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Why the UK auto industry is standing over Brexit risks?



Today, the British auto industry is going through a bad period ever as a result of decreasing car sales and the uncertainty over Brexit. Global automakers have stopped investing newly and invested in cheaper locations like Slovakia, and at the same time shutdowns or transfers of active plants are going to happen, as per the experts.

Industries have started layoffs, for example, the UK’s biggest automaker, Jaguar Land Rover, has announced 4,500 layoffs, or more than a tenth of its 40,000-strong workforce. The country’s auto industry at last calculate employed 860,000 people and in it supporting sectors like repairs and financing, made 82 billion pounds ($108 billion) in annual revenues and had an economic impact of $266 billion, according to figures from the Society of Motor Manufacturers and Traders (SMMT), the trade body of the U.K. automotive industry.

“Car company executives are literally pulling their hair out, and in the state of disbelief that we are in, such political chaos in the UK has not been seen,” said David Bailey, professor of industrial strategy at Aston University’s business school in Birmingham, UK Bailey is also author of the new bookkeeping the Wheels on the Road: U.K. Auto Post Brexit.

Bailey gave an example of how the automakers are getting affected by the uncertainty over Brexit. Imagine cars made in the UK and loaded onto ships headed for Japan or Korea. “The car companies don’t even know when they arrive whether or not they’ll face tariff barriers. At the moment, the UK benefits from an EU trade deal with Japan and Korea or other countries. If we fall out, we’ll no longer benefit from that.”

Automakers would like to shift permanently from their production facilities to other cheaper countries for more stable business environments. “Auto companies are very global in their orientation — they have to be,” said John Paul MacDuffie, Wharton management professor and director of the Program on Vehicle and Mobility Innovation at Wharton’s Mack Institute of Innovation Management. “Free movement across borders of products, of components, of people is just hugely important to them. They’re well familiar with making investment decisions in different parts of the world and sometimes backing away from one or deciding to grow faster or some other place.”

MacDuffie said if the business environment seems unfavourable in the UK, automakers will simply shift somewhere else. “It will not in the end have that big an impact on their overall global strategy, [although] they won’t necessarily be happy about having to do it,” he added. “But there will be results for the UK economy, for the people having very good jobs, and other multiplier effects that go out from the assembly plants into R&D and into suppliers. That’s the real potential loss here, and it’s huge.”

“Car company executives are literally pulling their hair out and in a state of disbelief that we are in such political chaos in the UK”–David Bailey

Bailey and MacDuffie discussed the implications of Brexit-related issues and other dampeners for the UK auto industry on the Knowledge@Wharton radio show on SiriusXM.


Impacts of a No-deal Brexit

In case British premier Theresa May gets Parliament approval for a plan to continue in the EU customs union and common market, the exit date would be shifted to May 22.

A no-deal Brexit would indicate the UK would leave the EU on April 12, sinking its auto industry into a jumbled mess of unexpected tariff walls and customs checks. “That would make a mess of very integrated just-in-time arrangements and supply chains across borders,” said Bailey. According to him, the auto industry could see a drop of around 175,000 units a year immediate after Brexit   and if companies do not change car models at the end of their life cycles that number could swell by another half -million units by 2025.


Planning Around Brexit

The auto industry usually plans years in advance, and in the case of Brexit, its unease set in with the June 2016 referendum that came “without a plan and high uncertainty,” MacDuffie said. “The auto industry has a relatively slow clock speed. Think of a four-year product replacement cycle unlike what we’re used to with electronics and in IT.”

At the same time, “there is no upside from Brexit for the UK car industry,” said Bailey. Its worries are all over the extra costs and trade barriers that Brexit will mean. “Regardless of what happens, it will make making cars in the U.K. more difficult. For much of UK manufacturing, it’s about damage limitation.” The UK economy would take a sizable hit as auto exports account for nearly 13% of its total exports.

Honda’s decision to close its Swindon plant is essentially a verdict that the UK will not be “an attractive place” to make electric cars in the early 2020s, Bailey suggested. “That’s quite a big criticism of the British government’s industrial policy, which is all about making electric cars,” he said. Further, the new EU-Japan free trade agreement will help companies like Honda to make cars in Japan and export them to the EU increasingly without tariff barriers, he noted.

