Car makers must gear up for big changes
The planned closure of the Honda plant in England put a spotlight on the fallout of Brexit, as well as the huge challenges in general facing the global car industry, writes
The political script on Brexit is panning out as many would have expected.
We are being dragged all the way to the wire as Britain’s political leaders involve themselves in games of brinkmanship.
Theresa May and Jeremy Corbyn have been treading awkwardly and both are now facing blowback as
defections are announced and threats of cabinet ministerial resignations are uttered.
And still the no-deal Brexit train rumbles forward while our economies are tied to the track like those helpless figures in the silent movies.
In Dublin, the Government is digging trenches to meet the prospect of a no-deal departure while Irish food producers prepare for Armaggedon.
The economy in Britain is starting to look like a boxer on the ropes as it slows down sharply with business investment in retreat amid Brexit-related uncertainty.
This was particularly apparent last week when the Japanese car firm Honda announced the closure by 2022 of its plant in Swindon in southern England with the loss of 3,500 jobs of people directly employed by the firm.
Automotive experts have warned that the total job losses from this closure alone when one factors in losses among suppliers of components could be well in excess of 10,000 people.
Management at Honda declined to cite Brexit as the main culprit for the closure. Experts question this.
This is the final nail in the #Brexit coffin. This nonsense needs to stop now. - Honda to stun ministers with closure of Swindon factory pic.twitter.com/XuDhOyf9Xg
— Dave 🏴🇪🇺 (@Dave9340) February 18, 2019
What is clear is that a landmark trade deal will allow Honda to export cars produced in Japan directly into the EU.
That was the main rationale for the original deal between the UK and Japan. It was based on securing access to the EU for Japanese cars that will simply no longer apply.
But there is another arguably more fundamental factor driving this decision.
The rapid shift away from diesel and petrol-based transport towards electric cars is bringing about a structural
shift that threatens many jobs across Europe, in particular. Ireland has a surprisingly strong toehold in the automotive business, leaving aside the many posts in the car retail trade.
From a European perspective, it is the potential for damage to the German economy — the very motor behind the EU project n— which stands out.
In 2017, firms based in Germany produced 5.5 million vehicles, almost 80% of which were exported.
According to ZEW, the total workforce is around 820,000 — of which 114,000 are employed in research and development.
Total industry turnover in 2017 reached €423bn. It accounts for around one-fifth of the total revenues generated by domestic German industrial firms. Germany serves as the world’s premium car production hub — think Porsche, think Mercedes Benz.
A visit to the Deutsches Museum in Munich of science and technology should serve as a reminder of the country’s extraordinary engineering prowess. However, a major process of transition is under way.
The climate challenge is such that we are in effect obliged to leave the world of dirty energy and the combustion engine behind us.
This has huge implications for German states such as Bavaria and North Rhine-Westphalia where car manufacturers and suppliers are clustered.
Volkswagen chief executive Herbert Diess recently warned that German carmakers have only an evens chance of surviving as big car makers.
They must transform to meet new regulations and adapt their supply chains, he said.
Firms are investing in the production of electric batteries as they seek to jump on the electrical vehicle bandwagon.
They are racing to catch up as players such as Tesla and Renault Nissan — both now facing their own challenges it has to be said — lead the way in the new motoring revolution.
Compounding the situation we have the trade war initiated by President Donald Trump. He has targeted, in particular, EU exporters of motor vehicles.
The Munich-based IFO Institute has warned that if the US imposes tariffs of 25% on auto imports, German exports to the US could fall by almost a half, or €17bn, with the value-added output from the industry falling heavily by €7bn.
Hungary and Slovakia would also be particularly affected in such a scenario.
The recent emissions results rigging scandals also point to serious difficulties when it comes to cultural adaptation among leading car makers.
However, there are also signs that the industry is engaged in a fundamental process of restructuring with a big reduction in the number of outside component suppliers a likely outcome.
But the fact remains that the switch to electric vehicles is occurring at a rapid pace and the victors that emerge may well be largely outside Europe, with both the US and China in pole position.
ING has estimated that by 2023, the total cost of running an electric car will equal that of keeping a petrol or diesel vehicle on the road.
Up to 2017, a total of just over three million electric vehicles were supplied into the global marketplace, according to the IEA.
By 2030, the equivalent total is likely to be around 230 million. This transport revolution looks set to hit oil producers hard.
This could bring side benefits to energy-dependent countries like Ireland, as the cost of renewable energy sources also continues to plummet.
Ireland will not be unaffected by the transport transformation. The Government will have to step up investments in electric vehicle charge points. Transport investment plans may need to be re-examined.
A few years ago Enterprise Ireland had 85 component suppliers on its books while the IDA was backing 15 overseas companies.
Companies such as Kostal Ireland, Wellman International, Bruss, Mergon and Valeo are major local employers.
Wellman employs many people in Cavan and Valeo has a large facility in Tuam.
The Irish automotive industry suffered a huge shakeup in the 1980s and 1990s with the closures of the Ford, Dunlop and Packard plants.
A successful industry emerged from the ashes. However, parts of the sector may be impacted heavily by the process of transformation.
Brexit has been having something of a transfixing effect, but across the business world, a major process of technology transformation is underway with the auto sector merely a prime example of what could turn out at least in the short to medium term to be quite a destructive phenomenon. Policymakers caught up as they are in the Brexit whirlwinds, must not lose sight of this fact.
