Interview – Mike Hawes, CEO, the Society of Motor Manufacturers and Traders

An Interview With Mike Hawes

An Interview With The CEO of the Society of Motor Manufacturers and Traders (SMMT)

As CEO of the Society of Motor Manufacturers and Traders (SMMT) since 2013, Mike Hawes has overseen a period of sustained growth for the industry and now one of retraction. This is a result of local and global pressures leading to job losses and, in the case of Honda UK in Swindon, a factory closure.

Inevitably, the issue taking up most of Hawes’ time is Brexit, with the prospect of a no-deal scenario consistently being described by him as a ‘cliff edge’ for the industry he represents. His campaigning to ensure a Brexit deal that’s good for the car industry continues.

Is the impact of the vote to leave growing or shrinking?

“It’s getting worse, because we had hoped to be in a situation where we had more clarity. “As we sit here today, there are cars on boats or sitting at portside about to be put on boats to turn up in the UK in six weeks’ time, and I can’t tell my members what the terms of trade are going to be when those cars are unloaded. Will there be tariffs? What sort of customs procedures are going to be needed?

“We didn’t expect a complete deal by now, but we at least expected an indication on what the terms would be. With no clear idea of the terms of even the transition, we’re hanging, and that doesn’t help businesses plan.”

Surely any deal was always destined to be last-minute?

“Maybe. There has always been this line that ‘the EU is used to doing deals at the 11th or 12th hour’. But business lives with that, because the damage is done long before then. We’re already seeing firms spending millions on contingency planning, opportunity in terms of investment decisions being lost, investment in current infrastructure stalling and jobs being lost. And in turn, we’re feeding that into all the independent economic indicators that say business and consumer confidence are declining, especially for big-ticket items like cars.”

The problems facing UK car manufacturers aren’t solely down to Brexit, though?

“It’s hard to put a proportion on it, and we must remember that no two firms are in the same place, be that in terms of global strategy, investment, model cycles, technology and so on.

“But there is a perfect storm: China in decline for the first time in years, a flat European market and decent but steady sales in the US; the threat of trade frictions escalating between the US and the EU and between the US and China; and the precipitous drop in demand for diesel cars. Beyond that, you can even weave in the mega- trends around productivity, electrification, autonomy, mobility as a service and so on.

“But it is clear that Brexit is exacerbating those broader challenges. If you’re trying to attract investment, you want certainty. And the UK had a reputation for political stability, but that’s no longer a given. Brexit gives a clear reason not to invest in the UK.”

Is a decline in manufacturing in the UK now inevitable?

“We’re not helping ourselves. Don’t forget that just two years ago, we were confidently predicting breaking the record for UK production, set in 1972, of 1.92 million cars by 2020. We can forget about that now.

“However, I wouldn’t say it’s a spiral of decline, because of the point I made earlier about no two companies being in the same position. It’s not too late.

‘Brexit gives companies a clear reason not to invest in the UK’

“The caution is that we need resolutions quickly. Brexit is consuming time and resources to the point that it’s becoming all-encompassing. If I look at just the SMMT, almost everything we have is being focused on trying to ensure there’s a deal that safeguards the future of the industry.

“What we should be doing, and what the industry wants to be doing, is talking about all the positives. We should be putting all our energy into discussing future opportunities in electrification, connectivity and autonomy, because that’s where global competition is focusing.”

How do you persuade car makers that the qualities that drew them to the UK remain?

“The fundamentals remain strong, and we must make that point. We have a very flexible and highly skilled workforce with engineering excellence.

“The brands that build here have global reputations, and that’s a positive, because they sell products around the world.

“And our market remains strong. Registrations may be down on the peak, but a market of 2.3 million is, in terms of the running average over the past 10 to 15 years, pretty healthy. That it’s driven by finance also offers some stability, so long as finance remains cheap and residual values hold up.”

What’s the best-case scenario?

“A quick deal agreed now. What the industry really needs is the breathing space provided by a transition arrangement. However long a transition lasts, it’s better than staring at the cliff edge threat of no deal.

“I accept that a transition deal is, in some regards, kicking the problems we face down the road, but at least it gives the UK time to negotiate on what the future trading relationship is going to be, whether we will have tariffs, what the customs arrangements are going to be, whether people can move between the EU and the UK quickly and easily and so on.”

Is there cause for optimism? 

“There are those who will say Brexit presents opportunities. Chiefly that it gives us the chance to move away from the EU to other markets and that the drop in the pound’s value should help exports. But that means working completely in sterling, which no car maker does, because they all have to move so many parts around.

“Others suggest we can cut tariffs from other countries; for instance, Japan would no longer face 10% tariffs. And yes, 86% of cars sold in the UK come from abroad, but the overwhelming majority come from the EU, with zero tariffs. Some come from South Korea, but that’s already zero-tariff. Japan is now on a glidepath to zero tariffs with the EU. Canada is zero- tariff. And the US is at 2.5%, which is hard to improve on.

“Some will have differing views, and some of them are much closer to the market than me, but I struggle to see an upside. On the supply side, it’s hard to see a significant benefit for the industry or consumers.”

How do you hope to view this period in hindsight?

“I just hope that I can look back in 20 years’ time and say ‘well, we did everything we could to safeguard the industry’. If we’ll succeed or not, I don’t know.

“I’m confident that the Government understands the scale of the challenge Brexit presents us. If you look at the Chequers deal, the one positive for the automotive industry was that it reflected some of the challenges. It demonstrated we’d been listened to. I hope that continues and manifests itself in whatever deal we get.”

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