jaguar, MG, Rover and many other brands, along with their supply networks. Britain’s car industry essentially ceased to be. But it would come back to life in the 1980s and 1990s, thanks to prime minister Margaret Thatcher’s aggressive pursuit of Japanese investment and Britain’s membership in the European Union.
Britain is now going through its second great automotive de-industrialization, and yes, one of the big reasons for the sudden rash of plant closures and downgrades is Brexit, even though the deluded Brexit fundamentalists would have you believe otherwise. If that’s true, why aren’t Japanese car plants being given the kiss of death on the other side of the English Channel?
Look to the EU-Japan trade deal, which came into force this month. The pact, which creates the world’s largest free-trade zone, will eventually remove the EU’s 10-per-cent tariff on Japanese cars as well as the 3-per-cent tariff on car parts. The agreement gives Japanese automakers one less reason to keep their European plants and partnerships alive, since exporting vehicles from Japan just got cheaper and simpler.
The trade negotiators in Brussels have played a very clever game with the Japanese, it appears. Did they offer the fresh trade deal on the tacit understanding that car factories in EU countries would be given a longer life-expectancy than factories in nearby non-EU countries?
It’s impossible to say for sure, but it’s hard to ignore the brutal reality that Honda, suffering from overcapacity, confirmed this week it will close its factories in Swindon, England, and Gebze, Turkey, each of which pumped out Honda Civics. Any hopes that Honda would build electric cars in those plants has vanished too. Nissan, meanwhile, is suddenly yanking production of a new new model from its British factory.
In 2017, a year after the Brexit referendum, Britain was touting its revived auto industry as an innovation and employment wonder, one that would keep Brexit Britain firmly attached to the leading edge of the technology curve. Prime Minister Theresa May’s industrial strategy, “Building a Britain fit for the future,” found that the “automotive sector is an area of genuine competitive advantage to the U.K., and the sector is perfectly placed to take advantage of emerging markets for ultra-low-emission vehicles.”
Ms. May’s conviction that Britain could hang onto its auto sector after Brexit (which is supposed to happen on March 29) was evidently confirmed by Nissan’s decision a few months after the vote to keep its enormous plant in Sunderland, England, not just intact, but thriving – it would build the new X-Trail SUV. That deal was negotiated by then-Nissan-Renault boss Carlos Ghosn in exchange for certain government commitments (never made public), which were designed to shield Nissan from the negative effects of Brexit.
But Mr. Ghosn can no longer defend his deal – he’s in jail in Japan on allegations he understated his salary – and Nissan’s new leadership apparently thinks that Brexit is too much risk, in spite of Ms. May’s guarantees. While the Sunderland plant is not being closed (though plans to produce the X-Trail there have been cancelled), its future does not look bright. It could turn dire next month if Britain crashes out of the EU without a trade deal. Most of Sunderland’s products are exported.
Honda’s decision to kill its Swindon factory, which has 3,500 employees, comes as an enormous blow to Britain’s automotive fortunes and has led to credible speculation that other foreign-auto plants, such as the Vauxhall car factory in Ellesmere Port or Ford’s engine factory in Bridgend, may be the next dominoes to fall (Ford stopped making vehicles in Britain in 2013).
Those fears are justified because car factories spawn a vast ecosystem of parts and services suppliers, who typically deliver their products to several factories. When one big factory closes, the entire network of suppliers comes under stress. Some go out of business, meaning they can’t supply the surviving factories. When the U.S. government bailed out General Motors and Chrysler after the 2008 financial crisis, they weren’t just saving General Motors and Chrysler; they were in effect saving Ford (which did not require a bailout), knowing that Ford could not stay alive if the entire U.S. supply network were gutted.
In other words, factory closures help ensure that others follow. The British closures may just be getting started, and Brexit will no doubt accelerate them.
Which brings us to the EU-Japan trade deal. so far, the Japanese have singled out Britain for their de-investment campaign, not the EU. Toyota’s plants in France, Czech Republic and Portugal remain untouched. Slovakia, which is emerging as the auto workshop of Europe, is attracting Japanese auto investment. Japan’s MinebeaMitsumi recently opened an automotive and industrial parts factory there. In France, Nissan and Renault, which are part of the Nissan-Renault-Mitsubishi global alliance, build compact cars in the Flins factory, just south of Paris. In the Czech Republic, Toyota builds small cars for Toyota, Citroen and Peugeot.
In Brexit Britain, however, the Japanese are in retreat. No doubt, the EU trade negotiators in Brussels could not be happier. To argue that Brexit was not behind Nissan’s decision to downgrade its Sunderland and Honda’s decision to bolt from Britain is absurd.
Eric Reguly