Every year, more than 1m brand-new cars leave Britain, bound for Europe and the rest of the world.

Yet for each one that departs, two arrive, a testament to the UK’s deep reliance on overseas car plants to keep its forecourts stocked.

The prospect of new tariffs after Brexit is prompting some carmakers to consider tearing up this decades-old arrangement by making more of their locally-sold vehicles in Britain.

“It’s always a good thing to manufacture the cars close to the market where you sell them, generally speaking,” said Carlos Tavares, chief executive of Vauxhall owner PSA. “So I would love to manufacture many Vauxhall cars in the UK for the UK market . . . that’s what’s at stake with the Brexit outcome.”

Adapting British plants for purely domestic production would only be considered if tariffs were introduced — the current seamless cross-border arrangement with the EU is too profitable to replicate with UK-only plants.

Such a change would make the British industry more like the US, where only half of its vehicles are imported; or like China, where the figure is as low as 5 per cent because of punitive import charges.

But both of these are huge markets — buying close to 40m vehicles between them and dwarfing Britain’s 2.3m annual car market. China has the world’s largest population, and a growing middle class, to support strong growth prospects for carmakers opening plants in the country.

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It would be impossible for the UK to become fully self-sufficient, as the most popular cars, such as the Ford Fiesta, cannot be produced competitively inside Britain, largely because labour costs eat into already slim margins on smaller cars.

Even the US, which has some high-value exporters, such as BMW or Mercedes, is reliant on Mexican facilities to make vehicles that are uneconomic to produce internally.

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The idea of transforming Britain’s export-driven car industry to one with a more domestic focus received fresh attention after the Financial Times reported last week that Nissan drew up plans to double-down on its UK production if it faced export tariffs.

In response the Japanese carmaker said it had “modelled every possible ramification of Brexit and the fact remains that our entire business both in the UK and in Europe is not sustainable in the event of WTO tariffs”.

Typically car facilities, which operate on razor-thin margins at the best of times, try to eke out competitive advantages by building one or two models in large quantities, which they then sell in multiple jurisdictions.

Employees perform a quality inspection on an Infiniti Q30 automobile on the production line at the Nissan Motor Co. production plant in this arranged photograph in Sunderland, U.K., on Thursday, Dec. 3, 2015. Nissan rose 0.7 percent at the close Thursday in Tokyo trading. Photographer: Luke MacGregor/Bloomberg
Employees perform a quality inspection at Nissan’s Sunderland plant © Luke MacGregor/Bloomberg

One challenge of a more domestic focus is that making multiple cars on the same line adds cost and complexity, sapping a plant’s profitability.

“Volume is always one of the drivers to get competitiveness,” said one senior industry executive who has operated plants all over the world. “It doesn’t make sense to make lots of low-volume models.”

South Africa and Australia once both had domestic car industries, but lacked the scale to support their plants.

South Africa adapted by reducing the number of models it made, and by becoming an international export hub. It now has major operations from BMW, Ford, Toyota and Volkswagen.

However Australia’s car industry withered after its failure to evolve — and a poor free-trade deal with Thailand. The country closed its final plant in 2017.

Industry executives cautioned that plants exposed to a single midsized market, such as the UK, faced much higher risk, with production solely based on local demand rather than being balanced between several countries.

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Still, the idea of localised production has garnered more credit as manufacturing advances mean carmakers can squeeze a greater variety of models down the same production line, easing the profit erosion caused by added complexity.

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While French group PSA, for example, has dozens of models spread across its Peugeot, Citroën, Opel, Vauxhall and DS brands, these are all produced on one of two wheelbase trays, or “platforms”.

The company’s Ellesmere Port plant produces Vauxhall Astra cars, but winning the next iteration of the model could pave the way for UK-centred production of other vehicles in the range, such as the Peugeot 308 or the Citroën C5 Aircross.

Total sales of all models on its larger “EMP2” platform, almost all of which were manufactured overseas, were 133,000 in the UK last year. This is more than double the 62,000 cars produced by the Cheshire site, of which 80 per cent were exported.

PSA’s merger with Fiat Chrysler, which owns the Jeep brand, opens even more long-term possibilities for the site.

“Today nobody challenges the fact that we can share platforms with very different brand flavours even across different audiences,” said Mr Tavares, who once joked that Vauxhall could be the “only survivor” among the UK car plants because it was a brand sold only in Britain.

One big challenge lies in the supply chain — not enough of the parts that go into British cars come from the UK, leaving plants such as Ellesmere facing higher costs for building cars in Britain if import tariffs come in.

Line chart of Unit sales, rolling 12-months (m) showing State of the UK car industry

Under World Trade Organization rules, cars face 10 per cent tariffs while parts are charged at 2.5 per cent.

Electric cars, with fewer moving parts and shorter supply lines, may help ease this, said Justin Cox, head of global production at LMC Automotive, although a lot will depend on where the batteries are sourced.

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Another obstacle is demand. Britain’s market is so modest that several of its plants would fall well short of output levels needed to remain viable once exports were stripped out. 

Nissan’s Sunderland site, which is larger than Toyota, Vauxhall and Mini’s plants combined, has a capacity of 600,000 cars. Last year the site made 320,000 cars, while Nissan’s total sales in the UK were just 90,000.

Of the three cars made in the plant — the Qashqai, the Leaf and the Juke — Nissan sold just 77,000 in Britain.

Nissan’s contingency plan for post-Brexit tariffs included ramping up sales to as high as 20 per cent of the UK market — which would equal 400,000 cars — enough, the company believed, to sustain the site’s future.

BMW faces a similar conundrum at its plant outside Oxford. Combined British sales of the Mini, the BMW 1 series and the X1 compact SUV, which all sit on the same platform and could be made at the site, last year were 108,000 — less than half the 222,000 Mini vehicles made by the site currently.

“You either have to look at scaling down your factory, or being far more multi-product to make it work in the UK,” said Mr Lawrence.

“Over time it’s feasible. I’m not saying it’s likely, but it’s feasible.”



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