A collection of MPs and leading figures from British industry gathered at a business park in Coventry last Thursday to discuss the future of manufacturing and the government’s industrial strategy.
Little did they know that 200 miles up the road in Sunderland, Nissan was about to make a major announcement with significant implications for the British economy that showed Theresa May’s new government had already activated its industrial strategy.
The guests in Coventry included senior executives from Rolls-Royce and Aston Martin, trade union leaders and council bosses. They were giving evidence to MPs on the business, energy and industrial strategy committee, which is going on a roadshow around the country to study what the government’s industrial strategy should be.
Hamid Mughal, the director of global manufacturing at Rolls-Royce, the FTSE 100 engineering group, told the MPs that industry was facing a “radical shift” because of dramatic advancements in technology. As well as 3D printing, robots and driverless cars, Mughal referred to Google Earth-like technology that would allow company bosses to monitor the inside of their factories around the world from the comfort of their desk. “When people talk about an industrial revolution, there really is [one],” Mughal said. “There is breathtaking technology that is coming together.”
This fourth industrial revolution would revolve around innovation and knowledge, he added, meaning that the UK, with its world-leading universities and advanced manufacturing companies such as Rolls, was well placed. “For once it plays to the UK’s strength,” Mughal said. “I am absolutely convinced it will play to our strengths, but we need to get organised.”
The Rolls executive warned that countries around the world were “investing huge amounts of political and economic resources” into trying to attract manufacturers to open new facilities and turn their region into a global base for new technologies. “Manufacturing has become as popular as football,” Mughal added.
The comments provide a fascinating context to the prime minister’s courting of Nissan, the Japanese carmaker. But they also show how ill-timed Brexit is for manufacturers and why it threatens to derail a revival in British manufacturing.
Nissan announced last Thursday that it would build its new Qashqai and X-Trail models in Sunderland and also intended to turn the site into one of the biggest car plants in the world.
The future of the Sunderland factory had been in doubt since the EU referendum. Carlos Ghosn, the chief executive of Nissan, warned that the company could decide to build its next-generation models outside Britain due to Brexit. However, Ghosn said last week that Nissan was committing to the site after receiving “support and assurances” from the government.
The news sparked a bitter political row, with Labour criticising the government for not revealing what it had offered Nissan, and for its apparently chaotic approach to leaving the European Union. May, however, hailed Nissan’s decision as “fantastic news”. She had met Ghosn at Downing Street earlier in the month while business secretary Greg Clark travelled to Japan to meet Nissan representatives.
One in three British-made cars are manufactured in Sunderland and it is the biggest plant in the country. More than 7,000 people are employed at the site, with a further 28,000 supply-chain jobs reliant on the factory, mostly in the north-east. Nissan opened the factory in 1986 after being wooed by Margaret Thatcher. It has invested more than £3.7bn in the site since then.
The growth of the Sunderland factory – which is now regarded as one of the most efficient in the world – has coincided with a spectacular revival in the British car industry.
In the 1980s the automotive sector was in the doldrums. More than 25 years on, Britain is close to overtaking its all-time production record for cars. In the first half of 2016 Britain built 897,157, up 13% on 2015 and the best performance since 2000. The all-time annual record was set in 1972, when the country made 1.92m cars. Jaguar Land Rover (JLR) alone intends to build 1m cars a year by 2020.
British-based companies are also piling money into researching and developing new technologies, particularly smaller and more powerful batteries for electric vehicles and driverless cars. Dyson, the vacuum-cleaner maker, is understood to be working on an automated City car in a top-secret project at its Wiltshire headquarters, while JLR is working with Warwick Manufacturing Group (WMG) on a battery.
Lord Bhattacharyya, the founder of WMG, based at the University of Warwick, wants to turn Coventry into Britain’s “motor city” and make it a global hub for the development of electric cars. Coventry will take a significant step towards becoming Britain’s “motor city” next September with the opening of the National Automotive Innovation Centre. The £150m project, backed by JLR, WMG and the government, will become a base for advanced research, with academics and engineers working together.
The ambition and the potential behind these projects explains the importance that May and her government attached to protecting the Sunderland plant. The automotive industry accounts for less than 1% of Britain’s GDP, but it employs more than 800,000 people, accounts for 12% of Britain’s exports, and invests billions in cutting-edge research. As well as being the home to JLR, Nissan, Toyota, Honda, Mini and others, Britain is home to eight of the 11 Formula One teams.
However, the government faces more severe challenges than saving the Sunderland plant if it wants to stop Brexit destroying the potential of the automotive industry. One senior industry source said dealing with JLR and Nissan was “chalk and cheese”. JLR is the biggest carmaker in the country. It not only employs more than 35,000 people in Britain – five times the Nissan staff in Sunderland – but is investing £3.5bn a year in research and development. JLR also has some major investment decisions coming up – such as where to build a new electric car plant.
Sources say JLR is relaxed at present about the impact of Brexit. It is understood that the government has privately told some executives in the car industry that it is confident the sector can retain tariff-free access to the single market. The UK automotive industry is in a strong position when it comes to negotiations about leaving the EU, because Britain imports more cars from Europe than it exports. Key European carmakers, such as Volkswagen and BMW in Germany, hold significant political clout nationally and locally.
The introduction of tariffs on sales in Europe, tariffs on importing parts, and restrictions on hiring staff from abroad would have a damaging effect on the automotive industry. According to the Society of Motor Manufacturers and Traders, 77% of cars built in Britain in 2015 were exported, with 57.5% of those heading to the EU. Andy Palmer, chief executive of Aston Martin and a former executive at Nissan, said: “We would like to be tariff-free not just into the EU but tariff-free around the world from our perspective. We are 80% export, so a competitive or weak pound multiplied by tariff-free is good news for us.”
The Aston Martin boss was speaking in Coventry after telling MPs that the government’s industrial strategy needs to focus on bringing car parts makers back to Britain. “We rely on a supply chain that is offshore,” he said. “We need to try to bring it back. Alot of the intellectual property is in the supply chain.”
Despite Brexit, Palmer has confirmed that Aston Martin will press ahead with construction of a new factory in Wales. But just across the English-Welsh border in Merseyside, another problem is brewing for May in the shape of Vauxhall.
Chuck Stevens, chief financial officer of Vauxhall’s US owner General Motors, warned last week it was “prepared to take whatever action is necessary” to get its loss-making European business back on track. It described the situation in the UK as a “speed bump on our path to where we want to take the business” and warned that it would write down the value of GM Europe by $400m (£329m) because of the referendum result and the subsequent fall in the value of the pound.
Vauxhall employs around 4,500 staff at factories at Ellesmere Port in Merseyside and Luton. The Ellesmere Port plant came perilously close to closing in 2012 until Vince Cable, then business secretary, travelled to Detroit to agree a deal and reassure GM about the government’s commitment to the industry. May and her business secretary may have to do the same. A report by consultancy firm LMC Automotive warned in July that GM was the carmaker most likely to shift operations from Britain to mainland Europe because of Brexit.
The announcement from Nissan gave May a Brexit boost, but that was just the start of a long and rocky road for the government and the automotive industry.
Nissan throws UK car industry a lifeline but GM could hit the road – The Guardian