Honda reveals huge cost of customs delay
The devastating impact of a hard Brexit on the UK car industry was laid bare to MPs when they were told that every 15 minutes of customs delays would cost some manufacturers up to £850,000 a year.
Presenting the industry’s most detailed evidence yet to the business select committee, Honda UK revealed yesterday that it relies on 350 lorries a day arriving from Europe to keep its giant factory in Swindon, Wiltshire, operating with one hour’s worth of parts on the production line.
The Japanese company said it would take 18 months to set up new procedures and warehouses if Britain left the customs union but that, with 2m daily component movements, even minor delays at Dover and the Channel tunnel would force hundreds of its lorries to wait for the equivalent of 90 hours a day.
“Outside of the customs union there is no such thing as a frictionless border,” said its government affairs manager, Patrick Keating. “I wouldn’t say the just-in-time manufacturing model wouldn’t work, but it would certainly be very challenging.”
Until now many large multinationals have chosen to present such commercially sensitive data to the government in private, but with MPs still struggling to force disclosure of 58 sectoral analysis reports produced by Whitehall officials, there is growing demand for the impact of leaving without a deal to be spelled out.
Witnesses said new tariffs would add an estimated £1,500 to the price of an imported car. Rachel Reeves, the Labour MP and former Bank of England economist who led yesterday’s hearing, encouraged the executives to outline how exporters might also face a possible £300 cost due to tariffs on their imported components.
If Britain leaves without a trade deal, ministers plan to apply World Trade Organization tariffs that stand at 10% for finished vehicles and about 4.5% for automotive components. More than a third of the 690 cars a day produced by Honda in Swindon are sold in Europe, which is also the source of 40% of its parts.
But Honda and other witnesses from Aston Martin and the Society of Motor Manufacturers and Traders (SMMT) argued that customs and trade threats were only the start of their concerns.
Manufacturers also fear a “semicatastrophic” end to EU recognition of UK regulatory approval, something Keating revealed Brussels was threatening in the event of a no-deal Brexit. Honda pointed to a recent study suggesting the cost of converting an EU car to match US standards is equivalent to another 26% tariff increase.
The industry also fears the impact of new immigration rules for EU nationals. Already 14% of Honda’s 3,500- to 4,000-strong Swindon workforce are from other EU countries, but this is growing fast: of the 600 extra workers hired to build the new Civic model last year, 40% were from the EU, as are 30% of the staff at the company’s European headquarters in Bracknell, Berkshire.
On Monday, European business leaders including Britain’s CBI warned that the government had just two weeks to make progress on a Brexit divorce agreement if they were to get the clarity they urgently need by the anniversary in March of article 50 being invoked.
“People are sitting on their hands waiting for more clarity about the likely trading relationship with our biggest partner,” Mike Hawes, the head of the SMMT, told the business committee yesterday.
Though Honda declined to discuss its UK profitability in public, the SMMT said car manufacturing was a low-margin business yielding an average 2-4% return on investment.
“You are pretty quickly getting into negative territory,” said Hawes when asked what this would mean in the event of a hard Brexit. “If we went on to WTO terms it would be incredibly difficult.”
He predicted there may be a diminished choice of cars on sale for British consumers if there is divergence in regulatory standards as some niche importers would not bother to have additional testing just for the UK market.
“If there is any sort of divergence, manufacturers will have to decide whether they want type approval on that UK vehicle, so there might be a contraction in terms of choice,” explained the SMMT chief executive.
The industry leaders dismissed arguments that mutual interest among European manufacturers would be enough to automatically force a solution. While 56% of British car exports go to Europe, just 7% of EU exports go to the UK. “The UK is an important market but what matters more is protecting the EU single market,” said Hawes.
Although some 10% of the SMMT’s 800 members were revealed in a survey to have supported Brexit during the referendum, its chief executive said he had yet to meet a member who supported leaving now.
“This is a fiercely competitive industry, yet this is a subject that is pretty unifying across the industry,” he told MPs on the committee.
‘I wouldn’t say the just-in-time model wouldn’t work, but it would certainly be very challenging’ Patrick Keating, Honda UK