I type this surrounded by tins of baked beans, a stack of chocolate bars and a few bottles of merlot – not my usual ‘writing supplies’ (although, close), but the contents of my Brexit bunker in which I am waiting for the end of life as we know it. For it’s slightly over a month to go before the UK is due to leave the EU, the country’s Supreme Court has just overruled the prime minister, who had shut down parliament, and what will happen next is still unclear. Deal? No deal? Riots in the streets? Right now, it is anyone’s guess.
Actually, I am contemplating the potentially lucrative addition of car parts to my stash, as UK warehouses are by now fit to burst and OEMs will be in need of the extra help come Hallowe’en and the horrors of Brexit. Indeed, in July I attended the half-year briefing of the UK’s Society of Motor Manufacturers and Traders (SMMT) and gained an understanding of the scale of the challenges facing automotive manufacturers after the UK departs the EU, whichever side of the Channel they are based.
By that point, the SMMT said, the UK’s automotive industry had already spent £330m ($401m) on contingency planning, including the stockpiling of materials and parts, warehousing, new logistics solutions, training in new customs procedures and extra insurance. All this is aimed at maintaining the just-in-time processes that are now fundamental to high-volume vehicle-making, and around which both production and logistics are organised.
The dangers of any disruption to these processes had already been thrown into stark relief in June, when the SMMT released its ‘2019 UK Automotive Trade Report’. This estimated that any delays in shipments of parts caused by problems at the border could cost the industry up to £50,000 per minute – a figure to send chills down the spine of any plant manager or head of logistics.
In the two months since the briefing, the expenditure on contingency planning will have climbed still higher. Moreover, to put this number into context, the SMMT’s CEO, Mike Hawes, pointed out that only £90m had been invested in the UK automotive industry up to June – and that included £23m of government support for electrification programmes. Over the previous seven years, the average had reached £2.5 billion per annum.
Hawes said the drop in investment could not be explained by the cyclical nature of the automotive industry, and described the fall as “precipitous”.
But although Brexit is unprecedented, in the sense that no country has previously left the EU, it is useful to remember that other nations are also wrestling with trade relations being ripped up or set up. I am referring to some of the biggest automotive markets in the world: the US, China and Japan, as well as the EU (separately from the Brexit negotiations).
At our recent US conferences (click here for AL Global Detroit report), for example, there was much discussion of the US-Mexico-Canada deal which is due to replace the previous North American agreement, but has not yet been finalised; plus, the ongoing trade wars between the US and its major trading partners continue to cause concern.
All of this is set against a weakening macroeconomic climate, including slowdowns in both the US and China, which means that the automotive industry worldwide is looking at some tough times ahead, with the exception of a few bright spots in Mena (see our recent articles on Saudi Arabia and Tangier) and South-East Asia.
Although we stand to bear the brunt of it in the UK, Brexit is really one big challenge among many and hardly the first crisis the industry has been through. On the other hand, if Automotive Logistics content grinds to a halt in the next few months, you will know I didn’t make it out of the bunker.