What does the future hold for British car making?

Cliff notes

  • If Britain is to remain a leader in vehicle production, collaborative action is needed to maintain core skills in the existing workforce.
  • It is essential that the government works toward a solid solution for the problems that currently present themselves.
By Sam Freedman
Jan 2019

Today in Britain, car manufacturing is spread all over the country and still has a major role to play in the British economy.


The Midlands is a hive of activity; Toyota produce in Derbyshire, Jaguar Land Rover (JLR) produce in the West Midlands (e.g. Wolverhampton), taxis are made in Coventry and trucks in Warwick. Moving to the North-West and JLG have a plant in Halewood and Vauxhall have a plant in Ellesmere Port, owned by Peugeot, producing the Astra model. Toyota engines are made in Wales, Deeside, BMW are in Oxfordshire, Honda is based in the Swindon, Ford produce engines in Bridgend and Dagenham. Nissan are based in Sunderland and have an electric vehicle cluster organised around them. Across the whole supply chain, around 850,000 jobs still centre around the British car manufacturing industry.


However, the British car manufacturing industry has been declining steadily for a couple of decades and what is worrying is that it looks like the decline is continuing, perhaps even gaining pace. The British car industry peaked in the late 90s with around 2 million cars made a year.


By 2009 this figure had dropped to less than 1 million. This last decade has seen numbers increasing again with a 21st century high of 1.7 million in 2016, however, these numbers are steadily falling again. There were 2 reasons for the decline in the first decade of this century; first, the exchange rate over valuation made exporting more difficult and second, Europe was enlarging and there was a lot of investment going into car manufacturing in Eastern and Central Europe where labour costs were cheaper, so we saw a switch in production location. For example, Peugeot closed their factory near Coventry in 2007 and shifted production of small cars to Slovakia.



So, what caused the 90s boom for car manufacturing and how did the 21st century decline come about?


A brief history of car manufacturing in the UK


After Britain joined the European Union, the British car manufacturing industry was flooded with imports – in 1968, only 10% of the British car market was imports, by 1980 this figure rose to 60%. The first crunch point came with the collapse of British Leyland, an automotive engineering and manufacturing conglomerate formed in 1968. At that point, it was Britain’s biggest manufacturer and one of the biggest in Europe – it produced cars for MG, Triumph, Jaguar, Princess and Rover amongst many others. However, British Leyland became nationalised in 1975 and between ’75 and the election for the first term of Margaret Thatcher in 1979, British Leyland became a political hot potato. The question of everyone’s lips was ‘what to do with British Leyland?’


The first Thatcher government brought with it a dissipating effect on nationalism – just because Britain has a car industry, it does not necessarily have to be British. The first car companies to come to Britain in the 80s were Nissan in Sunderland, Honda in Swindon and Toyota in Derbyshire. The Japanese car companies viewed Britain as their gateway into the European market. It also offered cheap and flexible labour but also skilled labour in an increasingly deregulated labour market. Britain also offered greater access to a higher level of science and technology than Japan at the time. On top of this, France favoured French car companies and Germany preferred German car companies whereas Britain were much more open to foreign companies.


The 80s and 90s saw British car companies continue to struggle. British Leyland became the Rover Group, it was privatised by the government in 1988 and Rover Group were able to make limited profits on account of a close relationship with Honda. However, Rover Group were not beginning to champion British car manufacturing again, rather they were largely taking Hondas’, slightly reworking them and selling them as Rovers. Later, in 1994, British Leyland was taken over by BMW who had acquired Rover Group in the same year. It stayed this way until 2000 when BMW pulled out of British Leyland. BMW kept producing the Mini, with a new design, whilst situated in Oxford. What remained of the Rover Group was sold to the so-called ‘Phoenix 4’, a group of four businessmen, who formed Phoenix Venture Holdings in 2000. This company limped on with British Leyland for around 5 more years before the company collapsed and went into administration in 2005.