Bailey also pointed out that Jaguar Land Rover, owned by the Tata group of India, recently invested in a plant in Slovakia. “That investment was partly because they wanted to access lower labour costs in Slovakia, but it was also a hedge against Brexit. “We might see Jaguar Land Rover shifting more production to Slovakia to produce inside the Eurozone for that market.”

In April, many UK automakers are for the interim closing their plants. Jaguar Land Rover, BMW, Peugeot and Opel Vauxhall are in this list. In February, Honda said it would close its Swindon plant in 2021, but it featured that move to reorganization of its global businesses, and not Brexit. That shutdown risks 3,500 jobs at the plant.

As per Bailey, many car makers are storing components, as they have no idea whether the UK will still be in the EU customs union. “In the extreme case, you’ve got niche producers like Aston Martin prepared to fly in high-end components to keep their production lines going,” he said. “But it’s difficult for the companies to be doing the things that they need to do, which is transforming their business models towards electrified and connected vehicles, when they don’t know whether they’ll be able to make the cars in the UK and export them to Europe without tariffs and non-tariff barriers.”


How U.K. Auto failed in Europe

The Society of Motor Manufacturers & Traders (SMMT)  said that in 2018, the British auto industry shut as the fresh car registrations reduced 6.8% to 2.37 million units and out of these diesel vehicles saw a nearly 30% drop. Continuous production loss of nine straight months worsened in the first two months of 2019. Bailey published in a recent article that investment in the UK auto industry has fallen 80% in the last three years, and it has lost 10,000 jobs in the last two years.

Bailey reported that UK auto industry has lost out on the growth accomplished since the 1980s, when British Prime Minister Margaret Thatcher attracted Japanese car companies to invest in the country. Then Honda and Nissan invested in the UK so as to export to Europe and over time has this reached for more than half of British car exports. MacDuffie agreed with Bailey and said that “the success back in the 1980s of attracting the Japanese companies to make the UK their beachhead or production base for all of Europe was a huge achievement.”

But, over time the EU market also has contracted, and UK car exports to Europe reduced 15% in the first two months of this year. “The likes of Honda that came here are scratching their heads, thinking ‘what on earth is the UK doing?’ ” Bailey said, indicating to the Brexit uncertainty.


Bigger Changes

Brexit, of course, is not alone responsible for all those despairs. Bailey noted two other factors, “a huge shift” away from diesel cars and the impact of an economic recession in China.

MacDuffie said that diesel vehicles have lost market share as they are being remarked “as not being green and clean, but being dirty and having major net negative health consequences.” European companies are now encouraging to produce electric vehicles, but consumers are not responding in a faster speed to pick up that trend, he said. He told that China is going to be the biggest market for electric vehicles, but consumers do not need as well.

The bigger changes in consumer preferences also pressurise British car exports. “The industry is about to transform itself, particularly in Europe, where a big shift towards electric cars is coming and autonomous cars in the future,” said Bailey.

Bailey and MacDuffie mentioned the refuse of auto manufacturing in Australia as an example of how global automakers leave unhelpful markets. “[The Australian experience] has to scare anyone in the UK who understands how important the auto industry has been to the manufacturing sector and the overall economy since the 1980s,” MacDuffie said.


Top Automotive developments of 2019




There was anticipation last year that global vehicle sales would be challenged and it was also happened with global passenger vehicle sales staggering to a minor increase of just more 400,000 units in 2018. It has been seen that the chips on the persistent rise of mobility services and, at the end of the year, the top 5 ride-sleeting companies—Uber, Lyft, DiDi, Grab and Go-Jek—were likely to be worth over $230 billion. We had also forecasted that value-added services will transform automotive retail tremendously. So, when software technology companies entered into the automotive industry through services like usage-based insurance, new finance and leasing services, and connected car services, different automotive companies kept their customers busy and pleased through prolonged and improved following sales services and solutions.

