How Easy Is It To Close A Plant?

Honda’s announcement that production will cease at its plants in the UK and Turkey in 2021, likely at the model changeover of the Civic has been blamed on many things but mainly on Brexit, the “excuse-du-jour” for all of the UK’s economic woes.

The next Type R is destined for a new home…

No automotive OEM takes a plant closure lightly, and this will not have been a knee-jerk reaction.

Why do you think Honda are closing their Swindon Plant?

The mechanics of closure

If you are Honda, or any other brand, you cannot simply close a plant. There are several considerations that have to be made:

  • What is the plant utilisation rate? – how many cars can I make in this plant and how does this compare to how many were planned per year?
  • What is the plant utilisation rate in other plants producing the same products/product families?
  • What is the cost of closure? – there will be union-negotiated exit packages, lost cost of the assets, and likely a limited list of potential buyers
  • Where is the market going? – future trends and opportunities must be predicted and evaluated to determine whether the future product lineup can be contained within the current manufacturing footprint or whether there is excess capacity
  • What are the compatible products? – it has to be determined whether future products can be added to the plant, such as EVs, or whether the investment needs to be deployed elsewhere
  • What markets can I serve from the plant? – Logistics, shipping, tariffs, will all affect this
  • What is the cost of the workforce in the region?
  • Where in the product lifecycle is the currently produced vehicle?

It’s not a simple decision, and not one that can be reactionary in nature.

The slow speed of progress

The automotive industry is often criticised for being slow to adapt and catch up when compared to the tech sector, which is becoming more common with the growth of EVs, autonomous vehicles and the rise of ride sharing services.

However, when things move slowly, their timing can be quite predictable. Shown below is a chart showing the vehicles produced in Swindon since 2000, covering the Civic, Jazz and CR-V.

There are two key timings to note:

Closure announcements have followed this timing…
  1. The models that were dropped from production were dropped at the end of their generation
  2. The announcements of production ending were made at a time coinciding with the start of product development of the next generation (approximately 3 years based on typical OEM cycles)

So, in the case of the CR-V, the 4th generation was ending in 2017, and development of the 5th generation would have started in around 2014, pre-dating the Brexit vote. In 2014, jobs were cut due to dwindling sales and subsequently the CR-V was pulled out and production returned to Japan.

Extending that logic, while the timing seems unfortunate, Honda are likely to be in the early phases of planning the new Civic. Working from the 2021 proposed closure date, the development of the 11th generation would start now and part of that would be determining projected volumes and matching this to the manufacturing footprint as well as getting funding released for long lead-time tooling and facilities changes kicked off.

Evidently, Europe and North American hatchbacks cannot sustain the plants in Swindon, UK or Gebze, Turkey. There are options in the portfolio, including Canada and the US to produce the next generation for those markets, and based on current trade deals, vehicles shipped from Japan seem likely to be the solution for Europe.

EVs aren’t ready

Honda have been open in admitting they have been late to the party regarding EVs. The Honda Urban EV is finally arriving late 2019/early 2020, but given the 2-3% global share of EVs, there is not enough volume to support the significant investment that would be required to update the plants (despite what the Guardian might suggest). I would expect that most manufacturers will focus plant updates on home plants or, in some cases, in key markets like China or the US.

Toyota?

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I think this is not the start of a mass Japanese exodus.

Toyota just launched their new generation Toyota Corolla in their plant in Burnaston, UK. This is based on their new global platform, which suggest future opportunity to build other cars based on the TNGA (Toyota New Global Architecture) including the C-HR which would protect for the growth of SUVs, and even the Prius.

Toyota is already heavily into hybrids, so their plant will have capability and experience with electrification, which the Honda plant did not.

Based on typical vehicle cycles, I would feel confident that we are unlikely to hear anything around the Toyota plant until at least 2022 with the vehicle likely running until 2025/2026.

Nissan?

Nissan and their UK base in Sunderland are also unlikely to be affected. The Qashqai is a massive success in the UK and across Europe and their plant is unlikely to be worrying about plant utilisation. There may be fluctuations as they move over from heavily diesel mix and introduce their new generation in 2020, but if that was moving away from the UK, it would already be known.

Currently, Nissan Motor Manufacturing UK in Sunderland produces the Qashqai, Leaf, and Juke along with the Infiniti Q30 and QX30 – the logistics of finding new homes for all those vehicles are complex and it looks unlikely.

What next?

Whether it is the shift to electrification, autonomous vehicles, urban mobility or political shifts relating to trade deals, these are triggers to change in an industry typically unwilling to change unless forced. GM has reached that point and so have Honda and Ford.

It seems that time has come for all, and the pieces have not finished moving yet.

How much more is to come? Have your say in the comments below…

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