21st car manufacturing in the UK


Fast forward to today and there are many more factors that impact the future of British car manufacturing. One of the main contributors are a slowdown of car sales in China, who are one of the main importers of British cars. 2018 was a tough year for the car industry in China as it saw just over 22 million new cars sold. This is still a large figure, however, it is still a near 6% drop on the figures from 2017 and represents the first fall in two decades. This is, in part, due to the Chinese government cancelling a tax subsidy on car purchasing in 2018. On top of this there is the looming trade war the U.S. has going on with China, the effects of which are starting to bite.


Another factor to consider is the information given out on diesel vehicles and their emissions. It wasn’t long ago that the British government were encouraging the public to buy diesel vehicles. The “dash for diesel” came in 2001, when Gordon Brown introduced a new system of car tax aimed at protecting the environment. The reasoning behind diesel vehicles avoiding the car tax is that they tend to be more fuel efficient and this legislation had a massive impact on the types of cars we see driven on Britain’s streets. In 2000 there were around 3 million diesel vehicles in Britain, today’s figure is closer to 12 million. However, we’re now aware of the harmful effects of diesel emissions, although we’re still seeing a lot of diesel vehicles on our streets.



So, if people are not buying diesels because of improved environmental awareness, why aren’t they going out and buying a different type of car? For a start, motor vehicles are viewed as long-term investments, so people are reluctant to buy often. It also depends largely on why you drive. For inner city traffic, hybrid and petrol cars are generally better as they don’t face the city restrictions, such as Lower Emission Zones (LEZs), but for long distances, diesel is still much more economical, so it doesn’t make financial sense for people who often drive the long haul. Furthermore, some British car manufacturers have relied too heavily on the production of diesel vehicles – more than 90% of JLR (still Britain’s largest car manufacturer) sales in UK and EU are diesel cars.


In response to the impending decline the British government set up the Automotive Council to institutionalise a collaborative environment between government and industry. It has since done a lot for the British car industry, investing a lot toward identifying opportunities as well as setting up advisory groups and providing strategic direction for companies. The Automotive Council has played a significant role in the improved state of British car manufacturing during the 2010s, however, as we have seen, it seems their effect is beginning to diminish.


The government has pledged to ban the sale of all diesel and petrol cars and vans in the UK from 2040. This gives the British car industry sufficient time to plan and adjust. The internal combustion engine needs to have an alternative found, so sufficient funding needs to go into R&D. However, the irony is that much of this money will need to come from the sale of diesel and petrol vehicles. Much of this factors in to the fact that UK manufacturing plants are having to bid for the production of new models whilst in a worse position. The worry is that, slowly, UK plants will have to settle for older models and, as a result, will no longer be competitive.


The Nissan story and recent car company announcements


We have all seen the seemingly never ending recent car company announcements; JLR announced they were cutting 4,500 jobs and that they had suffered a £3.4 billion loss in the last Q of 2018, Ford are entering a phase of cutting almost 1,000 jobs, Honda announced job cuts in Swindon followed by a full closure of the plant in 2022, BMW are closing their Mini plant in April of this year and Nissan have decided not to produce their new SUV range, the X-Trail, in Sunderland but rather in Japan. The history of Britain’s relationship with Nissan is a particularly telling one.


Being one of the first foreign car companies to be welcomed into Britain, Nissan has an extensive relationship with the nation. In a government letter to Nissan in 2016, it was acknowledged that increased localisation of supply chains is a key issue for Nissan. The letter outlined reassurance that the government would work hard to achieve this, having already provided £5 million to support the initial planning phase of a manufacturing supplier park in Sunderland. However, fast forward to the 1st February 2019 and the supplier park is the focal points of a legal challenge from a group of investors who question whether the project should go ahead, considering they had a similar project rejected in recent years. It would appear not to be a coincidence that on the 2nd February 2019, the day after the legal challenge, Nissan announced that the new X-Trail will be made in Japan rather than Sunderland.



It’s also important to remember the Japan-EU trade deal, in which Japan has committed itself to meeting international car standards, making the exporting of EU cars to Japan a much simpler process. It will also see tariffs be tapered down. This makes Nissan’s decision quite a rational one and, contrary to many beliefs, not a decision wholeheartedly made in relation to the current political situation in Britain. Nonetheless, the relocation of this production by Nissan, as well as JLR opening a new manufacturing plant in Slovakia, prove to be points of concern for the future of British car manufacturing. However, it must also be remembered that Toyota has happily begun production of its new Corolla hatchback in its factory in Derbyshire. Furthermore, British engine production was broadly stable throughout 2018, being down only 0.3% from 2017, largely thanks to exports driving demand.


