brexit: impact on automotive manufacturing in the uk · • following the brexit vote, we see high...

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© PA Knowledge Limited 2016

BREXIT: THE IMPACT ON AUTOMOTIVE MANUFACTURING IN THE UK

July 2016

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Source: PA research

• 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 2018-20

• 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.

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Source: PA research

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.

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Source: PA research

• 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.

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Source: PA research

FACTORY LOCATION

CHOICES LIKELY TO HAVE

BEEN MADE

DECISIONS YET TO BE MADE

2017 2018 2019 2020 2021 2022 2023 2024

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

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.

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Source: PA research

• 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.

Low High

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

The

question marks

Leveraging a diversified

footprint to react to future

developments

Taking advantage of alliances

and external market

conditions

The stayers

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 ramp-

down scenario

Tier support by Nedschroef and Magna to allow

for a quick ramp-up of production abroad

Continued investment in globalisation

Costly investment of new model launches to

be considered (Land Rover)

Significant commitment to UK and premium price

Highest local registration volume to be

covered by local UK production

A high degree of sales in dollars benefits from

the depreciation of the pound

Maintains British heritage

Land Rover is high,

Jaguar is low

Aston Martin only Aston Martin only

*From 2017 *From 2017

Significant investment in the Sunderland plant

in 2015 supports continuation in the UK

Flexibility supported by ties with Renault

Toyota

Honda

Mini

Nissan

Vauxhall

Jaguar Land

Rover

Aston Martin Bentley

>70%

>60%

>90%

>70%

>80%

>70%

>70%

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Source: PA research

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’

Lower domestic

demand, along with

more expensive

exports due to tariffs,

may slow down the

car turnover

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

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

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on the part of PA and speak as at the date

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