A back seat is made up of 150 parts that are welded, painted and assembled by Brose, according to Jürgen Zahl, the company boss. The only problem for the German auto parts supplier is that it has two plants in England. Some 90 percent of the parts made there aren’t destined from Britain.
Brose, a family-owned company, is based in Coventry and is pretty attached to the town, having built its first-ever foreign factory there. Ideally, Mr. Zahl would keep on churning out components for car seats, doors and windows. But the outlook for the plants is unclear as the UK mulls different Brexit models.
It’s still unclear what the UK’s trading relationship with Europe will be after Brexit. A White Paper issued by Theresa May aims to hede the concerns of European companies like Brose. It promises that cross-border supply chains will be kept seemless, and rules for trade in goods fully aligned with the EU (unlike London’s financial access to the EU, which Britain concedes will become more difficult). Michel Barnier, the chief Brexit negotiator for the EU, said Brussels is still analyzing the proposals, but EU diplomats have already said off the record that they will demand significant changes. The risk that Brussels and London fail to reach a deal by Britain’s EU exit on March 29, 2019, remains very real.
That uncertainty makes businesses nervous. “It’s a problem,” said Mr. Zahl, who has evidently acquired the British habit of understatement. He can’t prepare as he doesn’t know what to prepare for.
A big problem
Brose is family-owned but it employs 26,000 staff, has a turnover of around €6 billion and 60 factories, two of which are in Britain. Many other companies are similarly concerned. Ahead of the White Paper’s release, firms like Airbus and BMW dropped their usual reticence in public and warned that moving operations out of Britain was a real option for them, given the ongoing uncertainty.
The British prime minister said she regrets the problems the companies are having. However the retort from the former foreign minister, Boris Johnson, wasn’t reassuring: “Fuck business,” he reportedly told a private reception in a casual aside. That bodes ill for “Made in Britain,” even if Ms. May seems to have sidelined Mr. Johnson and his supporters for the time being.
Companies like Brose face a possible double whammy from Brexit. In addition to reorganizing, there’s also the fear that customers – automakers such as Jaguar – may just leave.
At Brose, Mr. Zahl set up a Brexit task force that convenes in Coventry once a month. Its finance and logistics experts, IT specialists, purchasing and sales managers go through all the possible scenarios. It’s all about flexibility; they may have to find British suppliers to replace their current European partners, although local firms are stretched to capacity and they’re expensive, meaning prices could rise if demand spikes for parts made in the UK. Brose has also called on its 42 suppliers to ensure that they can quickly supply all the details needed for any new customs formalities.
Brose no doubt favors Ms. May’s latest plan for a “soft Brexit” that keeps supply chains intact. By contrast, it fears a “hard Brexit” with border controls and customs duties. Every day, up to three trucks pull up at the site filled with seat components. The firm has space to store stock to keep producing for two days, but bottlenecks at the port of Dover could cause chaos. That’s a likely prospect; experts warn that if customs officers spend 10 minutes processing each truck, the tailback will stretch 150 kilometers. Even two-minute checks would make for a 27-kilometer line.
Part of the problem is manufacturing. “We don’t have any metal presses here in Coventry,” said Mr. Zahl. Truckers deliver partly-welded metal components for seats from 42 suppliers throughout Europe, including the Czech Republic and the German state of North Rhine-Westphalia.
Every step of production is carefully planned – a thousand staff work on the seats in the assembly hall and their progress can be followed on a computer monitor, as various parts are scanned. When the car seats are complete, they’re sent out to carmakers.
To keep this smooth process running despite Brexit, Mr. Zahl is considering a slew of emergency measures. He has been scouting for extra warehouse space nearby – he reckons he’ll need between 4,000 and 5,000 extra square meters and up to five months to get the space ready.
Brose is also busy training employees to handle customs processing. But that takes four months and after more than 40 years of EU membership, there aren’t many customs experts left in Britain. It’s going to be a sought-after profession: The British government plans to hire 6,000. That’s also why Brose wants its own.
No idea what future customs officers will bring, or want
If Britain ends up trading with the EU based on World Trade Organization rules, the likely outcome of a disorderly “hard Brexit,” Brose would have to pay import duties of up to 4.5 percent on parts. But every component is classified differently — so the duty on the parts for winding up the window may differ from the motor running that same system.
That means fixing software programs and Brose is ready to add extra information to its current system. But no-one knows how to adjust the software, as the government can’t say yet what the new customs regime will be, Mr. Zahl said. His complaint is echoed throughout business, especially in the logistics industry and in ports.
“What madness!”, Max Brose, the late founder of the company, would probably think. There’s a picture of him in the modern foyer of the Coventry plant, looking sternly into the distance, glasses on his nose, tie slightly askew. “Every second new vehicle has at least one Brose part installed,” it says under the picture.
Brose wants to stick with Coventry, having invested more than €100 million there since 2013, renovating the works and opening a new painting facility. Last year, the plant generated revenue of €330 million ($385 million) and assembled more than 2 million seats – a sizeable portion of Brose’s €6 billion in global sales.
A further benefit is more than three-quarters of the plant’s customers are based in Britain, from Jaguar Land Rover (JLR) to Nissan, Toyota and Renault. But JLR is about to shift the assembly of its Discovery model to a new plant in Nitra, Slovakia. The move supposedly has nothing to do with Brexit, and JLR says it plans to build more Range Rover cars, including electric ones, in Britain in the future.
Whatever the motivations, JLR’s decision raises questions about the long-term impact of Brexit. Brose’s Coventry plant currently supplies front seats to JLR at the carmaker’s new location in Slovakia. In the future, that could be unprofitable because Brose also has a plant in Ostrava in the Czech Republic. So maybe Brose would supply parts from that site to JLR, rather than from the Coventry plant. Which would mean less work at the British facilities.
“If automakers in Britain become less competitive, if they produce less, or if they relocate production, that will obviously have a massive impact on our business at this site,” Mr. Zahl said.
This story first appeared in the business weekly WirtschaftsWoche. Yvonne Esterházy is the magazine’s London correspondent. To contact the author: firstname.lastname@example.org.