PSA Threatens To Close Ellesmere Port Factory

The Chief Executive Officer of PSA Group, which owns the Vauxhall brand, had warned in February this year that the company would not feel hesitant to take unpopular decisions, should the United Kingdom choose to leave the European Union without a transition agreement in place. Carlos Tavares had said that he would not shy away from closing factories as the bureaucracies of the supply chain would be disruptive in case of a no-deal Brexit, though he also gave hope of doing the opposite as the Vauxhall brand is popular in the country. However, after seeking an extension twice, from March 29 and April 12, and claiming the seat of two prime ministers, it seems that the company is poised to take the hard road.

PSA warned on July 29 that if Brexit makes car manufacturing unprofitable in the UK, the company would switch to a plant in mainland Europe and stop all production from Ellesmere Port. The Chief executive Carlos Tavares said that if the country does not achieve a satisfactory outcome when leaving the EU, the French carmaker will start its manufacturing in a site it had earmarked in southern Europe to build future Vauxhall Astra and Opel Astra cars. In an official statement, the company said it would closely monitor political developments and has put in to place a comprehensive contingency plan for a no-deal exit that covers a wide range of areas. It also said that while the final decision to continue operating the Ellesmere Port plant would depend on the final terms of the exit from the European Union, it was still looking to manufacture the next-generation Astra at Ellesmere Port and Russelsheim.

Last month, the group had highlighted the importance of continuity of borderless trade with the EU to the British car industry when it warned that it would only build its new Vauxhall Astra at its Ellesmere Port plant if the UK avoids a no-deal Brexit. It had also warned that the final decision on the manufacturing of the car in the UK was also contingent on the acceptance of the New Vehicle Agreement.  Even as closures of British factories were announced by Honda and Ford, PSA held off making a decision, though analysts had feared about the future of the plant since the Brexit vote. Some market experts had also started believing that the company was keen to preserve the manufacturing hub.

Carlos Tavares said that the company has an alternative to Ellesmere Port, and he would ensure the profitability of the group, even at the cost of making a hard decision, highlighting concerns that customs checks and tariffs due to no-deal or even a negotiated settlement will hit profits, making the British car manufacturing unviable for car companies. The CEO added that he would prefer the Astra car to be manufactured in Ellesmere Port, but the decision depends on the viability and conditions on what is going to happen in October. The company had not started any talks with the government regarding the matter.

The Ellesmere Port manufactures only the Astra and is the only British car-making plant of the company, employing more than 1,000 workers and operating at a much lesser utilisation rate. The plant has a capacity to build 200,000 cars in a year, and last year it made 77,481 cars. The move by the company would reduce its presence in the UK to just its van plant in Luton, which employs just over 1,000 workers, as it would likely to lead to the closure of the Cheshire plant in north-west England. The plant was opened in 1962 and in its day, employed around 12,000 workers. In 2011, it still employed 3,500 people, but under the ownership of PSA, which bought the plant two years ago, Ellesmere Port has laid off close to 900 workers. Also, to become competitive enough to win the work, the plant had to move to a single shift. As about three-quarters of its components are imported, and 80 per cent of its production is exported to Europe, the Ellesmere Port is the most heavily exposed of all the car plants in the UK to the impact of the Brexit.

Should the company carry out its threat of ending production at its Ellesmere Port factory, local politicians have said there will be catastrophic job losses and would impact confidence and morale in the area. Justin Madders, Labour MP for Ellesmere Port and Neston, said that the new PM Boris Johnson had given cabinet posts to people who are committed to a no-deal Brexit and said that the comments by the carmaker were a direct reaction to his increasingly uncompromising stance. While Karen Shore, the deputy leader of Cheshire West and Chester Council, said the region was ready for the worst, Nicholas Brainsby, chairman of Applied Component Technology said that the absence of Ellesmere Port factory would have a big impact on the car industry in Wales.

Steve Turner, assistant general secretary of the Unite, the union representing car workers, said that the union has been in positive discussions with the company about a new vehicle agreement and its members would fight to safeguard the Ellesmere Port plant from closing. He urged the government of Johnson to take a no-deal Brexit off the table and accused him of playing no deal roulette with the livelihoods of thousands of Vauxhall workers. He added that many in the supply chain would be affected and all the hard work that was done to keep the plant operational was hanging by a thread. He also said that the union was ready to do everything in its power to protect jobs at the plant and urged the PM to come to visit the plant to hold discussions with the workers.

Professor David Bailey, an automotive industry expert at Birmingham University, said that due to fears of not being able to procure the requisite parts in the event of the country crashing out of the EU without a deal, there was evidence that car manufacturers are moving away from UK components suppliers. Recently, Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, in a letter to the new prime minister, warned that a no-deal Brexit would be an existential threat to their industry. He urged the PM to make the country the most attractive destination for automotive investors, a sector which currently employs hundreds of thousands and contributes £18.6bn to the British economy.

Mr Hawes added that the industry needs a deal with the EU that secures frictionless and tariff free trade as the industry is highly integrated with Europe and a hard-Brexit would undermine the confidence of the international investors in the UK. He warned that these benefits would be in danger if the UK left the EU without an agreement as a no-deal Brexit would lead to huge tariffs and disruption that would threaten production. He added that the sector must continue to enjoy preferential trade with important markets around the world and called on the government to support the transition to zero-emission vehicles to help retain a globally advanced supply chain.

Mr Hawes said the industry is highly competitive and has fine margins, warning that every extra minute of delay of parts at the border would cost the car companies £50,000, underlying the need for a Brexit deal that avoids delays or tariffs at the UK border. According to the figures by the Society of Motor Manufacturers and Traders, car manufacturing fell 9 per cent in the first half of this year and in the past three years, investment in new projects by companies and their suppliers in the country has fallen by around 80 per cent. While manufacturers including Jaguar Land Rover and Nissan have chosen to build some models overseas, several plants like Honda in Swindon and engine site by Ford at Bridgend have announced closures.

An agreement that imposes barriers and tariffs or a no-deal Brexit will lead to difficulties in exporting finished cars for sale and importing parts to the UK needed to build cars. Of the total cars manufactured in the country, around four-fifth are exported, with two-thirds being sold in countries with which the EU has a trade deal, possibly making the UK car industry and plants inefficient to compete with the global market. Many manufacturing plants rely on finely tuned supply chains to deliver components, and a bad deal would disrupt the just-in-time deliveries on which high-volume companies depend, potentially leading to costly stoppages of work.

Six months after the last scheduled exit date, manufacturers have been forced to restart preparations for their worst-case scenario again, including plans to pause production, just like many companies did in April. The earlier stoppage of manufacturing dealt a temporary blow to the British economy, and another pause would impact the bottom line of carmakers, who are increasingly becoming impatient with the conditions in the country. Foreign executives are now unwilling to spend more on preparations as a repeat in November might cause unrecoverable losses for carmakers.