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Friday 11 January 2013

Honda Way Out Of EU

[Update at end of post]

Amidst all the talk of the UK somehow negotiating a different relationship with the European Union (EU), or even leaving it altogether, the usual suspects in the anti camp do not appear to have grasped the significance of an announcement by car manufacturer Honda, nor the devil that is there in the detail. Honda has an assembly plant at Swindon.

The news that 800 jobs are to be lost there, and not so long after 500 extra workers were taken on, is of course bad news for the local economy, but the reason for the layoffs should cause those who assert that all will be well if the UK were to exit the EU to stop and think: “Sustained conditions of low demand in European markets make it necessary to realign Honda's business structure”.

Yes, it’s all about Europe, and the numbers make grim reading: the Swindon plant can turn out 250,000 cars a year, but in 2012 only built 166,000. New Honda registrations in the UK were up last year by over 7%, but down in mainland Europe by over 6%. And it is that latter market that makes up 60% of the demand for Swindon’s products. It is the European market that the plant was built to serve.

There is no way that the UK could justify such a facility merely for its own market. And before anyone suggests that Swindon could make cars for other countries, maybe they should be aware that Honda already builds in the USA, Canada, Mexico, Brazil, Argentina, Thailand, Indonesia, China, Pakistan and India, as well as Japan. Everywhere else in the world is covered, thanks.

Moreover, any idea that Honda would have to maintain the Swindon facility even if the UK left the EU is an equally shaky proposition: the company already has a base in Turkey, which would be at least on an equal footing tariff-wise, and whose unit costs may well prove superior, given lower wage levels in that country. And transportation should not prove a problem: it’s now on the EU’s doorstep.

On top of all that, there is spare plant capacity across the EU in existing facilities – Honda would only have to come to a joint agreement or buy it out – from Italy to Spain to Portugal. Without our membership of the EU, it’s blindingly obvious – or at least it should be – that every motor manufacturing facility in the UK would face an uncertain future, with very few exceptions.

The Bentley factory in Crewe, now part of the Volkswagen group, could well manage the tariff differentials because it is building an aspirational brand for a well-off niche market. And the BMW-owned Rolls Royce plant could likewise manage the change. But volume car manufacturing, which is here because of our EU membership above all other factors, could not. Honda’s sales merely underscore the dependence.

It is no coincidence that anti-EU politicians are quiet on this subject.

[UPDATE 12 January 2013 1655 hours: Honda UK's managing director Dave Hodgetts has put very directly that he does not see Britain leaving the EU as A Good Thing. His comments included "we are more dependent on the European region for the exporting of our products ... Anything that weakens our ability to trade with the region would be detrimental to UK manufacturing ... There would have to be some penalty to being outside rather than inside".

Hodgetts said he would not have a problem with a changed UK-EU relationship if it did not affect competitiveness, then added "But if we see an anti-competitive situation if we were outside the EU then we wouldn't support that". One hopes that Young Dave will be listening]

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