What’s Driving Automakers Out of Europe?
Blame has been cast on events like Brexit, but there are other changes that are reshaping the industry globally.
By Amie Tsang
The factory in Sunderland, England, where Nissan was going to produce its next X-Trail sport utility vehicle -- until it decided to do the work in Japan instead.CreditCreditOli Scarff/Agence France-Presse — Getty Images
Automakers, in quick succession, have moved in recent weeks to end parts of their operations in Europe. Nissan is the latest: On Tuesday, it confirmed that it would cease assembling Infiniti cars at its plant in northeast England.
The moves, during Britain’s wrenching debate over its departure from the European Union, known as Brexit, have raised the question: Is Brexit forcing the carmaking industry out of Britain?
It’s not quite so simple. Traditional car manufacturers, in Britain and in Europe over all, have been buffeted by forces around the world, and they assess where they want to make the next model of a car every few years or so.
As automakers allocate resources, they have been balancing the need to respond to these changes with the justifications for producing cars in places like Britain.
Here are some of the forces reshaping the industry.
Who is moving?
Takahiro Hachigo, the president of Honda, which has said it will shut down its factory in Swindon, England, by 2021.CreditTomohiro Ohsumi/Getty Images
•Honda said it would close its plant in Swindon, England, by 2021 and stop making one of its sedans in Turkey. The Swindon plant employs 3,500 and the Turkish plant about 1,100.
•Nissan reversed an earlier decision by deciding to produce the next generation of its X-Trail sport utility vehicle in Japan instead of Sunderland, England. Its luxury brand, Infiniti, is withdrawing from Western Europe altogether.
•Ford said in January that it would cut thousands of jobs across Europe.
•Jaguar Land Rover announced in January that it would be cutting 4,500 people from its global work force; most of the cuts are expected to be in Britain.
•Dyson, which is developing an electric car, moved its headquarters from Britain to Singapore the same month.
•General Motors pulled out of Europe in 2017, selling the Opel and Vauxhall brands.
Regulation of fossil fuels has tightened
In the wake of Volkswagen’s diesel-cheating scandal in 2015, when it used software to trick emissions tests, awareness of the harmful effects of fossil fuels has prompted stricter regulation throughout the Continent.
Some German cities are banning older diesel engines in an effort to reduce pollution in urban areas. London has initiated a levy on drivers of older diesel vehicles. Britain and France plan to phase out sales of new diesel and gasoline-powered cars by 2040.
In the meantime, more governments, drivers and carmakers are pivoting to electric vehicles. Cars running on alternative fuels made up 6 percent of new car registrations last year in Europe, up from 4.8 percent in 2017, according to JATO, an auto industry research firm.
Norway is aiming to sell only electric cars by 2025, while India is aiming to be all electric by 2030.
Carmakers are racing to respond. Volkswagen said Tuesday that it intended to sell 22 million electric cars over the next 10 years, compared with its previous goal of 15 million, and that the company would aim to be carbon neutral by 2050.
The investments necessary for building electric cars have added to cost pressures for automakers that, in some cases, have struggled to turn a profit in Europe.
In justifying the closing of its Swindon factory, Honda said it wanted to focus on electrification. “The significant challenges of electrification will see Honda revise its global manufacturing operations, and focus activity in regions where it expects to have high production volumes,” the company said.
China is speeding ahead on electric cars
As carmakers channel billions of dollars into grabbing a portion of the electric car market, many are looking to China, which is the world’s largest maker and seller of electric cars.
China wants one in every five cars sold to run on an alternative fuel by 2025, and officials have said the country will get rid of internal combustion engines in new cars altogether. The country’s rules also require carmakers to sell more alternative-energy cars if they want to continue selling regular models.
This has prompted car companies to realign where they make and develop cars.
Tesla has opened a factory there. Volkswagen signed an agreement with the Anhui Jianghuai Automobile Group last year to develop an electric vehicle. General Motors has made China the hub of its electric car research and development, while both Renault-Nissan and Ford have joint electric-car ventures in China.
The industry is getting more crowded
In their efforts to grab a share of the growing market for electric cars, traditional car companies are competing not just with each other but also against technology companies.
Uber, Alphabet and Tesla are channeling money into electric cars and autonomous cars, while reshaping the way people travel with ride-hailing services.
This has prompted rivals to team up, or to work with the technology companies, so that they are not left behind.
•Ford and Volkswagen formed an alliance in January to share technology for electric and self-driving vehicles, and save money.
•BMW and Daimler announced in February that they would collectively invest 1 billion euros in a joint venture focused on offering services like car-sharing and electric charging points.
•Audi, BMW and Daimler have joined forces to buy a digital mapping company. Daimler has teamed up with Uber on autonomous vehicles.
•BMW is working with the chip maker Intel and Mobileye, an Israeli tech company, to develop a self-driving car. It is also in a partnership with IBM to use artificial intelligence to adapt vehicles to owners’ preferences.
•Fiat Chrysler is working with Google on self-driving cars, General Motors invested $500 million into Lyft, and Volvo provided the chassis for Uber’s driverless car tests.
This shift has accelerated change and added to costs, said Peter Wells, a professor at the Center for Automotive Industry Research at the Cardiff Business School in Wales. And that has prompted companies to scrutinize whether they should maintain operations in markets that are not expected to grow and could become more difficult to serve.
“Companies around the world are having to re-evaluate their positions,” Mr. Wells said.
European markets are sluggish
The European car market is not growing. Annual car sales there peaked in 2007 at about 16 million. They’re at about 15 million now, according to JATO.
It is also a saturated market, dominated by European marques, and favors smaller cars. Carmakers hungry for profits generated by pickup trucks and S.U.V.s are looking elsewhere for growth. Sales of S.U.V.s in Europe are still far behind those in China and the United States.
The Italian-American company Fiat Chrysler said in February that it planned to expand its capacity in the United States by updating several plants. They will produce large Jeep models.
Certainly, even promising regions face challenges. In the United States, many believe that car sales have peaked, forcing the idling of some factories. And the economic slowdown in China has sent car sales plummeting.
But in announcing its withdrawal from Western Europe, Infiniti said it intended to focus on its S.U.V. in North America and its new models in China.
Brexit makes planning harder
Against this backdrop, the uncertainty surrounding Britain’s departure from the European Union has made it difficult for companies to plan ahead. Several car companies have said they will close their factories temporarily after the country leaves the bloc in order to adjust to the disruptions that could arise.
The fear is that Brexit could cause havoc with the carefully choreographed just-in-time production processes at assembly plants. In Britain, more than half of the components in cars come from the European Union, entering seamlessly on trucks from the Continent and arriving within minutes of being fitted in the final product.
After Brexit, those trucks could face substantial delays if they must go through customs checkpoints. Without a clear sense of the terms of Britain’s scheduled departure in a couple of weeks, making plans for production a few years down the line is more difficult. Investment into Britain’s auto industry fell by half last year.
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