Honda to close British car plant as Brexit looms

* Factory closure due to market changes not Brexit - CEO

* Latest example of Japanese firm pulling out of Britain

* Britain due to leave the EU in 38 days

* Honda to also stop making Civics in Turkey (Adds detail on electric car supply and demand)

By Costas Pitas and Naomi Tajitsu

LONDON/TOKYO Feb 19 (Reuters) - Honda will close its only British car plant in 2021 with the loss of up to 3,500 jobs, a major departure of Japanese investment announced just over a month before the United Kingdom is due to leave the European Union.

The automaker, which builds more than a tenth of the 1.5 million cars made in Britain, said the move was not related to Brexit and it needed to focus activities in regions where it expects to sell most cars, after struggling in Europe.

But the timing of the announcement about the Swindon plant, just 38 days before Brexit, comes after a series of warnings from Japan that it would pull investments if they are no longer economically viable after Britain leaves the bloc.

"We had to consider the rise of electrified vehicles, and the different speeds at which electric vehicles will be taken up in North America and Europe," said Honda Chief Executive Takahiro Hachigo. "This decision was not informed by Brexit."

Honda, which builds its Civic in Britain and Turkey, said it would stop making the model in both countries. The announcement comes just over two weeks after fellow Japanese carmaker Nissan reversed a decision to build a new SUV in Britain.

Most of the Civic hatchbacks built in Britain are for export to the United States rather than Europe. Europe's expected faster take-up of electric vehicles could be supplied from China and Japan, where Honda already plans to produce at scale.

Britain's business minister said Honda's decision was a major blow and illustrated how much was at risk from Brexit.

"Decisions like Honda's this morning demonstrate starkly how much is at stake," said Greg Clark, who supports a Brexit deal agreed between the UK government and EU, but which has so far failed to win over a majority of British lawmakers.

"This news comes on top of months of uncertainty that ... manufacturers have had to endure about Brexit, about our future relationship with the EU," Clark said.

He said it was unacceptable that business did not have clarity on future trading terms ahead of the March 29 departure.

Honda, Britain's fourth-biggest automaker, will cease production at Swindon in southern England, which made 160,000 cars in 2018.

It follows decisions by Japanese electronics companies Sony and Panasonic to move their headquarters from Britain into the EU, while Hitachi put a $28 billion nuclear power project in Britain on hold in January.

'DEVASTATING DECISION'

Some 1,000 Japanese firms are based in Britain, employing around 140,000 people, and have invested about 60 billion pounds ($78 billion), according to the Japanese embassy in London.

Nissan, Toyota and Honda were encouraged to come to Britain in the 1980s as a pro-business gateway to the EU and have helped turn around an ailing domestic car industry.

The trio build half of Britain's cars and hundreds of thousands of engines at production sites across the country, but a no-deal Brexit could destroy the free and unfettered trade manufacturers rely on.

The loss of such a major employer in Swindon, which backed Brexit in the June 2016 referendum, risks a further 10,000 jobs in the supply chain, which could have knock-on effects for other carmakers due to the interconnected nature of the sector.

For Honda, declining demand for diesel vehicles and tougher emissions regulations have also clouded its manufacturing prospects in Europe, which accounts for just 3 percent of its global sales.

The company said in October 2017 it would stop making vehicles at its Sayama plant in Japan by 2022 as it grapples with a shrinking domestic market, while it has a tiny share of less than 1 percent in Europe.

The outlook in Europe looks gloomy as sales in every major country fell in January, according to industry data, with a double-digit drop expected in Britain, Europe's second-biggest auto market, if there is a disorderly Brexit.

U.S. automaker General Motors has already pulled out of the continent while Ford is conducting a major restructuring.

A recently agreed EU-Japan trade deal also means tariffs on cars from Japan to the bloc will be eliminated, while Britain is struggling to make progress on talks over post-Brexit trade relations with Tokyo.

Honda said this was not part of the decision-making process but its boss said it would benefit from the EU-Japan deal.

Britain's largest trade union Unite said it would continue to consult with the company and fight to keep the site open, blaming the handling of Brexit for making it harder for companies to keep investing in the country.

"We believe that the uncertainty that the ... government has created by its inept and rigid handling of the Brexit negotiations lurks in the background," said national officer for the automotive sector Des Quinn.

($1 = 0.7741 pounds) (Writing by Costas Pitas in London; additional reporting by Chang Ran-Kim in Tokyo and Guy Faulconbridge, Alistair Smout, David Milliken and Kate Holton in London; Editing by Mark Potter and David Holmes)

First Published: 2019-02-19 08:54:16
Updated 2019-02-19 18:36:01


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