Honda, Nissan and JLR: what next for the automotive sector?
In December 2018, Jaguar Land Rover (JLR) announced thousands of job cuts, a decision widely reported as being partly a response to Brexit. In February this year, Honda’s announced that it will close its Swindon factory, although the company denied Brexit was a factor. In June, Ford announced it would close its engine plant in Bridgend, again stating that Brexit was not a factor. But whether or not Brexit is hitting UK factories, the global car industry is facing some huge changes and challenges.
The auto sector is a vital part of the economy. Making cars, selling them, their servicing and repair all provide good-quality jobs for hundreds of thousands of skilled workers. Our towns and cities are designed round the car. Affordable personal mobility is vital for many people, while owning your first car is still a rite of passage to adulthood and freedom.
Yet the sector has major problems. JLR, for example, over-committed to diesel-engined vehicles just as diesel went from being seen as eco-friendly to being dangerously polluting. With governments and local authorities introducing clean air policies, diesel vehicles have become difficult to shift.
Electric cars have been heavily promoted and subsidised, with every manufacturer working on electric models. But the R&D costs are huge. Moreover, while firms can use the performance of petrol and diesel engines to differentiate themselves, electric motors are much more generic and easier to integrate, undermining the ability of firms to promote their vehicles as ‘premium’. How the big car companies guarantee a good return on their investments in electric cars, particularly when competing against new entrants with lower overheads like Tesla, is a major concern.
But even the future success of electric vehicles depends on customers actually buying the cars. While the shift to electric seems inevitable, customers are sceptical about spending large amounts of money on cars that currently have a low range and are slow to charge up.
Another problem is whether consumers will continue to buy cars at all, or at the very least delay those purchases. For younger people living increasingly in cities, car ownership is less important than in the past, particularly thanks to low-cost ride services like Uber and Lyft. With all the expense of learning to drive, high insurance rates for younger drivers and plentiful public transport, urban dwellers are finding car ownership less attractive than in the past.
How will manufacturers maintain profitability when faced with increasingly sceptical customers and big bills for R&D? Will there be a new round of mergers and partnerships in the industry to try to share development costs? How will international supply chains develop when global trade is being questioned? Will the consumer want to own a car or just hire it? Will new entrants like Tesla and Dyson – and, of course, the Chinese – thrive without the legacy costs of the old manufacturers? Who will be the winners and losers?