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Will foreign factories sink British car industry?

The UK produced more than 1.5 million cars in 2013, beating even the pre-financial crisis total of 2007. The industry is looking forward to another year of growth in 2014 and some manufacturers are predicting growth of close to 2013’s level of 3.8% or even more. Looking forward, the industry body, the Society of Motor Manufacturers and Traders, (SMMT) predicts that the UK’s all time record for car production of 1.92 million, set in 1972, will be surpassed by 2017.

The UK produced more than 1.5 million cars in 2013, beating even the pre-financial crisis total of 2007. The industry is looking forward to another year of growth in 2014 and some manufacturers are predicting growth of close to 2013’s level of 3.8% or even more. Looking forward, the industry body, the Society of Motor Manufacturers and Traders, (SMMT) predicts that the UK’s all time record for car production of 1.92 million, set in 1972, will be surpassed by 2017. All looks rosy but there is a factor in all of this growth that could already be sowing the seeds of decline.

One of the most striking factors in the UK’s car manufacturing success is the number of vehicles being exported. Around 80% of all UK car production leaves the country for foreign markets. The majority of these cars are being bought, not by traditional trading partners like the EU, but by the emerging economies of the BRIC nations (Brazil, Russia, India and China). Indeed, China is now the largest market for Jaguar Land Rover’s (JLR), bigger even than the domestic UK market. Its second biggest customer is Russia. It seems that these BRIC nations have developed a taste for luxury British cars and it is that taste that is most responsible for fuelling the current boom.

The car companies are, of course, aware of this and they are taking steps to maximise their advantage. The way that they will do this is to build factories in those markets where they are selling most cars. In doing this they avoid stiff import taxes and reduce transportation costs. Thus their cars become even more competitively priced and more profitable for the company. This transformation is already underway. Nissan, Britain’s largest manufacturer, is joining JLR and MINI in building factories in those markets.

JLR is building factories in China and Brazil and Nissan is set to build its Qashqai in Russia. Industry analyst, Justin Cox, of LMC Automotive explains: “There is a drive to build where you’re selling and that’s the trend. You avoid import duties, certainly in South America and China, where quite high duty undermines success.”

Where does that leave the UK’s car factories? If production moves to where it is being sold, there will be no expansion of jobs in the UK. Fewer exports will harm the balance of payments and with the vast majority of UK car production being foreign owned, it is questionable what, if any, benefit will be seen by the UK exchequer.

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