BMW
UK plants: Mini, Oxford (4,000 staff); Rolls-Royce, Goodwood (1,700); engines, Hams Hall, Birmingham (800); bodywork, Swindon (850)
Makes: Minis, all Rolls-Royce model
HONDA
UK plants: Cars and engines, Swindon (4,000 staff)
Makes: Civic
NISSAN
UK plant: Cars and engines, Sunderland (7,000 employees)
Makes: Qashqai, Leaf, Juke
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Such are the surreal options facing Honda — and manufacturers across a number of industries — which want to continue production in Brexit Britain.
Honda has had to deal with earthquakes in Japan and floods in Thailand. Adverse swings in currency markets have walloped profit margins. But these are nothing compared to what a clean break with the EU may bring. “The breadth of what we are dealing with is unprecedented in terms of its total impact,” says Ian Howells, senior vice-president of Honda Europe.
“Even though there is huge uncertainty around foreign exchange, our Japanese colleagues know how to manage that,” he added. “At the moment they don’t understand how to manage Brexit. It is a whole load of moving parts and nobody’s ever sure exactly how those parts are going to reconnect, disconnect or whatever.”
Other carmakers, such as BMW, are facing similarly unforgiving choices. Almost 90 per cent of the parts assembled in the German group’s four British factories come from mainland Europe.
“We do our best to maintain business continuity. We don’t want to give up our UK plants,” says Stephan Freismuth, a former customs officer who is now a director of BMW’s customs operations. “We always said we can do our best and prepare everything, but if in the end the supply chain will have a stop at the border, then we cannot produce our products in the UK.”
With nine months left before Britain’s exit and Westminster still undecided on the direction Brexit should take, the warnings are becoming increasingly blunt, and despairing. Airbus, BMW, Honda — blue-chip manufacturers in Britain are raising the alarm. The uncertainty has already hit spending in the industry, with investment in the first six months year of £347m, roughly half the amount spent in the same six months a year earlier, according to figures published on Tuesday by the Society of Motor Manufacturers are Traders.
Voicing the frustration of some in government, Jeremy Hunt, UK health secretary, complained that companies such as Airbus were making “totally inappropriate” threats that “weaken our negotiating position”.
Jacob Rees-Mogg, the pro-Brexit Conservative MP, says BMW is probably afraid of facing tariffs on its profitable exports to the UK. “You have to see what they are saying is driven by fear of losing access to our market, not the other way around,” he says. “The real issue is whether the UK remains an efficient base to manufacture — cost-competitive and value for money for customers.”
The warnings are not only over the implications of a no-deal exit in 2019, the most severe Brexit scenario. Manufacturers wonder whether their businesses will remain viable if the UK government achieves what it wants: an orderly withdrawal from the customs union, sometime in the 2020s. Investment decisions are looming.
“It is the end of the business model,” says one senior EU diplomat handling Brexit who has met car executives laying out the dire consequences for their industry. “It is nuts.”
Swindon’s site has long been a test bed for manufacturing experiments. At a secret Vickers factory during the second world war, “lean” methods were used to maximise Spitfire production at a time of scarcity: it was one of the oldest of the “just-in-time” systems that now dominate modern manufacturing.
In the late 1970s, Swindon witnessed the first partnership between eastern and western automakers. Workers at the ailing British Leyland were astounded to find Honda Ballade assembly packages arrive from Japan that had no missing parts, and could actually fit together. The spirit of “kanban” — Japanese lean manufacturing — had arrived on British shores.
Years later, Japanese cars were some of the first made in Britain to use a truly pan-European supplier base. Former prime minister Margaret Thatcher wooed Japanese carmakers to a Britain that “provides access to the whole European Community”. Honda Accords first rolled off the Swindon assembly line in 1992, just as the single market was about to be launched.
Honda exports about half its Swindon-made cars to the US — giving it just the kind of global outlook championed by Brexiters. “There is some opportunity,” says Justin Benson, head of UK automotive at KPMG. A weaker pound, he adds, could improve competitiveness and “see an upside for exports”. However, Brexit has shaken the foundations of this partnership. Through unusually frank public interventions, Japanese diplomats have made their concern plain. The reality for Honda is that just 25 per cent of the Civic model is now “true UK content”. Nissan is in a similar position: only 15 per cent of its components are paid for in sterling. Put simply, the carmakers would never have developed these plant networks if they knew Britain planned to leave the EU’s customs union or single market.
“I don’t think it’s feasible for the carmakers to carry on running the supply chains they currently do if that happens,” says Tim Lawrence, global head of manufacturing at the PA Consulting group. “It’s just not going to work.”
Honda is one of the first carmakers to explain, in detail, the delays it expects for importing parts and exporting cars if the UK leaves the customs union. Based on experience of trading with the US, it estimates UK export clearance will take an extra 24 hours on top of the five to 24-hour order-to-destination journey within the EU today.
In addition, entry clearance into the EU may take a further 24-36 hours if current US arrangements are any guide. It has little hope that technological fixes will make a big difference.
The biggest delay of all would come from being forced on to the seas. At present about 75 per cent of Honda parts and cars move through the Channel tunnel rail link, which is likely to become a bottleneck in a world of border checks. The Eurotunnel has room for only 200 trucks at the UK side, and 900 on the continent. The sheer volume of small consignments makes handling paperwork or checks hard. Stoppages make for large queues and there is little chance to make up for delays.
Honda thinks congestion may force it to use sea routes, which are more intermittent, require bigger deliveries and add three to six days of delay — if ports have the infrastructure and space to cope with the extra demand.
“Shipping takes a long time,” says Mr.Howells. “That’s what we are facing.” Mr.Freismuth of BMW also highlighted the “massive problem” physical checks would cause at Eurotunnel. “Without having a frictionless border, it will be a problem and there will be production stops at UK plants,” he said.
Mr.Rees-Mogg plays down the impact of more trade having to travel by sea. “Just look at what goes through Southampton regularly. Most goods are cleared within seconds, only 6 per cent of goods take more than a minute to clear,” he says. “Once we have left the EU we will not be obliged to follow the EU bureaucracy. We can make it more streamlined.”
Theresa May’s stated plan is to leave the single market and customs union. But the prime minister’s team seem to have devoted a lot more energy into finding ways to soften the exit.
This includes pushing for a standstill transition to 2021, and potentially a “temporary customs partnership” lasting for at least a year longer. In Whitehall, senior officials imagine those transitional measures in practice turning into a final arrangement, where Britain would in effect remain in a customs and goods area with the EU. “Isn’t it obvious?” asks one British official.
Yet for business, such hints about minimal actual changes are not enough to work with given all the uncertainties.
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