Why auto sector must lead drive to eurozone

If you want to keep the pound don’t expect to be able to drive a car made in the UK.

Forgive the generalisation, but the boardrooms of car and component makers in the UK traditionally comprise a pretty Conservative – capital C – bunch. And yet, these decision-makers were probably relieved by the outcome of the election.

With another Labour term, there is at least the chance of an early referendum on the euro. With the Tories, it wouldn’t even have been on the agenda until after the next election.

The euro issue is now pivotal to the future of all companies in this country that manufacture and export vehicles and components. Indeed, one could argue that the matter is apolitical. It is unemotional common sense. Our automotive business ought to be booming. Vehicle demand at home, in Europe and in the huge north American market has enjoyed several years at or near record levels.

However, the automotive sector in the UK has been battered by exchange rates, according to a recent study by the AT Kearney management consultancy. It cannot take much more punishment outside the eurozone. Ford and Vauxhall are losing money in the UK. So are the three big Japanese transplants operated by Honda, Nissan and Toyota, in spite of the modernity of their factories and their reputations for high-quality manufacturing.

Jaguar and Land Rover probably lose money as well, but they have major expansion and investment factors to be taken into account. MG Rover is said to be operating profitably, but there are special, one-off reasons for this. Of the large volume car makers located in the UK, only Peugeot has been consistently profitable in recent years – and that is because it is an assembly operation with a largely euro cost base.

Blame the strength of sterling and the weakness of the euro. There is something structurally wrong when Nissan, a company whose factory in north-east England is widely acknowledged as the most productive in Europe, cannot turn a profit here. By contrast, pure importers like Fiat, Renault and Volkswagen have made hangar-loads of money here in recent years. Certainly they have benefited from good products, but exchange rates have distorted their business fortunes.

Perhaps the chancellor’s specific economic criteria for sterling membership of the euro cannot be met comfortably and quickly. Perhaps the country will reject the whole concept. Here, though, is a prediction: if sterling stays out of the euro, no new automotive plants will be built in the UK. The sector will not disappear, but it will become a second-rate investment priority on the level of South Africa.

So if you want to keep the pound don’t expect to be able to drive a car made in the UK.