Airbag Required? Brexit and the Future of the Car Industry

If it was a miracle that the Chancellor managed to stay awake at the wheel as he cruised through the UK’s annual budget announcement, he might have been pepped up by news of the £1.9 billion takeover of Vauxhall and Opel by French company, PSA. The owner of Peugeot & Citroën stumped up the cash for the privilege of turning it into a French-owned brand, thereby making it the second biggest carmaker in Europe behind Volkswagen and ending 92 years of American ownership by General Motors. The deal should go through subject to regulatory approval by the end of the year.

All is good then? Well, PSA said it intends to manage the group by honouring existing commitments to workers. The 4,500 staff at the Ellesmere Port and Luton plants are working on production contracts running until 2021 and 2025.  However, the chairman of PSA’s managing board, Carlos Taveres, said of the company’s workforce: ‘They understand that their future is in their hands based on their ability to give themselves the level of performance that will ensure the sustainability of their company.’

His words are far from a ringing endorsement. The takeover comes at a time of fears that the EU referendum vote could make the UK plants less competitive through new trade arrangements. Recent news surrounding other carmakers based in the UK such as Nissan and Ford raises questions over the future of the industry here in the UK. GM Europe has not made an annual profit since 1999; something PSA has promised would change as it makes savings.

PSA met with government and unions last week to provide assurances. Existing manufacturing of the Vauxhall Astra at Ellesmere Port will continue until 2021. The Vauxhall Vivaro van will continue to be made at Luton until at least 2025. Mr Tavares is said, however, to be ruthless when it comes to job losses.  Latest figures show a drop in staff numbers from 111,228 in 2013 to 95,669 in 2015. There was also a further drop in the automotive division in 2016.

PSA was facing ruin in the wake of the financial and euro zone crisis. It also needed a French state bailout and the chief executive gained praise for the turnaround. A positive point on emerging automotive groups could be a comparison with Tata Motors. Since Tata bought Jaguar Land Rover in 2008 it has seen a turnaround. Another example would be Volvo, owned by the Chinese manufacturer Geeley. If PSA gets this right, Vauxhall will be an improved business with an increase in sales in the years to come.

The PSA group has, however, made the takeover during a big change in the automotive industry. There is not only Brexit to contend with. Electric and low-emission vehicles are on the increase with new models planned or already in production by all of the major brands. Autonomous driving technology is already a reality and will no doubt completely change our relationship with the car. Manufacturers have the task now to keep up in this fast developing market or lose out to tech giants like Apple and Google.

Not that such doubts are voiced openly. The British Business Secretary, Greg Clark, has already said that he is ‘cautiously optimistic’ about the takeover. Mr Clark said: ‘The conversations that I and the Prime Minister have had, both with GM and PSA, tell me [PSA] intend to safeguard the plants, honour their commitments and look to increase the performance and the sales of cars.’ The cabinet minister added: ‘We want to hold them to those commitments, but the messages we’ve had lead me to be cautiously optimistic’. Len McClusky, the leader of Britain’s biggest trade union, Unite, said ‘My call to the government is to make certain that our government is at the table, just as the French and German governments will be, batting for their workforce.’

Another worry is the 24 factories PSA will now own across Europe will be seen as too many. GM has lost billions in Europe over the last 18 years with Vauxhall and Opel. However, this sale will allow GM to almost completely leave the continent and focus on the US and the expanding Chinese market. GM chief executive Mary Barra said it had been a difficult decision to sell. She insisted the business would have broken even in 2016 had it not been for the UK’s decision to leave the European Union, which caused a sharp drop in the value of the pound.

As with most takeovers, it’s hard to distinguish the positives from the negatives, especially when the future of the entire industry is in doubt. Due to the Brexit negotiations and changes to cars in general, the company faces a challenging future. The Chancellor reflected these changes by expressing support for the car industry with investment for driverless car technology. PSA, however, has been seen as lagging behind rivals in this area, as well as with the shift to electric. Short term optimism must be mitigated by long term doubts and there is a very real chance that job losses and plant closures could happen in the next decade. Ford has already examined moving operations to Germany with a possible closure of its Welsh plant in Bridgend. This week’s news will probably do little to calm nerves. The British car industry might have a destination in mind but the route is not yet so clearly planned out.