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Thursday 9 March

Peugeot’s takeover of Vauxhall represents a unique opportunity for British manufacturing.

PSA Peugeot Citroën’s £2.2bn takeover of General Motors’ flagging European operations under the brands Vauxhall and Opel has generated the now familiar speculation of what it will mean in the context of Brexit. The first question should really be, what does it mean for UK manufacturing?

Britain is home to two Vauxhall plants at Ellesmore Port and Luton, employing more than 3000 people. The initial signs are not encouraging. Peugeot made a swoop for Vauxhall not long after undergoing an extremely painful efficiency programme which saw the French government rescue it with the acquisition of a 14 percent stake.

The emerging business is leaner and meaner. Upon confirmation of the takeover earlier this week, PSA’s chief executive Carlos Tavares said that, “the only thing that really protects them [staff] is their ability to be at the right level of performance.”

Jobs are secure for now, but without the types of changes that helped keep Peugeot itself afloat, they are far from guaranteed, even if the French manufacturer finds a way of using up Vauxhall’s chronically low spare capacity – usually around 65% rather than the recommended 80% – jobs are likely to be shed.

May’s remarks

German plants look the most vulnerable. Thanks to the country’s powerful unions, redundancies are rare. From a British perspective, one thing is for sure, any negative consequences will not be down to Brexit. Mr Tavares said so himself: “a hard Brexit from UK plants will be a nice opportunity in terms of business. This is something that the UK government completely understands.”

A telling remark. Clearly, the Peugeot executives have taken heed of both of Theresa May’s key gestures towards the car industry: her January speech more or less confirming a clean departure from the EU single market, and her assurance to Nissan, owner of the UK’s most productive car plant, of continued preferential access to the single market.

The obvious conclusion to make is that in the unlikely event the Prime Minister fails to secure an EU trade deal that keeps duties on imported vehicles at zero instead of the EU’s external rate of around 9%, the government will subsidise UK exporters’ added costs.

The supplier base

But the Brexit car question, as Remain campaigners will all too gladly point out, is not limited to duties on vehicles, but also on parts. 40% of the parts used to manufacture Britain’s cars are imported from the EU. What Remainers will not tell you is that duties vary between only 3 and 4.5%. But Mr Travares is not distracted by that part of the discussion, quite the opposite:

“The supplier base [will] need to be developed…It is important that we source parts from the UK, so that the cost structure will be more in pounds.”

The big issue for manufacturers operating outside and selling into a currency bloc, namely the Eurozone, is holding onto margins in the face of undulating exchange rates. British manufacturers have of course, always been in this position.

No doubt Tavares would like to have seen an allocation made in this week’s budget to boosting the supplier base as recently suggested in a letter to the Government by Nissan, £120 million to be precise. Nissan plans to almost double the amount it spends on parts from the UK, its current outlay stands at £2.5 billion.

The UK’s supplier base has seen better days, both a reflection of its former dominance and subsequent decline. The case of the British car industry demonstrates that the great future awaiting the British economy is not only about going global in the sense of signing fancy trade deals in marble halls, but exploring forgotten potential at home, where human capital and infrastructure are world class and easily accessible.  

The M4 corridor was once the envy of the world. The EU preferred the idea of spreading supply chains across continents, but Britain proved that this could be done in a single country. The appetite is there, the major manufacturers want to set up in the UK – Nissan’s Sunderland plant is the most productive in Europe, the fifth most efficient in the world – All the government needs to do is to help provide the skills and leverage a bit of investment and a much a bigger car industry will emerge from behind the shadow of EU Membership.