The survival of Vauxhall's manufacturing plants in the UK represents a stiff challenge for the UK automotive supply chain
The acquisition of Vauxhall by French automotive giant PSA Group represents a somewhat different challenge to British industry from other acquisitions. Vauxhall hasn't been a British company since it was bought by General Motors in 1920, so this isn't a matter of 'Britain being open for business'. The survival of its UK manufacturing plants in Ellesmere Port and Luton will depend to a large extent on the deal struck over how Britain leaves the European Union.
This is more of a supply chain issue than anything else. The automotive industry depends to a large extent – perhaps more than any other industry – on international supply chains. This means that components cross national borders several times; for example, the crankshaft of a Mini is cast in France, shipped to the UK for machining and finishing, sent to Germany for installation into an engine, and then the engine returns to the UK to be built into the car. And if the car is exported, that's another border crossing. Since the automotive industry adopted the Japanese practice of "just-in-time" manufacturing, where components are not stored in a warehouse but go straight to the production line, all of these transitions have to be quick to avoid downtime in the factory.
If the UK leaves the European customs union, as seems likely, there is a danger that all of these transborder shipments will be delayed on reaching the UK. This, as former business secretary Sir Vince Cable has pointed out, could make the UK an unattractive place for PSA to continue to manufacture cars. On the other hand, PSA chairman Carlos Tavares commented yesterday that it represented an opportunity to build up the UK supply chain, as it would be more attractive for the company to source more components locally. Tavares has also said that a key factor in the acquisition was the prospect for Vauxhall and its sister company, Opel, to export outside Europe, which was blocked by GM; this would mean expansion of production and therefore an even larger potential for supply chain.
This is a concept that the UK government has understood for some time. In fact, Cable himself presided over a large-scale effort to improve the UK automotive supply chain which resulted in good progress. Good, but whether it was good enough is something that will have to be seen. The UK has expertise in all of the relevant techniques and technology to produce automotive components, but under the Coalition government of which Cable was a member there just wasn't a need to replicate all the supply chain outside the UK, because nobody was considering the possibility of the UK leaving the EU. There might be now. PSA has said that it has no current plans to close Ellesmere Port or Luton, at least until 2020. That surely means that the clock is ticking; and as Cable has said, if leaving the customs union increases costs for PSA then the logical thing to do would be to move manufacturing back inside the EU.
It is of course possible that special arrangements will be made for the automotive sector to make cross-border shipments of components easier once we are outside the EU. Relocation of large industrial facilities being a costly business, some of the larger automotive companies that operate in the UK, such as Nissan, BMW and now PSA would no doubt welcome this. But if this does not happen, then efforts to build up the onshore supply chain will have to be redoubled. This will mean establishment of new businesses or expansion of existing ones to meet the larger demand, and neither of these can happen without help; from customers, banks or government. Generally, it's taken government impetus to unlock the funding needed. We'll have to see whether the willingness to help is there, because this will be key to the much mentioned "making a success of Brexit."