The nuts and bolts of EU membership - Spear's Magazine

The nuts and bolts of EU membership

What does the car industry tell us about the UK's position in Europe?

The debate about pulling out of Europe has split Britain in every direction: the bonus-hungry City wants out from rules and regulation, while industry wants in, for access to the vast duty-free EU market. But rarely is the debate based on any understanding of the real facts.

Below are the headline figures for the UK’s biggest and fastest-expanding industry, the automotive sector, so much of the debate rages here.

The figures below are clear enough in themselves: the exports from the UK and imports to the UK within the recession-bound EU are fairly static over the five years 2007-2012.

The EU’s exports to the UK are over twice our exports to the EU, but our £8 billion EU sales are still crucial for the whole capital-intensive and wafer-thin industry’s finances.

Meanwhile, the Rest of the World’s booming Emerging Markets are up 18.3 per cent compounded, and have thereby knocked the UK to EU exports down from 60 per cent to 38 per cent of total UK car exports, although the EU money-value is static. These figures tell us a lot, but there’s a lot more they don’t tell us too. It would be too easy to conclude from them that the UK should just get out of the EU right now, willy-nilly, for as ever the devil is in the detail.

 

Devilish detail

First, these figures are for actual finished cars and take no account of the vast components industry, which is much bigger in direct and indirect UK employment terms than finished car assembly. This is why 1,000 direct jobs in car manufacturing — call it car assembly these days — may produce up to 6,000-8,000 indirect jobs as well.

Consider also that German car sales include UK-manufactured components not in the figures shown here, such as transmissions (GKN Hardy-Spicer), engines (from Ford Bridgend), ball-bearings (Timken), electronic displays (Smith’s Industries), production engineering and development consultancy (Ford Dagenham and Ricardo), even down to humble seat-belts (Britax).

We have companies inventing the future too — NexxtDrive for Super-gens and Vibraglaz for new abrasive metal-finishing techniques, and so on.

Read more on motoring from Spear's

 

Compact but perfect

Secondly, the UK’s car exports to the EU comprise mainly compact mid-sized vehicles — Nissan, Toyota, Honda, Ford, GM/Vauxhall and the Mini — where pricing is competitive in the extreme, and where there is minuscule price-elasticity to counter a very severe 10 per cent duty-hike, if the UK just left the EU Customs Union.

The compact car-manufacturer works from the showroom price backwards to reach his first major engineering decision – ‘How far apart are the wheels going to be?’ – as this determines the rest: engine-size, consumption, emissions, component-sourcing and everything else.

Premium automotive marques have much greater price elasticity: who cares if their next Roller costs £250,000 or £275,000? Yes, £25,000, or 10 per cent, is the extra duty to be absorbed by the EU importer, if the UK leaves the EU.

The problem is that Germany sells us mainly premium brands with much greater price elasticity – Mercedes, BMW, Porsche and Audi and other Volkswagen brands – whereas the UK, apart from JLR, sells only compacts, and the German-owned super-premium Rolls-Royce and Bentley marques have small numbers, so are irrelevant in monetary terms.

 

Margin of error

The volume of production of compact prices, however, where every dollar in the food-chain is fought over, drives down the price of components as well, in what is an ultra-efficient, marginal cost-driven marketplace.

But if your next compact has a showroom price-tag of £22,250 rather than £19,750, the manufacturer had better lay on great trade-in values, or 0 per cent finance to you the buyer for three-to-five years, or both, so as to hang on to their market-share, and keep the home production-lines running, and its prices market-competitive. How else do you think the German Volkswagen is eating the French Peugeot-Citroen lunch these days – in the Common Market?

The issue for the UK is how to get out of the ever-growing and ever-disastrous EU debt-deflationary death-spiral before it drags us down as well. We need a cunning plan.

Read more from Stephen Hill

 

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