• The Invisible Hand

Will the British Car Industry Soon Be Extinct?

Updated: Mar 12, 2019

The British car industry seems to be a relic of a bygone Industrial Age, but it could be about to become history.

News articles recently seem to be constantly about how the car industry in the UK seems to be faltering. Honda has declared it will close its Swindon plant by 2021 at the expense of 3500 jobs. Meanwhile Jaguar Land Rover and Nissan are also cutting production and jobs. Although the main decline of the car industry happened a while ago in the 1980s, this endangered industry could finally go extinct as global pressures mount and Brexit looms.

Britain’s car industry starkly contrasts with its neighbour Germany. 186,000 people are employed in the UK while Germany boasts 835,000 workers in the auto industry making this Germany’s largest employer and making up one-fifth of its exports. The British car industry suffered from the collapse of the manufacturing sector as a whole largely due to government policies in the 1980s. Britain had a massive car firm called British Leyland, but it became increasingly inefficient and had to be bailed out by government. Thatcher refused to allow this happen any more and stopped supporting the car industry. Since then the car industry has been a minor player in our economy. With the current economic climate it could finally disappear.

Coincidence or not this decline seems to have to have occurred just as Britain undergoes on of its most economically disruptive events ever- Brexit. Honda has not blamed Brexit and instead cites falling demand from Europe. However, many are sceptical of these motives. For the car industry European market access is essential because they rely on complex supply chains. Furthermore. the attractive of relocating abroad after Brexit is improved with a new trade deal between Japan and Europe. Particularly as EU rules of origin require car companies to uses 55% of part from the EU in order to access free trade. With the UK out of the EU, this will be a major hinderance to UK car firms. Britain may pursue independent trade deals but these will fail to match what we have with the EU.

Other specific reasons given by car companies include Jaguar Land Rover’s claim that they are cutting 4,500 jobs due to falling demand in China and possibly trade tensions there. Many car firms have also been caught by surprise with recent trends. In 2018 alone, sales of diesel cars fell by nearly 30% due to environmental fears and emissions scandals. There is also a shift towards hybrid and electric vehicles which the UK produces few of so we are losing ground to China which is the leader in this market. Such trends have caught the UK industry off-guard and there is a risk they will be too slow to adapt.

Finally some statistics. Although there was a 3% decline of the UK car sector in 2017, it had previously been growing and that was still the second highest output in 17 years. In total we produced 1.67 million cars of which 80% were exported. Therefore, this sector is still large and internationally competitive.

Overall, recent trends are alarming, but the UK car industry is by no means on its knees. If firms adapt and keep on top of recent trends they can still be successful. It all depends on Britain’s future relationship with Europe and the rest of the world. This highlights how large the stakes are in Brexit negotiations, but there is hope for this industry. A no-deal Brexit, however, would be a different story…

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