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Vauxhall-Opel Sale: Is The Brexit-Related Writing On The Wall?

29/03/2017 16:06 BST | Updated 29/03/2017 16:06 BST

News that GM has sold its loss-making European arm to the French-owned PSA Group, which manufactures Peugeot and Citroen cars, has sent shock waves through the UK's automotive sector. Could the maker of one of Britain's best-selling cars - the Vauxhall Astra - be about to shift production to the Continent?

Despite vowing not to make plant closures or job cuts in the UK or in Germany, it is likely that PSA's chief executive, Carlos Tavares, is already considering opportunities to streamline production and drive value through economies of scale. In the UK, Brexit-related uncertainties surrounding tariffs and the prospect of cost increases and delays are bound to be influencing his thinking.

GM tried to sell Vauxhall-Opel back in 2008 and both businesses have been losing money since then so something significant would need to happen to turn this around. Without this intervention, it will only be a matter of time before current production runs are completed and decisions have to be taken about where to make new models.

In the case of the Astra, around 75% of components are sourced from outside the UK and the vast majority of the vehicles made at Ellesmere Port are sold internationally. If rumours are correct and PSA Group is planning to combine platforms with Peugeot's next new model, there would be a strong reason to exit the UK at that point.

Any plant closures would of course have a considerable knock-on effect on local supply chains. The suppliers most likely to bear the brunt are logistics businesses, which are responsible for bringing parts into the plants and shipping vehicles out. Other local suppliers of fuel and tools are likely to be affected along with some manufacturers of accessories or peripheral components. The majority of the larger components such as gear boxes and engines are already sourced from Europe.

If the government wants to fight to keep jobs in the UK, it will need to deliver a major sweetener to Peugeot-Citroen. However, it is not clear whether there is appetite to do this and the terms of the deal struck with Nissan remain secret.

The announcement of Vauxhall-Opel's sale comes at a particularly bad time for the industry; compounding recent news that BMW has decided not to build the electric Mini in the UK. It would seem that the Brexit-related writing is on the wall and a significant global shift in automotive sector production is inevitable.

To survive in the future, the UK car industry may need to refocus at the premium end of the market - where margins are greater and volume production stands a chance of remaining viable with or without tariffs.

Richard Gane is director and automotive sector specialist at supply chain firm, Vendigital - www.vendigital.com