BREXIT: THE IMPACT ON AUTOMOTIVE MANUFACTURING IN THE UK

Transcription

1 BREXIT: THE IMPACT ON AUTOMOTIVE MANUFACTURING IN THE UK July

2 The UK exports over 1.2 million cars per year with over half going to the European Union (EU) Following the Brexit vote, we see high levels of uncertainty driven by the current political and economic environment. If this continues, car sales in the UK could fall by 5-10% Investment decisions by original equipment manufacturers (OEMs) based in the UK could be delayed due to this uncertainty This uncertainty comes at a time when technology is changing fast, eg electric vehicles and autonomous vehicles, so overseas investment in the UK on these new technologies may be impacted We see three categories the UK OEMs fall into the leavers, the question marks and the stayers Japanese implant investments rely heavily on exports to Europe and have relatively low margins and profitability. They therefore face the biggest risks and are most likely to leave. These companies will have to make key investment decisions in the next two to three years when trade arrangements for Brexit may still be unclear Mini and Vauxhall are question marks because they have a stronger heritage (especially Mini) but they have EU options JLR is a stayer because the company has options due to its global footprint. It has an advantage around a higher margin, but it is likely there will be more regional and local production, and low to no growth in UK production. There is also a chance it will increase its global footprint We don t see an immediate reversal of investment decisions already made, but decisions taken in next 12 months will impact investments that will be made in The supply chain investment will tend to move with OEM volumes with a bigger impact on jobs and the economy. There is also a chance of more localisation if imports are more expensive. 2

3 During the last six years, there has been significant growth in the UK automotive industry. In 2015, production increased by 5.2%, employment in the sector rose by 3.15% and turnover was boosted by 7.3% to 71.6 billion. Last year, almost one in every five cars registered in the EU was produced in the UK. Most of the production is exported, where 50% is destined for the EU market. At the same time, the domestic market is heavily reliant on imports. 3

4 The UK remains in the EU and maintains free movement of goods and people The UK remains in the European Economic Area with free movement of goods and people largely retained. The UK has EU regulations in place, but without UK influence over them (ie Norway) The UK establishes bi-lateral trade agreements with key trading partners The UK establishes trade agreements based on World Trade Organization rules, with 10% potential tariffs. 4

5 TRADING ARRANGEMENTS Several UK car factories face an uncertain future following Britain s vote to leave the EU. A period of uncertainty during talks between the UK and the EU over Brexit may prompt some overseas carmakers with UK plants to invest on model upgrades and new car launches elsewhere in the world. FACTORY LOCATION CHOICES LIKELY TO HAVE BEEN MADE DECISIONS YET TO BE MADE HONDA CIVIC/ CR-V CIVIC VAUXHALL ASTRA MPV MINI COUNTRY MAN CLUBMAN MINI TOYOTA AURIS/ AVENSIS AURIS NISSAN LEAF/ JUKE NOTE QASHQAI INFINITY Q30 JAGUAR XJ F-TYPE XF/XE F-PACE XJ/XJR LAND ROVER EVOQUE NEW DEFENDER RANGE ROVER SPORT DISCOVERY SPORT EVOQUE/ DISCOVERY 5

6 The leavers plants run by Honda and Toyota are most at risk of closure after Brexit. They are highly reliant on exports to Europe and have relatively low margins and profitability The question marks Mini, Nissan and Vauxhall are unknowns. Although they have a strong British heritage (especially Mini) they have EU options The stayers Aston Martin, Bentley and Jaguar Land Rover are stayers. Although they are highly dependent on the EU and overseas markets, they have a British-centric operation and brand. Groups OEM Share of new models* Share of model refreshers* Export share of UK production Comments The leavers Sustaining current investment by choosing to exit Toyota Honda *From 2017 *From 2017 >70% >60% Competitiveness is at risk due to a high volume of exports to Europe in light of 10% tariffs and new model portfolio Exploitation of current investment, eg Honda Civic, followed by slow rampdown scenario The question marks Leveraging a diversified footprint to react to future developments Mini Nissan >70% >80% Tier support by Nedschroef and Magna to allow for a quick ramp-up of production abroad Significant investment in the Sunderland plant in 2015 supports continuation in the UK Flexibility supported by ties with Renault Vauxhall >70% Highest local registration volume to be covered by local UK production Continued investment in globalisation The stayers Taking advantage of alliances and external market conditions Jaguar Land Rover Aston Martin Bentley Land Rover is high, Jaguar is low Aston Martin only Aston Martin only >70% >90% Costly investment of new model launches to be considered (Land Rover) Significant commitment to UK and premium price A high degree of sales in dollars benefits from the depreciation of the pound Maintains British heritage Low High 6

7 New technologies in the connected and autonomous car may be ignored due to investment re-prioritisation and the lack of EU research funds UK may be unable to shape the future Investment from new players and suppliers may become unattractive due to the new trade agreements Lower domestic demand, along with more expensive exports due to tariffs, may slow down the car turnover Cost of production may increase as 64% of components are imported (unless UK suppliers provide higher autonomy) British OEMs may be isolated from a potentially closed EU club EU research funding and foreign investment may become unavailable UK may lose its voice during the shaping of the regulatory framework in the EU Domestic policy may diverge from the EU regulatory framework 7

8 We Make the Difference An independent firm of over 2,600 people, we operate globally from offices across the Americas, Europe, the Nordics, the Gulf and Asia Pacific. We are experts in consumer and manufacturing, defence and security, energy and utilities, financial services, government, healthcare, life sciences, and transport, travel and logistics. Our deep industry knowledge together with skills in management consulting, technology and innovation allows us to challenge conventional thinking and deliver exceptional results that have a lasting impact on businesses, governments and communities worldwide. Our clients choose us because we don t just believe in making a difference. We believe in making the difference. Corporate headquarters 123 Buckingham Palace Road London SW1W 9SR United Kingdom Tel: paconsulting.com This document has been prepared by PA. The contents of this document do not constitute any form of commitment or recommendation on the part of PA and speak as at the date of their preparation.. All rights reserved. No part of this documentation may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise without the written permission of PA Consulting Group. 8