Brexit is an idiotic mistake - calendar week 41 summary

If anything the EU are being intransigent. I know what UKIP would have done immediately after Brexit: article 50, leave without a deal, start signing trade with the world and turn EU law into UK law.

You don't actually bother to read these articles beyond the headlines, do you? "a Vauxhall spokesman said the move from two shifts to one was nothing to do with Brexit uncertainty, but was about maintaining competitiveness in a changing industry"

If I cared enough about your opinion I could selectively copy and paste articles too, but fortunately I don't.

Deal or no deal, in the long run this will be the best thing to happen to the UK in 40 years, and the EU knows it.

No, I read the whole article precisely because I know some chump would come along and write what you wrote.

If you read further down the article, it says that this does have to do with the Sterling impact making import parts much more expensive and Ellesmere Port 'a more costly plant', and this is of course all due to Brexit.

As you should have seen from my signature, I work in the automotive industry and know exactly what is going on. No plants in Europe are laying off people on this scale, the c-segment hatchback market is not shrinking at that pace.

So it's definitely nothing to do with PSA-Opel-Vaxuhall essentially having too large a labour force after the merger, and workers in Britain being cheaper to lay off than in Germany, and the French government having a significant stake in PSA therefore making job losses there highly unlikely? You know, all the factors which were brought up before the merger?

I'll admit it's not my field, but intuitively the cost of parts argument doesn't seem to make much sense. If a part costs $35 it costs $35 whether it's assembled in a plant in Britain or in Germany. It makes the cars relatively more expensive to sell in the UK, but it also makes the labour in the UK relatively cheaper than it was previously for any cars exported to Europe.

No, since no plants, models, or platforms have been merged yet. Production is about capacity, there are unlikely to be synergy effects in that area anyway - these will appear mainly in R&D, purchasing/sourcing, and admin/overhead.

Yeah, it shows this is not your field. Common sense doesn't seem to be either. Ellesmere port buy parts from (mostly) European suppliers in (weak) Pound Sterling, making these parts more expensive than before the referendum. This hurts the profitability of the whole plant, resulting in a reduced profit on the cars, and, ultimately, lay-offs.

So all the news articles written before the merger was confirmed were just *******s were they?

You're just generally a bit of a ****, aren't you?
Anyway, as you're so incredibly intelligent, perhaps you can explain how €5,000 worth of parts costs less if they're destined for a German factory rather than a British factory?
(Although I have a major test tomorrow, so I won't be replying)

No, there will be synergy effects resulting in layoffs, but they're unlikely to appear in manufacturing, and not so early on, since you still need these people to build the cars. Just because PSA and Opel are one company now the staff won't turn into superhumans who can build a Peugeot and a Vauxhall at the same time. Makes sense, right?

I am not saying that. I said that British plants are less profitable now because they 'pay' (in quotation marks because it's usually central purchasing paying, but the costs of materials and parts are attributed in the local currency to the different factories to determine profitability) for these parts with a weaker Pound, which makes the parts (and therefore the car) more expensive in this plant. Not so hard to understand, is it?

Are you saying that PSA/Opel are moving production from UK plants to other plants within the EU? Because otherwise no, it doesn't make much sense. If they're laying off manufacturing workers that suggests they have over-capacity in manufacturing in the UK - they can build more of the models built here than they can sell. If they're also building the same models elsewhere then it makes sense to lose the workers wherever you can get rid of them most cheaply.

I'm just a simple engineer, so I'm not going to be arrogant enough to say there's no value to it, but that sounds like an entirely artificial performance metric. A weak currency makes the value of labour lower, and that's what you're acquiring in the country. After all, one of the major benefits to Germany of being in the Euro has been that other eurozone countries have effectively given it an artificially weak currency and so helped its exports!

Let's just try a little worked example. It's 2014, and we want to build a car to be sold in France for $10,000 (for dollars, read euros - I'm using a US keyboard). Parts will cost us $5,000. We can build the car in Germany and labour will cost us $2,000, or in England for £1,400 - which is more or less $2,000 at an exchange rate of 1.40. Profit on the car is about $3,000 whether we choose to build in England or Germany.

Fast forward to 2017. The exchange rate is now 1.10. Labour still costs $2,000 in Germany and £1,400 in England, but because the pound is weaker that £1,400 is now only $1,540. Parts still cost $5,000. Cost to build in Germany is still $7,000, profit is still $3,000. Cost to build in England is now $6,540, profit has increased to $3,460. So no, I really don't see why a weak currency makes a plant in the UK less profitable!

