Automobile Manufacturing Sector Facing Challenges Amid Brexit Uncertainties

  • Feb 21, 2019 GMT
  • Team Kalkine
Automobile Manufacturing Sector Facing Challenges Amid Brexit Uncertainties

Honda Motor Company on Tuesday, 19th February 2019, announced that it would close the Swindon car manufacturing plant in the United Kingdom. Such a significant move was taken amid changes in the car segment industry and innovations to launch new electric vehicles due to stringent emission norms and fall in diesel cars demand.

It’s a significant blow to the British auto industry, which is already under pressure due to thousands of job cuts amid Brexit uncertainties.

The factory is in Swindon, southwest England, and has manufactured the company’s "Civic" model from the last two decades, with more than 150,000 cars produced each year. Around 160,000 vehicles were manufactured in 2018, far less than the capacity of 250,000. This represents a tenth of the total car production in the UK, signifying a severe blow to the industry.

The company has announced that the plant will be closed in 2021, at the end of its current production line. Due to this, according to the company, 7,000 employees are slated to lose their jobs, with 3,500 jobs at risk in the factory itself and the rest at its supply chain. Moreover, the company’s Turkish plant will also experience disruptions as the company plans to stop manufacturing its Civic model there in 2021.

The announcement came on the heels of the statement by Jaguar Land Rover regarding its plan to cut 4,500 jobs or about 10% of its workforce. Ford is reducing its workforce in Europe as well and announced that they would cut around 1,150 jobs in the UK. Another Japanese car manufacturer, Nissan, had said that it wouldn’t follow on its plan to manufacture X-Trail SUV in the UK, and now the production will shift to Japan. Major giants in Japanese electronics segment like Sony, Panasonic and Hitachi, as well as several international banks, have moved some of their business operations out of the United Kingdom.

Honda’s president, Takahiro Hachigo, explicitly said that the decision is unrelated to the Brexit with Ian Howells adding that the company was always prepared for the event but the global change in industry demands is the main concern for the decision taken. In a statement, Katsushi Inoue, President, Honda Motor Europe blamed "unprecedented changes in the global automotive industry" for the decision. Justin Tomlinson, the local Tory MP, who himself is a Brexiteer, reiterated the company’s decision to leave and stressed that the UK’s decision to leave EU had nothing to do with it.

However, many analysts and political commentators cast their doubts on the reason given by the company. They believe Brexit is a significant factor behind the company’s decision to leave the UK; however other factors are also in play. Nissan’s Europe chairman Gianluca de Ficchy, while commenting on the company’s decision to leave the UK for Japan, had said that lingering uncertainty regarding the United Kingdome’s future relationship with the EU is not assisting capital-intensive company like Nissan to plan for new initiatives.

Apart from Brexit related uncertainty, other reasons like EU-Japan free-trade agreement and structural changes in the automotive industry are thought to have influenced the decision. According to the new trade deal between the EU and Japan, cars manufacturers in the EU will be able to export to Japan free of tariffs by 2027. This would have reduced the need to base a plant in Europe, had Britain been a part of the customs union. However, the referendum has forced companies to rethink, with many manufacturers planning to move production back to Japan rather than relocate elsewhere in Europe.

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