Jaguar idles in face of Brexit uncertainty
Shutdown for a week will cost company almost 9,000 vehicles
London — In September Jaguar Land Rover unveiled a new development facility near Coventry in central England, equipped with technologies such as 3-D printing and dedicated to a futuristic vision dubbed Destination Zero: no emissions, accidents or congestion.
Early in November, Britain’s biggest vehicle manufacturer plans to add another goose egg: zero production.
The maker of luxurious Jaguar sedans and rugged Range Rover SUVs is idling its UK factories for a week to guard against supply-chain disruption after the October 31 deadline for leaving the EU. The shutdown will go ahead whether the UK departs with a deal, crashes out without one or secures another delay.
After a weekend of political chaos that left Prime Minister Boris Johnson’s withdrawal agreement in tatters, the answer to that question remains as elusive as it was more than three years ago when the country voted to leave. UK Plc is nowhere nearer the clarity it craves.
“We need tariff-free, frictionless and seamless conditions to do business,” Ralf Speth, CEO of Jaguar Land Rover said in an interview on Sunday.
While most business leaders want to avoid a no-deal departure, continued uncertainty is not much better. With the cliff edge looming, and the prospect of another one in three months if the EU grants parliament’s request for a further delay, collateral damage is mounting.
“There will be a hangover into next year, regardless of what happens next,” said Suren Thiru, head of economics at the British Chambers of Commerce. “The political inaction has had serious economic consequences.”
After Johnson secured an 11th-hour agreement with Brussels last week, industry groups including the Federation of Small Businesses and the British Retail Consortium had allowed themselves a glimmer of hope, urging politicians to move swiftly to end the state of limbo.
The weekend brought a reality check. In a rare Saturday sitting of the House of Commons, legislators denied Johnson the chance of putting his deal to the test by voting in favor of an amendment that basically required him to ask the EU for a delay.
The government confirmed on Sunday it was triggering Operation Yellowhammer, its contingency plan to deal with the fallout from a chaotic departure from the EU.
On Monday Johnson will ask the House of Commons to support his deal with the EU in a new “meaningful vote”, a test he was denied on Saturday after legislators voted in favour of an amendment that sought more time for the agreement to be scrutinised.
Bonmarche, a womenswear retailer that has been struggling for years, late on Friday went into administration, a British insolvency procedure, saying uncertainty over the departure from the EU delivered a knockout blow.
“The delay in Brexit has created negativities, both in the global markets towards Britain and damaged consumer sentiment,” CEO Helen Connolly said. “Without such a delay, it is feasible to believe that our issues would have been more manageable.”
Overall, the UK has weathered Brexit better than some had feared. The housing market has cooled but not collapsed. While the economy unexpectedly shrank in August, it is on track to avoid a recession in the third quarter.
The cost for companies has been steep, though. Carmakers are particularly exposed to the vicissitudes of Brexit because of their just-in-time supply chains. They have spent more than £500m to prepare, according to the Society for Motor Manufacturers and Traders. Toyota Motor Corp and BMW AG have also announced plans to halt production, while Nissan Motor Co has warned that tariffs on car exports to the EU are likely to render its UK operations unsustainable.
Drugmakers have had to build up supplies to ensure the UK does not fall short of essential medicines, while adding plant capacity elsewhere in the EU to meet post-Brexit regulatory requirements. AstraZeneca has estimated that it is spending about £40m-£50m to make sure it can sell products overseas, while GlaxoSmithKline sees its Brexit costs at almost double that amount.
In London’s financial district, equity issuance has dried up and about 1,000 investment banking jobs have been moved to other European hubs. Banks have also earmarked up to £1-trillion in assets to move to the EU, according to consultancy EY, but many have been slow to make the shift.
“This rolling period of uncertainty does make it harder to plan around,” said James Wood-Collins, CEO at specialist currency manager Record.
Farmers have been struggling to attract labour amid questions over EU nationals’ post-Brexit rights in the UK. About 16% of agricultural jobs went unfilled in September, forcing farms to seek labour from more non-EU nations, raising employment costs.
Manufacturers have also been tapping the brakes. In the third quarter, UK factory owners reported a deterioration in sales, cash flow and investment, according to a survey by the British Chambers of Commerce.
All of this is a far cry from the “sunlit meadows” beyond the EU that Johnson promised during the referendum campaign.
Jaguar Land Rover’s planned shutdown shows the cost. The company makes about 450,000 Land Rover Discovery sport-utility vehicles, Jaguar XJ’s and other cars in the UK; one week’s production represents almost 9,000 vehicles.
Shares of JLR parent Tata Motors surged late last week on prospects for an end to the uncertainty. Now the best that many business leaders can dare to hope for is a new delay.
“A majority of our members would rather have an extension than the reality of a no-deal Brexit,” said Rain Newton-Smith, chief economist at the Confederation of British Industry. “But it needs to be an extension with a purpose.”
With Manisha Jha, Marion Dakers, John Lauerman and Ellen Milligan.
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