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Honda’s Swindon shutdown and the SUV surfeit


Today, I’m going to talk about Honda’s decision to close the Swindon plant and what’s going on in American SUV sales

Honda and Swindon

So there’s obviously a lot of comment on Honda’s decision to close its Swindon plant in 2021, but it has also said that it will close its plant in Turkey as well, which means that production will be reshored to Japan.

From Honda’s point of view this is necessary because production will be closer to bigger and more profitable markets in Asia, but it is also a function of the new Japan-EU trade deal coming into force this month that will phase out the current 10% tariff on car imports from Japan and the uncertainties that Brexit could bring to a weakening market. As far as Swindon is concerned, this will mean the loss of 3,500 Honda jobs over time but there will be many thousands more affected up and down the supply chain.

The danger is that this could be the start of more car manufacturers doing the same thing with Vauxhall’s Ellesmere Port, Toyota’s Burnaston and Ford’s UK operations all looking potentially vulnerable. Everyone is facing the same issues at the moment with a transition away from traditional technologies to newer ones and the prospect of changes in car ownership.

I expect that there will be more co-operation and M&A between companies as they club together to share the cost of these changes.

American SUV sales

The other thing I wanted to talk about was the current situation with American SUV sales.

Basically, I commented recently on rising US car inventories generally, but it seems that SUV car inventory has also been rising as manufacturers have been cranking up production of these more profitable vehicles. The problem is that if the glut continues, car manufacturers are going to have to pay out more in incentives in the form of bonus cash, low interest rate financing and lease specials to unclog dealer forecourts. And if THIS happens, the once-very profitable SUV segment will have its margins dented.

I would have thought that a cut in production might help – but if this happened, the whole supply chain would suffer.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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