A Year of achievements and problems

In 2019, there will be a combination of achievements and problems. Though automotive technologies will be new, exciting and modern, there will also difficulties will come across because of uncertainties caused by Brexit, the United States-Mexico-Canada Agreement (USMCA) and China’s evasion from this space. Everyone will probably see the fall of an automotive giant, the loss of a car segment which has long defined the popular vision of the automotive industry, a bonus for the titans of new mobility, and too much technology-driven interruption.

Internet Of Things (IoT) And AI help revolution: IoT and AI technologies have helped transform the automotive sector, driving extraordinary renovation across the vehicle and device connectivity, autonomous driving, electric power trains, and shared mobility and this trend will continue in coming future.

China Takes A fall:  In 2018, the Chinese automotive sector has a drop down with the failing of the passenger vehicle market. This year, there will be probably a planned economy, the rising uptake of shared mobility means, the constant popularity of public transportation, and a more and more saturated SUV market.

Advanced audio to optimise the voice-enabled car: Chris Ludwig, vice president, EPIC Experience Team, said that the dominance and sophistication of in-car voice control systems has developed appreciably currently. When AI and autonomous features have advanced a lot, the safety and productivity benefits of voice technology have not been obtained. The reason behind it is that if commands can’t be heard or understood on both ends. Expect, there will be a greater spotlight on flawless optimisation on the sonic ambiance of the vehicle cabin to facilitate better in-car communication. Thus the dream of a smart audio system in the vehicle can be achieved and how the passengers can gain better experience.

Ride-dropping IPOs become bigger-size: Look forward for some mega bigger success in ride-hailing IPOs in 2019. Uber, Lyft and DiDi may be the winners in the public market by beating the business of entrenched car companies who have been manufacturing cars for over 75 years.

The demand for electric vehicles will be more: Around 280 go-getting start-ups are trying to renew their electric vehicle (EV) industry. Stricter emissions regulations will go with an outbreak of new model launches. Let’s get ready for riding electric vehicles and by that you will become more pervasive in ride-sharing and micro-mobility solutions. Global xEV sales are likely to grow 38% over 2018 and these may reach 6.67 million units.

In spite of growth in EV and hybrid vehicles, don’t count out petrol powertrains just yet. Modernization in petrol engine technology will more influence already struggling diesel powertrains. As a result, use of alternative fuels will come out.

At last, charging technologies will help catch up with developments in EV technologies.

The Future Of Mobility Is Multimodal: Public-private partnerships are getting stronger by Big Data and data analytics, will power resource-proficient, flexible and on-demand multimodal mobility solutions. This will merge with new policy programmes intended at supporting modernized and sustainable urban transportation. Simultaneously, wait for more legitimate journey planning apps for B2B and travelers.

Auto-manufacturers mess up to handle outcomes Of Trade Deals

Currently, the automotive industry has to support for a rough ride in this year. It is expected that there will be somewhat drop in sells of new vehicles in rising markets like Thailand, Turkey and Slovakia this year because of rising vehicle costs, and cannibalization by public transportation and new mobility alternatives. This will be counterbalance by minor growth in new car sales in other promising markets like India, Brazil and Mexico.

Basically, Latin America will be the rescuer on wheels and it will be pushed mainly by a resurgent Brazil. Brazilian automotive industry will get a concrete stand in 2019 by strong GDP growth, solid sales, particularly in the SUV segment, and policy drives through ‘Rota 2030’, a growth and modernization strategy making the aim of the country’s automotive sector.

According to less inspiring news, Brexit, USMCA and the US-China trade war will continue to shed dark shadows on the automotive industry. New vehicle production and sales are likely to experience impediments. With facing so many problems, the automotive industry tries to cross this difficult year, want to see more alliances between automakers and provide attractive after sales gifts to lure customers.



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Government incentives for plug-in electric vehicles



India makes a point of not handing any money to people wanting to buy the more expensive EVs, as Forbes News reports. Whether they can produce enough electricity to back up their policy is not clear. The majority of their power supply is from coal, plus some diesel generators.

To encourage the growth of the electric vehicle (EV) industry in India, the government has developed a two-pronged strategy aimed at both buyers and manufacturers: $1.4 billion in subsidies are to be offered, followed by a hike on import tariffs within the next year to spur domestic companies to build the vehicles.