Start-up companies and future car technologies


So, how does Britain respond and what does the future hold? The former half of this question can only be speculated on. However, we can look toward start-up car companies and the invention of modern car technologies for a glimpse into what the future of British car manufacturing might look like. In terms of future technologies, like electric, hybrid and driverless cars, these will fundamentally change what car manufacturers have to do. Britain has always been an exporter of cars, so it has to learn how to produce these future cars and to sell them internationally to work. The whole world had been slow in reacting to electric car technology, however the UK has been particularly slow. Nissan makes around 50,000 LEAFs, their electric car range, a year. However, these are entirely dependent on Japanese technology.


2019 could well turn out to be quite a pivotal year for electric cars in the UK – 71% of consumers have said they will consider buying an electric car in their next purchasing process. There is also the roll-out of the Ultra-Low Emission Zone (ULEZ) in London, beginning in April 2019, which is going to charge consumers £12.50 to enter what is currently known as the congestion charge zone, if they own a vehicle that doesn’t meet emission standards. However, the government intervention around electric vehicles has generally been confusing for consumers. Rather than promoting and encouraging the use of electric vehicles, the government penalises petrol and diesel vehicle usage with schemes such as ‘Road to Zero’ and ULEZ. Perhaps, if environmental awareness is not enough and financial motivation is found to be of greater effect, the government should do more to incentivise buying environmentally friendly vehicles. There is already purchasing rebates and tax exemptions in place for electric vehicles, although the emphasis is generally on penalising petrol and diesel vehicles rather than promoting electric and hybrid vehicles.



As far as the supply chain is concerned, it seems Britain is just as ill prepared for a switch towards electric cars. Nissan assemble their battery packs from imported parts, JLR recently announced greater investment in their battery plant in the Midlands but that will involve imported key components and they will have to import the core parts of the electric motor they plan to make because the UK no longer has the scale capability to make enough of the right type of steel nor stamp the steel. However, the ‘UK Automotive International Competitiveness Study 2018’ stated that Britain’s automotive talent is still amongst the world’s most adaptable, the UK’s automotive labour flexibility is second only to the U.S. However, the report also flags risks to future government investment into R&D and declining political stability following the UK’s decision to leave the EU.


A good example of a start-up car company is Rivian, an American electric adventure vehicle start-up. They recently announced a $700 million funding round led by Amazon. General Motors are also expected to participate in the funding round. When companies of this stature involve themselves with start-ups, the start-up brand recognition is vastly increased and, often, the company value goes up. Rivian’s valuation before this funding round was around $700 million, it is estimated this will hit anywhere between $1 billion – $2 billion after the funding round. Whilst the American government was not involved in any of this, the British government could still learn something from the story. It is probably worth the British government’s time to encourage this sort of investment in a local start-up car company.


One example of a UK start-up car company is Riversimple who are a hydrogen fuel cell eco car company. Their car design, the Rasa, is a ‘network electric’ car powered by a hydrogen fuel cell. The hydrogen passes through a ‘Proton Exchange Membrane’ in the fuel cell where it combines with oxygen to form water and electricity. Furthermore, when the car brakes, the kinetic energy, that is normally lost in the form of heat, is captured as electricity. There are currently only 17 active hydrogen refuellers in the UK with a further 5 in the immediate pipeline. This is an area that needs to be invested in. Nonetheless, Riversimple provides an excellent example of a UK based start-up car company that the British government could encourage investment in to better prepare the country for the future of car manufacturing.


If Britain is to remain a leader in vehicle production, collaborative action is needed to maintain core skills in the existing workforce, while also developing and attracting new skills essential to drive the industry’s leadership in the shift to electrification, autonomy and digitalisation. We can find examples of collaboration in the Automotive Council, however, we can also see that the effects of collaboration will not last forever. Considering the vast numbers who are employed within and around the car manufacturing industry, as well as the vast amount of exportation the British car industry conducts, it is essential that the government works toward a solid solution for the problems that currently present themselves.

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