Why confused policy and a hard Brexit would put the Midlands car industry at risk

Professor David Bailey Professor of Industrial Strategy January 2019

Recent news that Jaguar Land Rover (JLR) will shed up to 4,500 workers on top of the 1,400 lost in 2018 came as a huge blow for workers in the Midlands and showed the scale of the challenges that the car manufacturer now faces.

 The firm faces a ‘triple whammy’ of declining sales in China as the world’s largest car market contracts after 20 years of breakneck growth, a massive shift away from diesels across Europe in the wake of the VW ‘Dieselgate’ scandal, and Brexit uncertainty slowing the UK market. That’s even before we get to the possibility of a ‘no-deal’ Brexit throwing a spanner in the works of the UK automotive industry.
JLR’s CEO, Ralf Speth, had previously stressed uncertainty over Brexit and confusion over government policy on diesel engines as big factors in job losses at Solihull and the move to a three-day week at the Castle Bromwich plant in Birmingham.
Most recently Speth has warned that tens of thousands of jobs would be at risk in the event of a no-deal on Brexit, with the latter potentially costing the firm £1.2bn. JLR is idling all of its UK plants for two weeks in April given fears over components shortages if the UK crashes out of the EU with no deal, leading to customs delays. Speaking in Birmingham last year, Speth said “I do not even know if any of our manufacturing facilities in the UK will be able to function on March 30. Bluntly, we will not be able to build cars if the motorway to and from Dover becomes a car park, where the vehicle carrying parts is stationary.”
The firm also said it would have to reconsider £80bn of UK investment over five years in the event of a messy, no-deal Brexit, as access to the single market would be hindered and the flow of car part imports disrupted.

Government policy towards the auto industry hasn’t helped the situation. 
Firstly, the government has sent conflicting messages over diesels. While the Business Secretary Greg Clark stressed the role for clean, modern diesels in a recent visit to the region, the government introduced extra taxes for diesels in last year’s budget and the vehicles will be banned completely from 2040. That’s important as JLR is one of the firms most exposed to the decline of diesel.
Secondly, the government has offered half-hearted support for electric vehicles.  The Chancellor, Philip Hammond, scaled back subsidies for purchases of electric cars owing to austerity last year.
That’s despite the urgency of the need to reduce carbon emissions, and Prime Minister May’s claim last year in Birmingham that austerity was over.
Reducing subsidies, plus the end of UK electric car sales counting towards European emissions targets, could effectively stymie a fledgling electric car market in the UK even before it gets properly charged up.
Meanwhile, JLR announced big steps recently towards transforming its Midlands operations with electric drivetrain assembly coming to its i54 plant near Wolverhampton and battery assembly at Hams Hall near Birmingham. That’s good news but it has yet to say where it will assemble a new range of electric cars.  The firm’s stunning new electric i-pace model is assembled in Austria.
A big worry here is that the industry is about to transform itself away from internal combustion engine (ICE) technology to Autonomous, Connected Electric (ACE) cars over the next decade, and this investment could be lost from the UK in the event of a hard Brexit.
The firm recently said it would move Discovery production to Slovakia. I’d expected to hear what new models would come to Solihull in its wake but no news has been forthcoming. Nor have we heard what new models will go into Castle Bromwich.

The fear is that UK investment in car assembly is stalling at JLR. But, as Speth noted late last year, “at the end of the day we’re in a cycle plan that means I have to make a decision. I can’t just wait, wait, wait, wait.”

Starkly, he noted that “we built up this company over eight years. All that will be undone. It can go down the river so quickly.” None of this should be a surprise. A hard Brexit would be nothing short of catastrophic for the UK car industry. Output will fall, jobs will be lost and plants will close.
Notwithstanding the uncertainty in China, the UK government needs to pull its finger out to end uncertainty here – notably on Brexit and policy on diesels – and in better supporting the take up of electric cars through a more holistic policy (including on charging infrastructure) that better encourages consumers to go electric, as has been seen in countries like Norway.
Otherwise the UK in general and the Midlands in particular risk losing a wave of investment, and with it, a raft of new technologies.

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