Brexit – Manufacturing Uncertainty

Brexit – Manufacturing Uncertainty

This June marks two years since the Referendum, and Brexit-fuelled uncertainty is still a significant concern for many in the manufacturing sector. Investment rates are at a low with businesses electing not to take on the risk of spending while post-Brexit arrangements and tariffs are unclear.

Car manufacturers may be experiencing the repercussions of this insecurity more than most. The average car is made up of over 30,000 parts and consequently has a complex supply chain. Car parts often travel across several borders as they are integrated in the finished product.

With over 1.67 million cars built last year, automotive manufacturing is a key industry for the UK and one heavily reliant on exports. According to the Society of Motor Manufacturers and Traders (SMMT), 80% of cars on UK production lines are intended for overseas markets and 56% of all exports are destined for the EU.

Brexit: The negative impact

Quoted in the Evening Standard, American car maker, Ford, has warned that

any sort of border restrictions or customs friction is going to be an inhibitor to us continuing to transact business as we have done for the last 40 years.” 

This is indicative of the widespread caution being exercised in the industry over the potential impact of Brexit. Many major car manufacturers are reviewing the effect on profitability of their continued presence in the UK.

PSA, a French group which owns Vauxhall, Peugeot and Citroen, has cut production drastically at its Vauxhall Astra plant in Cheshire, resulting in 650 redundancies. The company is said to have attributed this to Brexit, announcing that only once there is greater confidence around trading relationships would it be in a position to consider future investments in the UK.

Similarly, Jaguar Land Rover has suspended its plan to produce electric cars in Britain until post-Brexit tariffs become clear with the CEO stating in the Guardian that

uncertainty is really challenging us very much…”

Brexit: The positive impact

However, many major players remain hopeful in spite of Brexit. Nissan, BMW and Toyota have all decided to produce new models at existing UK plants since the 2016 Referendum. For example, Nissan has invested £37 million in its plant in Sunderland, creating 300 new jobs.

Almost a third of British businesses who currently use EU suppliers are now seeking UK- based replacements due to concerns over supply chains and tariffs post-Brexit. The number is set to rise and could increase demand for products in the domestic market.

If businesses are primed and have the skilled personnel to deliver, this may boost the UK economy. Yet, high-tech manufacturing, engineering and IT companies are struggling to recruit due to the shrinking workforce. Investment in up-skilling current employees is paramount to counter this. Firms will need to work smarter to grow productivity and keep internal costs to a minimum to enable them to overcome the potential challenges posed by Brexit, such as inflated external costs.

Despite the cuts and lack of investment confidence, the SMMT has reported that British engine manufacturing reached a record high last year, up 6.9% on 2016. Even during this period of uncertainty, manufacturing would appear to offer potential for profit and growth for those prepared to take on the challenge.

If you would like more information on this topic, please contact David Thompson, Partner and Head of Michelmores’ Manufacturing team.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.