Car manufacturers have warned Theresa May there is “no Brexit dividend” for the industry, with investment in the motor trade and thousands of jobs at risk unless the government rethinks its red lines in negotiations.
In the starkest warning yet from a single business sector, the car lobby told the government it needs “as a minimum” to remain in the customs union with a deal that delivers “single market benefits”.
“There is no Brexit dividend for our industry,” said Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders (SMMT).
He said Brexit uncertainty was hitting investment and repeated calls for the UK to stay in the customs union until the government came up with a “credible plan B”.
With investment slowing and time running out, negotiators had to get on with the job of agreeing a deal that would put an end to uncertainty and prioritise the needs of the automotive sector, the SMMT said.
Hawes said he made “no apologies” for making the industry’s position clear and disagreed with politicians who felt big business should butt out at a critical time in negotiations.
At a day long automotive summit, industry leaders lined up to warn of the perils Brexit uncertainty was causing.
BMW, which employs 8,000 people in the UK, said it needed to know by the end of the summer what the Brexit strategy was as that was when key decisions would be made by the manufacturer.
Hawes said that companies would not close down overnight but added it would be “death by a thousand cuts” if the government did not change its red lines of quitting the customs union and the single market.
“The current position, with conflicting messages and red lines, goes directly against the interests of the UK automotive sector which has thrived on single market and customs union membership,” he said.
The car industry is particularly vulnerable because it operates “just in time” production, where parts are sourced from all over the EU and often delivered to production lines with hours to spare. The system saves on the huge cost of maintaining stocks, but leaves carmakers vulnerable to disruptions at ports.
Quick GuideWhat is 'just in time'?
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What is just in time production?
Rather than stockpiling components and raw materials, companies started in the late 1970s to buy the parts they required as close to the time of use as possible. The result was a drastic reduction in the cost of stocks and warehousing.
The name refers to the idea that parts arrive from suppliers at the factory gate with as little time to spare as possible.
Honda told the Financial Times on Tuesday it still stores only enough parts to maintain production of the Honda Civic at its Swindon factory for 36 hours.
What is its history?
The process was developed by Toyota in Japan and became big in Britain during the 1980s.
The technique was pioneered by a Toyota production engineer, Taiichi Ohno, from the end of the second world war. Japan lacked cash to produce goods in large quantities, and space for stockpiling goods was at a premium.
The system helped Japanese car manufacturers compete with US producers, and provided a competitive edge which helped Japan overtake Europe to become the third largest car producer in the world (behind the US and China). The production process is known by some academics as the Toyota Production System.
What are the potential negatives?
Companies can lose the economies of scale. They also need detailed plans of their operations to juggle their needs in real time, which can be difficult when a single car consists of about 30,000 components often arriving on the production line a few hours before they are needed.
However, the biggest emerging risk comes from political instability. Having benefited from comparatively steady political conditions since the collapse of communism, decades of globalisation have led to the growth of supply chains sprawling across the planet. Political upheaval in one country often now means production problems in another.
What are the consequences of Brexit?
British firms have often chosen the safest, closest and cheapest locations to source their supplies, which has helped eastern European countries as a result of their low production costs and the political protection of the EU. However, Brexit threatens to throw sand into the wheels of just in time production.
If the UK crashes out of the EU without a customs deal evidence suggests increased border checks could add £1.5bn a year to the costs for the aerospace industry alone – which relies on just in time supply chains.
Honda told the Financial Times on Tuesday that it stored only enough parts to keep its Honda Civic production line in Swindon going for 36 hours. The car giant added it would need a warehouse the size of 42 football pitches to keep enough parts in stock to last for just nine days.
The Japanese ambassador to the UK said Nissan would not quit Britain, but like all manufacturers was facing “difficulties” in making investment decisions while Brexit uncertainty prevails.
“They are not thinking of leaving or deserting something they have been working on for 40 years plus,” Koji Tsuruoka said.
He said: “There will be difficulty … No manufacturing company I know ... has expended their capacity since Brexit because the uncertainty is there.”
The future of Nissan’s plant has been in the spotlight since the referendum. But the carmaker agreed to boost production at its Sunderland plant by committing to building its next generation Qashqai model there, after a private reassurance from the prime minister.
Tsuruoka said: “You want to have an assurance that you can trade very confidently across border and not to have to worry about tariffs.”The industry is hoping the sounding of alarm bells will force the government to act, with Brexit threatening some of the 856,000 employed in the sector.
It warned that investment had halved in the first six months of the year and with “decisions on new vehicle models in the UK, government must take steps to boost investor confidence and safeguard the thousands of jobs”.Frictionless borders could only be achieved through continued membership of the customs union and maintenance of the benefits the single market delivered, said Hawes.
“There is no Brexit dividend for our industry, particularly in what is an increasingly hostile and protectionist global trading environment. Our message to government is that until it can demonstrate exactly how a new model for customs and trade with the EU can replicate the benefits we currently enjoy, don’t change it,” he said.
The car industry is one of the leading employers in the country, responsible for 856,000 jobs, 186,000 of which are on the production lines.
Hawes told reporters at the International Automotive Summit in London that signs were “more ominous” for investment this year after eight years of growth.
“If we cannot cut through the fog of the uncertainty there will be casualties,” he said, adding that “contingency planning” was difficult and job losses could be looming after “investment halved to less than £350m so far this year. That’s the cost of uncertainty, that’s the price we pay for slow decision-making,” he said.
Ian Robertson, the most senior British executive at the German firm BMW, said: “We are not turning our backs on the UK.” But he said that any delay in Dover would start to impact upon manufacturing and its competitiveness.
He said BMW was not intending to move any car production to any of its other plants around the world but it would be “foolhardy” not to have contingency ideas.