The new policy, which was cleared by the cabinet late last month but the details of which were not available till now, kicks in with the new financial year in April.The scheme promises to lay out $1.4 billion in subsidies over three years for electric buses, three-wheelers, four-wheelers that are registered as commercial vehicles as well as private motorbikes and scooters.

Unlike other countries where the incentives for EVs has been focused on personal vehicles like those produced by Tesla, India, where less than four million cars are sold annually, is instead focusing on its public transport system.

Hence the primary aim of the policy on subsidies for buses and three-wheelers as well as two-wheelers, a hugely popular, and affordable, mode of transport.

While EVs are still a negligible component of the country’s current transport system, several Indian companies, including Mahindra & Mahindra, Tata Motors, Ashok Leyland among others have begun making electric cars, autorickshaws and buses (as well as two-wheelers) that run on lithium-ion batteries.

Subsidies are also available for plug-in hybrids and strong hybrid four-wheelers and will be capped at 40% for buses and 20% for all other vehicles.

Since the cost of batteries is what makes EVs prohibitively expensive for most consumers, the policy offers subsidies based on battery capacity–$140 per  per kilowatt-hour for all vehicles excluding buses. The latter will get a subsidy double that amount.

State governments, too, are expected to offer a combination of fiscal and non-fiscal incentives to further encourage the adoption of EVs. Non-fiscal incentives include a waiver or reduction in road taxes, toll tax, parking fees, registration charges, among others.As part of its push to encourage local manufacturing, the government has also laid out a phased manufacturing roadmap. “The intention is to substantially increase value addition and capacity building within the country,” according to a statement from the government.

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German Automakers Will Spend Over $60 Billion on Electric Vehicles



Electric vehicles will take centre stage at this year’s Geneva Motor Show, as automakers scramble to bring their fleets into line with strict CO2 emissions standards set to kick in next year. Europe’s biggest annual car show, which will open its doors to the media on Tuesday and to the public two days later, has long been synonymous with new lines of powerful and prestigious racing cars and shiny petrol-guzzling SUVs. But even before the 2019 show got under way, it was clear that electric would be all the rage.

Monday afternoon, the annual European Car of the Year prize went to Jaguar’s new electric I-Pace model, marking only the second time in the 45-year history of the award that it has gone to a fully electric vehicle, after Nissan Leaf won in 2011.The show itself is set to be little more than a showcase for new electric concept cars, from small city autos by the likes of Citroen and Honda, to SUVs by Aston Martin, Audi and Mercedes, and even a new electric Volkswagen buggy.

Other carmakers will unveil brand new models, like Peugeot with an electric version of its popular 208, and Kia with a new compact crossover called e-Soul.

German automakers are about to spend big on electric cars and autonomous driving, two technologies that are expected to reshape the industry over the next few decades. Automakers will spend a combined 60 billion euros ($68 billion) over the next three years, the VDA, a German car-industry trade group, said in a statement ahead of the 2019 Geneva Motor Show.

“We will invest over 40 billion euros ($45 billion) in electric mobility during the next three years, and another 18 billion euros ($20 billion) will be invested in digitization and connected and automated driving,” VDA President Bernhard Mattes said. The number of electric car models from German automakers will also treble in that time, to around 100, Mattes added.

A ramp-up of electric car production is needed to meet stricter European Union emissions standards set to take effect in 2030, Mattes said, asking for what he called appropriate regulatory conditions across Europe. Mattes also called for expanded charging infrastructure and more purchase incentives for electric cars. Major German automakers have also discussed plans to develop self-driving cars. BMW and Daimler recently announced a joint effort to develop the technology, while Volkswagen is working with U.S. startup Aurora Innovation on autonomous cars.

The investments are considered necessary because of the presumed importance of electric powertrains and autonomous driving to the future of the car industry. These technologies also have the potential to greatly reduce emissions and improve safety, which are worthy goals. But self-driving cars are still largely unproven, and Don Walker, CEO of major automotive supplier Magna International, has questioned whether automakers can implement the new technologies profitably.

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