‘There’s nothing that business hates more than uncertainty’—we hear it time and again, but in a world of rapidly changing business models and fast-moving technology, this mantra is becoming more pertinent than ever.
Of course, there’s always uncertainty, and there will always be issues troubling big corporations, but the current global business climate feels particularly unstable, with established companies grappling with the implications of a seemingly growing level of uncertainty in some of the world’s major trading regions, and within long established trading relationships. The impact on the automotive industry is clear, and as outlined in the latest edition of Automotive World’s ‘The automaker data book’, automakers have found themselves adjusting their strategies to navigate these challenges.
Business studies students will for years to come fascinatedly pore over the machinations of Brexit, but for automakers operating in, or trading with the UK, there could be little more challenging than Brexit—other than perhaps the way Brexit itself is being handled.
Sure, uncertainty itself creates exciting opportunities, but business overwhelmingly prefers to know what’s going on
At the time of writing, the UK’s departure from the European Union (EU) on the “do or die” date of 31 October 2019 looks highly unlikely—but confusingly not impossible—with the UK government compelled to ask the European Commission for a Brexit extension. Having failed to leave with a deal at the end of March, and at the end of June, this marks the third time the UK has requested a Brexit extension. Currently, the Johnson government is struggling to secure Parliamentary support and awaits acceptance of that third extension request from the EU27, ahead of outlining its next move.
As a result, automakers, suppliers and even consumers have no clear guidance on how they will be affected once—and if—the UK “gets Brexit done”. One of Europe’s largest car markets and vehicle manufacturing hubs is preparing to leave the trading bloc that helped it become what it is. And already in the uncertainty long ahead of any kind of Brexit, the UK automotive industry has suffered.
According to research by UK automotive industry lobby group the Society of Motor Manufacturers and Traders (SMMT), 80.3% of respondents “said that ‘no deal’ would damage their business’s future, and previous research has demonstrated that more than £500m has already been spent by UK Automotive to mitigate against the risks of ‘no deal’.” Furthermore, the organisation notes that “One in three UK automotive businesses is already cutting jobs”.
Automotive industry R&D investment in the UK has collapsed, from an average since 2012 of around £2.5bn-£2.7bn (US$3.2bn-US$3.4bn) annually to just £90m reportedly pledged as of the end of July 2019. Production has suffered, too. Automakers have implemented a number of shutdowns in 2019 in preparation for Brexit dates that have been and gone, contributing to a 20% drop in car production in the first half of the year. And all of this before the UK has even left the EU, deal or no deal. Those in favour of remaining in the EU fear that this is indicative of a challenging post-Brexit business environment; those in favour of leaving believe—despite many forecasts otherwise—that the positives of leaving outweigh the negatives. Nissan, which received assurances from the UK government back in 2016 that it would not be adversely affected by Brexit, has warned that it could end Qashqai production at its Sunderland factory in the event of a no-deal Brexit, causing a stir in the mainstream media despite having always said it would reconsider its commitment should conditions change.
Uncertainty comes not only from geopolitics, however; the rise of connected, autonomous, shared and electrified (CASE) technology is also creating new challenges for the global automotive industry
But despite the demise of a 2 million unit plus car market, there’s so much more troubling the global automotive industry than Brexit.
The US new vehicle market may in recent years have enjoyed some of its best results, but behind the scenes those automakers have been negotiating the impact of President Trump’s domestic and international policies that include rolling back Obama-era greenhouse gas (GHG) targets, pitching Washington against California and CAFE states over fuel economy and emissions regulations, confirming US withdrawal from the Paris Agreement on climate change, threatening to raise tariffs on vehicle imports, and promising to re-shore vehicle manufacturing. US trading relationships within NAFTA, with the EU, with China and with Japan—crucial to the automotive industry—have all felt the impact of Trump’s attempts to shake things up.
Even Trump’s unexpected decision to withdraw US troops from northern Syria was felt by the automotive industry. In neighbouring Turkey, Volkswagen had planned to construct an all new 300,000-unit factory to produce the next-generation Passat and Skoda Superb. Just weeks after announcing its investment, Turkish military intervention in Syria compelled Volkswagen to put its investment on hold, with reportedly no alternative location officially being considered.
Add to that the rock bottom status of bilateral relations between South Korea and Japan taking its toll on the purchasing of each other’s goods, China’s expansionism and cyclical market performance in some of the world’s major new vehicle markets. In India, Ford will be glad it put its house in order ahead of a sharp decline in that country’s market. In the face of a general slump in demand for consumer goods as well as a number of other factors, most truck, car and motorcycle manufacturers have been forced to cut output.
Having benefited from free trade and grown on the back of globalisation, the automotive industry now finds itself needing to reconfigure for an era of protectionism, tariffs and non-tariff barriers, and considerable uncertainty
Uncertainty comes not only from geopolitics, however; the rise of connected, autonomous, shared and electrified (CASE) technology is also creating new challenges for the global automotive industry. CASE will usher in new business models and technologies, new suppliers, new supply chains and new purchasing strategies. It will also have a significant impact on jobs, as has been made clear in recent UAW demands in its stand-off with General Motors, and by supplier Robert Bosch, which has just confirmed plans to cut 1,600 jobs in Germany by 2021 as it prepares for electric vehicle development in the post-combustion engine era. An astonishing admission, Bosch’s decision could prove to be hugely indicative of the impact that such paradigm shifts will have on the automotive supply chain as we know it. Consider, for example, the number of factories and the lengthy supply chains associated with combustion engine production alone.
CASE has come about through technological possibilities, but also policy-driven necessity; faced with a wide range of differing national and regional emissions targets and fuel economy policies, automakers find themselves needing to take their technology and product development into new and unproven territory, innovating out of necessity rather than for commercial gain.
Sure, uncertainty itself creates exciting opportunities, but business overwhelmingly prefers to know what’s going on. Having benefited from free trade and grown on the back of globalisation, the automotive industry now finds itself needing to reconfigure for an era of protectionism, tariffs and non-tariff barriers, and considerable uncertainty.
Automotive World’s ‘The automaker data book – Q3 2019’ is available now to download
