February 2019, Honda announced that it would wind down operations at its Swindon plant in the UK, halting production completely by 2021. Remainers seized on this piece of news as evidence that Brexit was hurting the economy, and causing jobs and companies to flee the UK.
“This is not a Brexit related issue for us. This decision is being made on the basis of the global changes I spoke about…”
— Ian Howells, speaking about Honda’s decision to close its Swindon plant.
Remainers ignored this statement, and continued with their claims of Brexit hurting the economy. However once the facts surrounding activity at the plant are known, then Howell’s statement makes perfect sense.
To understand the basis for Honda’s decision, it is first necessary to understand what is built at Swindon, where its products go, and Honda’s aim to refocus on its core markets.
In 2012, Honda invested over £260 million into the Swindon plant, and began production of its Civic and CR-V models. Diesel engines were also manufactured at the same site. As of 2019, the vast majority of Honda’s models built at Swindon (~90%) are destined for export, and are exported to the following markets:
- 50% exported to Japan, the USA and the rest of the world
- 35% exported to Europe
- 15% for the domestic UK market
It has been claimed that a potential loss of access to the EU market is driving this decision. However Swindon isn’t the only plant earmarked for closure – Honda’s Turkey plant is also set to close in 2021. After the closure of these two plants, Honda’s entire whole car building operation in Europe will cease (the two other plants in Belgium only manufacture and store parts).
Honda is not only fleeing the UK, it is fleeing the whole of Europe.
“We’re now at that point where we’re having to make that decision [about new models]. What’s actually happened is that decision has collided with this change in electrification that’s come back to then – where do we need to put our investments and where is best suited for investment. And as I’ve just illustrated a moment ago, that’s China, that’s America, that’s Japan.”
— Ian Howells speaking on the Today Programme
The big winner from Honda’s manufacturing move is Japan, which is where production of new models will likely move to. Honda sees electric cars as the future, and both the EU and USA seriously lag China in terms of electric car sales. China currently accounts for over 35% of global electric car sales, and Japan is far better poised than the EU to take advantage of this huge marketplace.
The message is very much that Japan, Asia and the USA are on the up, whilst the EU is in decline. This is reflected in Honda’s sales figures. In the first half of 2018, Honda sold half a million cars in the USA and China respectively, and over 300,000 units in China. However, in terms of sales volume, no EU country featured in the top 10. Honda sells only around 150,000 units in the EU per year, whilst in China and the USA the figure is closer to 2 million.
Honda has therefore decided that it needs to focus on its core markets, which are very much Asia and the USA. In addition to these objectives, EU politicians have made the situation even worse. The escalating EU-US tension as Trump threatens to increase tariffs on European built cars directly threaten Honda’s aim of trying to focus on the US and China, and make European car building distinctly unattractive. Exporting cars from Japan to the USA, whilst Japan has more amicable relations with the US government has been judged to be the more prudent business decision.
The EU government has also made car manufacturing in Europe unpalatable for the domestic market. The new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) regulations, as well as other crackdowns on diesel cars, have damaged the case for building diesel engines at Swindon. They have additionally made model rollout in Europe more expensive and complicated, and also put a dampener on future sales. Ironically the EU’s free trade agreement with Japan has allowed Honda to move production out of the EU without losing EU market access – as they will simply be able to manufacture models in Japan for export.
Honda executives should be taken at their word when they list the reasons for the closure of the Honda plant. Only a United Kingdom outside of the EU, deciding its own foreign trade policy and making its own trade deals, can establish conditions which will attract companies like Honda to set up domestic operations.
This post was originally published by the author on his personal blog: https://joelrwrites.wordpress.com/2019/02/20/brexit-is-not-to-blame-for-honda-moving-out-of-the-uk-the-eu-is/