(Bloomberg) -- Honda Motor Co. said it plans to close its factory in the U.K. in the biggest blow yet to the British auto industry already buckling under thousands of job cuts and the loss of key models in the run-up to Brexit.
The site in Swindon, about 80 miles west of London, is the nation's fourth-largest auto plant and employs about 3,500 workers where the Honda Civic hatchbacks are made. The facility will be closed in 2021, the company said Tuesday. Honda also plans to cease producing Civic sedans at a facility in Turkey.
@RobertBuckland & I have already spoken to the Business Secretary & Honda. They are clear this is based on global trends and not Brexit as all European market production will consolidate in Japan in 2021.
Britain has long been a Japanese hub for European auto production, with Honda, Nissan Motor Co. and Toyota Motor Corp. owning three of the country's six largest factories. With demand stagnant and new technology claiming more cash, carmakers in Japan and elsewhere are under pressure to tighten spending. Brexit adds another layer off uncertainty: Nissan this month reneged on plans to build the X-Trail sport utility vehicle in Sunderland, citing the unresolved status of EU-U.K. trade after Brexit.
Honda said the move comes as it “accelerates its commitment to electrified cars, in response to the unprecedented changes in the global automotive industry.”
Brexit is one factor in slowing demand in Europe, but major markets including China are also declining. Looming trade conflicts are adding to the drag, with European automakers bracing for potential U.S. import duties.
U.K.-made products separately risk being disadvantaged by a new treaty that will gradually eliminate tariffs on Japanese imports to the EU. Still, Chief Executive Officer Takahiro Hachigo said the U.K's divorce from the EU wasn't a factor in Honda's move, but the company changing its production as the industry moves toward electric cars.
Honda plans to import electric vehicles to Europe from Japan and China, Hachigo told reporters in Tokyo. The company will also boost manufacturing of the Civic in North America, where 55 percent of the models made in the U.K. are currently exported to. The company's European headquarters will remain in Britain.
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Honda shares rose 0.4 percent in Tokyo on Tuesday. The plant closure will boost Honda's operating profit by more than 30 billion yen ($271 million) annually from 2023, according to an estimate by Koichi Sugimoto, an analyst at MUFJ Morgan Stanley in Tokyo.
Under Hachigo, Honda is undergoing a sweeping restructuring of its global footprint. In Japan, it's planning to end car production at a major plant for the first time in the company's history, concentrating output to a new facility from 2022.
The company's Swindon plant was established in 1985. It has operated at less than full capacity in recent years as demand in Europe slumped, prompting Honda to suspend a production line with a capacity of 100,000 units in 2014.
The decision was “deeply disappointing,” U.K. Business Secretary Greg Clark said.
The EU-Japan Economic Partnership Agreement, in force since Feb. 1, ensures that the bloc's 10 percent tariff on Japanese car imports will be reduced to zero over the next 10 years.
The treaty makes it easier for Japanese automakers to localize production at home for sale in the EU, consulting firm LMC Automotive said in a report this month. The U.K. is most at risk because almost half of the cars made in the country are Japanese branded, and Japanese automakers want to increase utilization of plants at home.
“Should Britain leave without a deal and WTO tariffs are applied to U.K. vehicle exports, the same cars made in Japan may well end up costing less to import into the EU than those produced just over the Channel in England,” LMC's director of global production forecast, Justin Cox, said in the Feb. 11 report.
The U.K. industry has already been battling a slowdown blamed on Brexit, European emissions rules and a drop in popularity of diesel-powered cars. With supply bottlenecks possible, several plants moved up their summer breaks to coincide with the exit from the trade bloc on March 29. U.K. lawmakers have yet to find a solution to avert a no-deal split from the EU.
Ford Motor Co., in announcing thousands of job cuts in Europe, last week said a hard Brexit would be “catastrophic” for the U.K. auto industry and its own engine-production facilities. Jaguar Land Rover, Britain's biggest carmaker, is moving production of the Land Rover Discovery SUV to Slovakia, and said in January it would scrap 4,500 positions in response to a sales slowdown blamed on reasons including Brexit. PSA Group's Vauxhall Ellesmere Port site is in doubt as it mulls plans for the next Astra.
As the political impasse over Brexit drags on, investments in the British automotive industry nearly halved last year to 589 million pounds ($760 million), the lowest since the global financial crisis, according to the Society of Motor Manufacturers.
Automakers aren't the only ones reviewing their U.K. plans. Sony Corp. registered a new company in the Netherlands at the end of last year and is looking to combine it with operations in the U.K. before March 29, a move that will allow flexibility in how the electronics maker deals with tariffs and customs, said Takashi Iida, a spokesman.
Nomura Holdings Inc., Japan's biggest securities firm, has said it plans to ask fewer than 100 of its London-based staff to move to a new Frankfurt unit and elsewhere in Europe to ensure continuity after the U.K. leaves the EU. Mitsubishi UFJ Financial Group Inc. has set up some operations in Amsterdam and obtained a securities license there in December in a move to continue providing services to clients in Europe after Brexit.
Panasonic Corp. has also shifted its European head office to Amsterdam from London. Discovery Inc. said in January it's applying for broadcast licenses in the Netherlands to ensure its pay-TV channels continue to show across the European Union in the event of a no-deal Brexit.
--With assistance from Yuki Furukawa and Yuji Nakamura.
To contact the reporters on this story: Irene García Pérez in London at igarciaperez@bloomberg.net;Ma Jie in Tokyo at jma124@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann, Ville Heiskanen
©2019 Bloomberg L.P.
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