As Vauxhall’s Luton factory faces closure, is the UK car industry dying again?

Business minister Jonathan Reynolds has said that he did “everything possible” to prevent the planned closure of Vauxhall’s Luton van plant, where 1,100 jobs are at risk.

The closure was blamed on the government’s plan to force car makers to build more electric vehicles, fining them £15,000 a car if they miss their targets. The government will review these rules, said Mr Reynolds.

The blow comes after a comparatively upbeat time for car making in the UK. Last year, a slew of investments were announced, appearing to arrest the industry’s slow decline and even offer opportunities for growth.

Car makers including Aston Martin, Jaguar Land Rover, Mini and Nissan announced plans to either build battery plants or signed deals to acquire the technology to develop fleets of new electric vehicles.

It was not all good news, after Britain’s fledgling battery maker Britishvolt went under last January, taking with it the UK’s only independent electric power plant developer.

But deals like JLR’s decision to open a £4bn battery plant secured jobs in the industry after years of shrinking, with recent losses including the Honda factory in Swindon, which closed in 2021 after 36 years with the loss of 3,500 jobs.

But now, the threat of factory closures is back after Vauxhall owner Stellantis said its Luton van plant faces the axe.

Stellantis, which owns the plant, said months ago it would review its operations in the UK in light of the stringent rules on electric cars. It plans to merge its operations with its plant in Ellesmere Port, which has already been converted to making electric vans.

Vauxhall owner Stellantis is not the only company suffering a slowdown. Volkswagen said on Tuesday it plans to close down a factory in China as sales there slow for the company. European car sales, after bouncing back following the pandemic, are also struggling, particularly in electric vehicles.

Electric vehicle sales are rising

It is not that EV sales are not rising – they are just not rising fast enough to justify the billions of pounds being spent to switch production lines and supply chains to making the new, battery-powered models, and bottom lines are being hit.

Car builders say that the target of about a fifth of cars being electric is about double the natural take-up today of the vehicles. To get the public to buy them, they are having to slash prices.

But Britain’s electric car making targets are not solely to blame for Luton’s planned closure or the industry’s broader troubles, said Andy Palmer, who used to be Aston Martin’s chief executive, as well as a top boss at Nissan.

“It’s not the full story,” he said, as high energy costs, hard-pressed consumers after years of high inflation and a looming Trump presidency also weigh heavily on green car making.

‘Needs to be some flexibility’

“There’s an acceptance that there needs to be some flexibility” in the rules, he says, but in many ways the ZEV mandate, as it’s called, has worked.

It has forced manufacturers to make more electric cars. Prices have come down which is good for consumers.

“Of course, they hate it, and they’ll do everything within their power to lobby against it, to buy themselves some time. And that’s really, I think, what you’re seeing going on, played out in public.”

This lobbying has been going on for some time, he added. He was part of the industry when it lobbied against the introduction of Euro 1 regulations, which came in in the early 1990s and demanded that catalytic converters were fitted to reduce the emission of harmful nitrogen bases gases.

“Industry eventually swallows it and then gets on with the cost reduction,” he adds. Cheaper cars will ultimately lead to faster adoption.

Brexit ‘part of the problem’

Andrew Graves at the University of Bath, a 50-year UK car industry veteran, said the other long-running problem is Brexit.

Leaving the EU added extra expense and red tape in importing and exporting cars and made things harder for the multinational owners of Britian’s car plants like Stellantis, Nissan and JLR’s owner Tata.

“If you’re not in the EU, you’re at a major disadvantage,” he said. Donald Trump’s presidency and its looming tariffs will also likely hit the UK car industry – it is one of Britian’s major exporters.

Mr Graves added: “For us, of course, being a small island outside the European Union, we’re really vulnerable to tariffs, because we have little or no economic power on our own, unless we’re part of Europe. So it’s some dangerous days ahead, I’m afraid.”