Richard North, 20/02/2019  

What has been missed in the torrent of media coverage on the closure of the Honda plant is the quite disgusting role of the media and, in particular, Sky News.

As happened with Nissan, they jumped the gun on the official announcement, breaking the news before the company had had the opportunity to make its official statement. Inevitably, speculation then dominated the news agenda, with the Brexit angle strongly featured in many of the subsequent media stories.

Sky's behaviour is not untypical of the legacy media, where they are obsessed with setting the news agenda. The television news station had got itself a "scoop" and the fact that the story was going to be distorted as a result was of no significance. Nothing matters compared with fulfilling Sky's ambitions.

It was partly for that reason that I wrote in my earlier blogpost about the readiness of the media to jump the gun, noting that, when it comes to reporting actual news on Brexit, the real news, the personality lottery decides what we get to be told. Largely, the media will publish stuff to its advantage, but when it comes to its obligation actually to publish news in such a way as to inform the public, it goes AWOL.

Despite the speculation though, when the car company finally published its statement, confirming the Swindon plant closure, it did not mention Brexit. In fact, Ian Howells, Honda's senior vice president for Europe, stated that the decision was "not a Brexit-related issue for us".

Instead, Honda talked of unprecedented changes in the global automotive industry and of the need to restructure its global manufacturing network. The company was to accelerate its commitment to electrified cars and focus activity in regions where it expects to have high production volumes.

Interestingly, this global restructuring was also to "involve" the company's operations in Turkey and, with Turkish production of the Civic sedan model finishing in 2021, the company intends to hold constructive dialogue with Turkish stakeholders.

Despite the absence from the statement of any mention of Brexit, Phillip Inman of the Guardian nevertheless surmised that it was not in the interest of departing carmakers to blame Brexit – mainly to avoid hostile local reaction.

However, given the complexity of the car market, there must be much more to the Honda action than meets the eye. And nor is Honda on its own. The reality is that the car industry as a whole is going through what might be described as a "shitstorm", one which has massive long-term implications.

Whatever is actually happening, it has caught the industry by surprise. In a 2015 report for the Society of Motor Manufacturers and Traders (SMMT), the authors predicted that the UK automotive industry was "poised for continued growth in both vehicle production and local sourcing of components". They forecast that by 2020, the industry would be producing two million vehicles a year, compared to then current annual total of around 1.5 million.

Honda certainly seemed to share the optimism and had serious ambitions for the Swindon plant - the sole global source for the new 5-door Civic. By 2017, it was aiming for a production of 165,000 units, up 18 percent on the previous year.

Interestingly, although the presence of Honda in the UK equips it to serve the EU market, around 15 percent of production was allocated to the UK market and only 35 percent to mainland Europe. The balance of 50 percent went to the rest of the world (mainly North America).

However, 2017 was to be the last good year for the industry. Contrary to expectations, by March 2018, domestic demand had slumped by double-digit figures. This was attributed to consumers "holding back" on big ticket purchases.

By October, the situation had continued to deteriorate, with a double-digit fall being recorded for September. A bundle of causal factors was being suggested, ranging from "growing fears" of a no-deal Brexit, model changes and testing backlogs after tougher new emissions regulation.

The following month was worse and, in the new year, Reuters was recording that British new car sales in 2018 had fallen at their fastest rate since the global financial crisis in the previous decade. The downturn was then being attributed to the collapse in demand for diesel and the motor industry was warning of the "existential threat" to the sector posed by Brexit. Strangely though, although people weren't buying new diesels in quantity, they weren't buying petrol models instead.

An explanation is not hard to find. Industry analysts had been reporting elsewhere, with increasing concern, the creation of a leasing "bubble", arising from the growing popularity of what are known as personal contract plans (PCPs). These were said to have driven car sales to the new "record highs" that were being experienced. Some eighty percent of new cars being bought through these plans.

Then, exactly coinciding with the downturn in demand, came reports such as this suggesting that the nation's big ticket spenders were getting over "their addiction to credit".

Justin Benson, KPMG's UK head of automotive was under no illusions. There was, he said, "evidence to suggest that the new car market is pretty saturated, i.e., most cars in the last few years have been bought using PCP plans. So many are using the vehicles they already have and we are seeing a drop in demand – although Brexit is also in the back of people's minds".

Particularly worrying for Honda must have been US sales, where PCPs had proved just as popular. There, a new report from the Federal Reserve Bank of New York indicated that more than seven million Americans had reached "serious delinquency status" on their car loans – making them at least 90 days behind on payments. This was invoking the spectre of another sub-prime loan scandal.

Exactly the same phenomenon was being reported here in the UK, while the Guardian was reporting that the "four-wheeled binge" had reached a record £31.6 billion of debt in 2016.

In 2017, the total borrowing was expected to exceed £40 billion. Cash purchases were "almost unknown", and a record of 2.7 million new cars had been sold in Britain the previous year, way above expectations. Sales in 2017 had made it the fifth annual increase in a row. The British were buying more cars per head than any other large country in Europe.

But there were other consequences. Morgan Stanley warned that the system was pushing a glut of nearly-new cars onto the market, bigger than the entire aggregate UK demand for new cars in some years.

With the loan market saturated and experiencing consumer resistance, and a glut of cheap, good quality used cars on the market, prices were depressed and the market was quite obviously set for a downturn. Yet, over the last few days or so, when the role of Brexit has been vigorously discussed in relation to Honda, such issues have barely featured in media reports.

Had journalists looked a little deeper at their own reports, they would have seen industry analysts continually reporting that high production levels constituted a "bubble" that could not be sustained. Brexit begins to look like a coincidence. From the look of the market, a contraction was going to happen anyway.

Another factor to note is that the Honda factory is only running at 60 percent capacity. Faced with an industry-wide market correction and a long-term downturn in demand, Honda is particularly vulnerable. Its sales have been struggling in general across the European market and, in the last decade, have almost halved.

It thus makes total sense for Honda to cut back on the number of plants, bringing production back under one roof where economies of scale can easily outweigh any other factors. If Brexit is a factor in the closure of the Swindon plant, it is only one of many, and by no means the most important.

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