Carmakers’ suppliers at risk of being hit by Brexit tariffs

Before the new Bentley SUV purrs away from the showroom, its bumper will have already travelled 2,200 miles, crossing the English Channel three times.

The luxury carmaker is owned by Volkswagen but based in Crewe, where VW invested heavily to upgrade a factory that dates from the second world war.

But while the final assembly of each Bentley remains in Britain, the components that make up the cars are drawn from across the world, and often zigzag back and forth between factories in the UK and the continent before arriving at Crewe.

That leaves Bentley’s supply chain, in common with that of almost every other car manufacturer in Britain, at risk of being hit by tariffs if Britain leaves the European single market.

Bumpers for some Bentley Bentaygas, for example, are made in Europe but then sent to Crewe for inspection before then going to Germany for specialist painting. After that, they return to the UK for final assembly.

Another example of the interconnectedness of the supply chain is a fuel injector for diesel lorries manufactured by the US component maker Delphi.

This part uses steel from Europe which is machined in the UK before going to Germany for special heat treatment.

The injector is then assembled at Delphi’s UK plant in Stoneham, before being sold on to truckmakers based in Sweden, France or Germany.

If the resulting truck is sold into the UK market, the component or materials used in it will have crossed the Channel five times before the lorry is ever driven by the customer. If tariffs are applied at each stage, the cost could be substantial.

Suppliers to the UK car industry have warned that just the uncertainty over future trade agreements may force them to relocate parts of their manufacturing process overseas.

“If you have any tariffs, you would have to fundamentally look at your whole supply chain because you could quickly end up losing your margin on the component,” said Tim Lawrence, head of manufacturing at PA Consulting.

The UK car industry supports 169,000 manufacturing jobs, of which 78,000 are in supply chain companies, according to the trade body SMMT.

Some 18 of the world’s 20 largest parts groups have operations in the UK, including Bosch, Continental, Magna and Delphi.

Two-thirds of the £4bn of motor components that are exported from the UK go to the EU, while the vast majority of materials that go into British-built cars are imported.

If we faced tariffs, we would need to make the supply chain shorter and more integrated, or would need to take the assembly out of the UK

Consultancy Vendigital estimates that, of the £15bn-worth of materials used in UK cars, some £12bn comes from overseas.

Several of the component companies said that they were unable to relocate full production to the UK because there was not enough scale to make them economically viable.

“If we faced tariffs, we would need to make the supply chain shorter and more integrated, or would need to take the assembly out of the UK,” says a manager at one motor supplier with plants across Europe.

“Today in Europe it is easy, there is a good logistics chain, it is easy to get materials from the UK to Europe and the other way.”

When it comes to engines, Ford and BMW both import parts from Europe to make engines in the UK that are then sent for assembly into cars on the continent. Many of these cars, such as the popular Ford Focus or BMW 3-series, are then sold back into the UK market.

Efforts are already under way to “British-ise” the supply chain for cars manufactured in the UK. In July 2013, the Automotive Investment Organisation — an arm of the Department of Trade and Investment — was set up to encourage supply groups to relocate to the UK.

In the past three years, the percentage of UK parts in British-built cars has risen from 36 per cent to 41 per cent, and is expected to keep rising with an unofficial target of reaching 50 per cent.

Even after the Brexit vote, the Spanish body parts manufacturer Gastamp announced a £70m investment in its plant in Cannock in Staffordshire in September, while Jaguar Land Rover supplier Magna is pushing ahead with plans announced in May to build an aluminium casting facility in Telford.

But future investments are closely tied to decisions by carmakers to build their next models in the UK — something that is by no means guaranteed.

Carlos Ghosn, chief executive of Renault and Nissan, who met Theresa May on Friday, said that he would delay investments in Sunderland until the UK’s negotiations with the EU were finished — or seek assurances from government that he would be compensated for any tariffs the plant does eventually face.

One supplier, who sells directly to several UK car plants, says its future investments will “totally depend” on whether carmakers shift work outside of the UK to the continent. “We do not want to be relocating because our machinery and processes are all here, but I cannot discount that that might happen.”

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