If there is just one anecdote that succinctly sums up the problems that Brexit and the threat of tariffs pose to the UK car industry, it is this: the story behind the crankshaft used in the BMW Mini, which crosses the Channel three times in a 2,000-mile journey before the finished car rolls off the production line.
A cast of the raw crankshaft – the part of the car that translates the movement of the pistons into the rotational motion required to move the vehicle – is made by a supplier based in France.
From there it is shipped to BMW’s Hams Hall plant in Warwickshire, where it is drilled and milled into shape. When that job is complete, each crankshaft is then sent back across the Channel to Munich, where it inserted into the engine.
From Munich, it is back to the Mini plant in Oxford, where the engine is then “married” with the car.
If the car is to be sold on the continent then the crankshaft, inside the finished motor, will cross the Channel for a fourth time.
Another well-travelled car part is the Bentley bumper. It is made in eastern Europe before being sent to Crewe for further work, then on to Germany for finishing and finally back to Crewe where it is added to the luxury vehicle.
The UK automotive industry is right at the centre of concerns about what damage Brexit might inflict on the British economy – because the expansion of car plants since the financial crisis is based on remarkable levels of cooperation with suppliers on the continent. The 1.72m cars produced in the UK last year was a 17-year high and by 2020 production is currently expected to top the all-time high of 2m achieved in 1972.
But on average, just 41% of the parts used in a car assembled in the UK are actually produced in the country.
Bosses in the automotive industry are not just concerned about the impact of tariffs on vehicles made in the UK that are sold abroad, but on the parts used to make them, and whether they will still be able to move parts across the Channel quickly and affordably.
The modern automotive industry supply chain means that some car parts go back and forth across the Channel far more times than a Mini crankshaft before reaching the final assembly line.
“The automotive industry has potentially exploited the single market more than any other sector,” Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said.
“There are hundreds and thousands of movements per car. Anything that changes or puts barriers to that free flow of parts will have an effect. It is fundamental to the efficiency in this country.”
The speed at which parts are moved from factory to factory is critical. Most car plants in Britain operate with what is known as “just-in-time” (JIT) production, an idea imported from Japan. This involves components being added straight to the car when they arrive at the factory rather than being stored in a warehouse. The system dramatically improves the productivity of the plant – but any interruption to supply can bring production to an immediate halt.
Tim Lawrence, head of manufacturing at PA Consulting, said: “They schedule components on the production line and sequence it so parts arrive only hours before. You may think that sounds straightforward, but there is quite an art to this JIT supply chain. If you put a customs unit in place [because you are no longer part of a single market] things could be delayed at the border for a couple of day – it really has an impact.”
Theresa May has already warned that Britain is likely to leave the single market and customs union as part of Brexit, meaning the free movement of goods could end. This could have severe implications, Lawrence warns.
“There are two ways [for a carmaker] to approach it,” he said. “You could look to bring components into the UK to manufacture, so it could have a positive impact. But the challenge is if you are exporting 80% of the vehicles – like Nissan are or Vauxhall are from Ellesmere Port – you have to question the benefits of that if there will be tariffs on exports.
“The margins are slim for OEMs [original equipment manufacturer] – 5% to 10%. If you add a 10% tariff you could charge the customer more – which is unlikely – or you look at it very quickly and say ‘It’s going to to cost us hundreds of millions of pounds a year or the cost of a new plant is £800m to £1bn, so let’s move manufacturing’.”
The industry – led by Hawes and the SMMT – is lobbying the government heavily about issues including tariff and bureaucracy-free arrangements for the movement of car parts in any agreement with the European Union. But it has also highlighted the need for complex rules around the origin of parts to be recognised.
Existing trade deals between the EU and other countries include rules that products must have a certain proportion of parts built in their home market to avoid tariffs. For example, in the EU’s agreement with South Korea 55% of the parts in a car must be sourced from Europe to qualify for free trade.
These rules are an issue for the UK industry because less than half of parts in cars assembled in the country are sourced domestically. This means the government will need to persuade the EU and other countries with which it wants free-trade agreements that EU-sourced components should be classed as local content.
As Lawrence suggested, UK manufacturers are already attempting to build up the supply chain in Britain and encourage major suppliers to open plants in the country.
Colin Lawther, Nissan’s senior vice-president of manufacturing supply chain, told MPs earlier this week that the Japanese company was prepared to spend up to £2bn a year with British suppliers if its Sunderland factory could find parts locally.
The Nissan executive warned that the future of the Sunderland plant will be at risk if the government does not provide £100m towards building the supply chain in Britain.
Nissan’s site – the largest car plant in the UK – uses 5m parts a day on a production line that makes two cars every minute. “We’re talking two, three, four, six minutes’ downtime a day interruption is a disaster,” Lawther said.
The coalition government oversaw a programme to boost the number of component makers in the UK in collaboration with the industry. The Automotive Investment Organisation – part of UK Trade and Investment – is still working to boost investment.
However, Sir Vince Cable, the business secretary between 2010 and 2015, said the progress of the industry since the financial crisis was at risk.
“What is happening now is a shock to the system,” he said. “At the moment it is all bits and pieces [of news] but it adds up to an industry that is unhappy and unsettled.
“There are two things that will happen. Decisions over new models will switch away from the UK and I think when a company is face with tough decisions – like Vauxhall/Opel – the likelihood is it will go against the UK.”
Cable said there is likely to be “intensive lobbying” from the German government to protect jobs at Opel if PSA, the owner of Peugeot, completes a takeover of General Motors’ European business. “Its difficult to see what Britain can offer them [PSA] other than years of uncertainty,” he warned.
A Mini part’s incredible journey shows how Brexit will hit the UK car industry – The Guardian