Honda’s hammer blow to the heart of UK manufacturing

First British car plant to shut since 2007 sparks fears for industry as Brexit looms

Sylvia Pfeifer in London and Kana Inagaki in Tokyo


© FT montage; Bloomberg




Britain was to be the gateway to Europe. It was the 1980s and prime minister Margaret Thatcher wooed foreign investors with the promise the country would be a springboard to the continent. Japan’s carmakers were enticed and flocked to the UK.

Nissan led the way, its first car rolling off the production line in Sunderland in 1986. Honda arrived in 1985 and started producing in Swindon in 1992. Car production began at Toyota’s plant in Burnaston in Derbyshire in the same year.

Fast forward three decades and the late UK prime minister’s promise hangs in the balance as Britain’s industry faces a cliff-edge, no-deal Brexit that threatens the loss of access to Europe’s markets just at a time when the big manufacturers need to make key decisions to remain competitive.

It is why Honda’s decision to close its factory in Swindon, which produces the Civic, is a hammer blow. Not just for the 3,500 people at the plant and up to 3,500 who could lose their jobs at suppliers to the carmaker, but for a British auto industry that is already stuttering because of a combination of challenges.

These include falling demand for diesel, disruption from trade tariffs, tougher environmental regulations and a seismic shift in the form of electrification.

“This is a body blow to UK manufacturing,” said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, the industry body. “Swindon is part of the fabric of the UK automotive industry.”




Investment in the sector has stalled. Levels were down by almost 50 per cent last year to £588m, according to the SMMT. At the same time, production has dropped to its lowest level in five years, with 1.52m cars made in UK factories in 2018.

Just two weeks ago Nissan announced it would no longer build its X-Trail sport-utility vehicle at its plant in Sunderland, the biggest motor manufacturing facility in the UK.

Jaguar Land Rover said in January it would cut 4,500 jobs from its workforce, a large majority of which are based in Britain. Ford has also warned it could make more cuts at its two UK plants if Britain crashes out of the EU without a deal.

But Honda’s decision is the biggest blow to the industry yet. It is the first-ever closure of a vehicle factory in the Japanese group’s 71-year history and will also mark the first closure of a car factory in the UK since Peugeot quit its Coventry plant in 2007.

Yet, despite the enormity of the decision, there were still questions around why Honda pulled the plug on Swindon now, with just 40 days to go before Britain leaves the EU with potentially no deal in sight and delays at customs almost a certainty.

For most of its existence, the Swindon plant has generated only marginal profits for Honda and production has dropped from a peak of about 250,000 cars before the financial crisis in 2008 to just 161,000. Yet the Japanese group’s unwavering loyalty to Britain remained even as the country decided not to adopt the euro against its wishes.

Despite an adamant denial from the usually softly-spoken Takahiro Hachigo, Honda’s chief executive, who cited the group’s need to invest in electrification as the main factor, the view among many is that Brexit must have played a role.




That has also created alarm among Japanese business executives, who are typically conservative but may be influenced by Honda’s decision to follow suit and move.

Already Sony plans to re-domicile its European headquarters of its consumer electronics business from the UK to the Netherlands, following a similar move by Panasonic.

“This is the same for any other Japanese company and I’m sure other firms are struggling with similar decisions,” said a senior executive with close knowledge of Honda’s operations. “There is no way a company can formulate its strategy in this environment. It’s pretty hopeless.”

Honda, however, was categoric that Brexit was not a factor.

Ian Howells, senior vice-president for Honda Motor Europe, insisted: “I can say hand on heart Brexit was not part of that decision.”

He added that Honda was due to make a decision on where to build the next Civic model “around this quarter.”

It was one “driven by global factors” and taken for strategic reasons as Honda moves to restructure its operations to adapt to the industry’s seismic shift towards electrification.

The company believes against that background it was best to focus on those markets where it has the highest production volumes, notably Asia-Pacific and North America, with volumes in excess of about 2m in each.

“When I compare those two markets against a market in Europe which is around 150,000 units where would you place your investment on something that is transformational in terms of business? It drives the decision towards where production is the highest, sales opportunity is the highest,” Mr Howells told the Financial Times.





He also played down the recent signing of an agreement between Japan and the EU which holds out the prospect of tariff-free trade from 2027.

Honda is betting the shift to electric vehicles will give the company another chance to revive its fortunes in Europe. That involves shutting down Swindon and exporting hybrids and EVs from Japan and China to Europe.

“We want to strengthen our brand once again in Europe and if we think about optimising global manufacturing, I think [ending production at Swindon] is the best option to take,” Mr Hachigo said.

Honda exports about half its Swindon-made cars to the US and these will instead be built locally following the plant closure. The closure will be in time for the roll-out of its next Civic model in 2021.

For Britain’s car industry, however, which had become a flag bearer for the country’s manufacturing, the future looks uncertain at best. A big decision looms for Toyota, which has pledged to build the next-generation Auris hatchback at its plant in Burnaston.

The company, known as one of the most conservative within Japan’s biggest carmakers, committed to maintaining its production in the UK as recently as two weeks ago. But analysts say Toyota, which declined to comment on Tuesday, has even more options than Honda in Europe since it has plants in France, Turkey and the Czech Republic.

“They have usually been the last to make these kind of decisions but that doesn’t mean they have never done it,” said CLSA analyst Christopher Richter. He pointed to Toyota’s announcement to withdraw from car manufacturing in Australia in 2014 after a similar decision was taken by Ford and General Motors.

And the spectre of Brexit looms large. Greg Clark, the UK business secretary, told MPs in the House of Commons that the one message coming from across the UK-based motor industry was that a Brexit deal should be ratified and “no deal” averted.

“The motor industry, Japanese investors and Honda in particular have been very clear for many months that Brexit is an additional worry at a difficult time,” he said.

Clarity on the terms of Britain’s departure from the EU is paramount, said the SMMT’s Mr Hawes. Its competitiveness is at stake.

“We need to make sure that we give global investors no reason not to invest in the UK,” he said.

“As we speak there are cars on boats from Japan and Korea bound for the UK but I have no idea what tariffs or customs arrangements they will face when they arrive here. It is a huge risk.”


Additional reporting by Robin Harding in Tokyo and James Blitz in London

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