Maybe there's something I'm not seeing, but it's really not obvious why you're saying that a weak currency makes a plant less profitable.

Time will show if they're moving production, but it certainly makes sense to reduce output of a model that has become less profitable (especially with c-segment hatchbacks that don't really have huge margins to begin with). Then there's the effect of reduced demand from rampant inflation, stagnant wages, and added Brexit uncertainty. Vauxhalls made in Ellesmere Port are of course left-hand drive so can't be sold anywhere else in Europe, so shutting down a shift and laying off people does make a lot of sense.

Ah yes, engineers... the worst know-it-alls while they really know very little.

I don't know where you get this labour stuff from, nobody ever talked about this, and labour cost is less than 10% of the value of a car.

I am not sure what is so hard to get about this: Most of the parts going into an Astra are sourced from continental European suppliers, who invoice in Euros. With a significantly weaker Pound, those parts (which make up a huge share of the value of the car) become a lot more expensive while revenue on the cars stays constant, hence reducing the profitability of the cars made in that plant, and thereby of the plant itself.

Far be it for me to contradict someone who works in the automotive industry, but why would left-hand drive Astras be built in Ellesmere Port if they couldn't be sold elsewhere in Europe? It's not as though they're going to be sold in Britain, is it? (Or do you need a quick reminder on left versus right?)

Besides which, why would a plant be restricted to making cars for one market? I used to live in Southampton and the docks were full of cars being exported, and they weren't all right hand drive models for Japan...

Ahh, perhaps we're getting to the crux of the matter. If you're going to price the parts in sterling, then surely you should also convert the sale price to sterling? Or are you simply confining yourself to the specific case of a car built and sold in Britain, in which case building the car in Europe and selling it for the original sterling price really won't help matters?

I'll just add that the reason I find these weekly posts of yours so annoying isn't that you're opposed to Brexit. It's that your viewpoint is so wildly unbalanced you're every bit as bad as the likes of Farage. The costs of Brexit will be felt in Europe as well as Britain, and the idiots responsible for it are on both sides of the Channel.

I did mean right-hand drive of course. You strange lot drive on the left, that threw me off.



Vauxhalls are only sold in Britain, and the export markets for right-hand drive are tiny. Do your homework.



This 'specific case' is the only thing we've been talking about here for two days now.

The sale price doesn't have to be converted to Sterling, as it always was in Sterling - and it is not being raised to account for the rising prices of parts. The c-hatchback segment is very price sensitive, you can't easily compensate for poor profitability. I can't believe you couldn't figure out that one side of the equation (the sale price to exclusively British customers) is fixed.



... with the small difference that the impact in the UK will be colossal while it will be almost marginal in the EU (not Europe, you are part of Europe, and always will be).

I have challenged many over the last half year or so to show me comparably severe and likely negative effects in Europe or positive effects in Britain, and the result was a bit of hot air and crickets. My weekly posts don't claim to be exhaustive but they sure give a good flavour of how screwed Britain will be for generations to come.

- You're essentially talking about the profitability of selling cars in Britain, not of building them there

- 80% of the cars built in Ellesmere Port have an Opel badge on the front and are exported, with the sale price in a non-Sterling currency. Maybe you should do your homework!

No, it's building cars in Britain. Cars produced in Britain with parts bought with a weak GBP and then sold in the Eurozone or elsewhere will also be less profitable. If selling cars in Britain were suddenly unprofitable, Vauxhall would pull out altogether. Luckily it is making other models elsewhere.

Maybe you should learn how to read Wikipedia articles - and use basic logic. "Vauxhall production' includes the commercials vehicles made in Luton, and 'most of which' doesn't far from equals 'all'. The Astra, which this story revolves around, is produced with an Opel badge in Poland for the continental markets, which suggests that a high share of Ellesmere Port production of this model is Vauxhall-badged and RHD.

So... you're buying the parts in euros, and selling the cars in euros... what effect is a weak pound going to have? Or, to put it another way, any losses you incur by buying parts using a weak currency should be more than compensated for when you sell in the stronger currency. See my previous example. If you put $5,000 worth of parts into a car you sell for $10,000 the parts are half the value of the sale price, even if you've converted to and from sterling at some point.


Two sources for Ellesmere Port exporting about 80% of the vehicles it produces
http://www.chesterchronicle.co.uk/news/chester-cheshire-news/ellesmere-port-vauxhall-plant-celebrates-13574737
"With nearly 80% of Ellesmere Port vehicles currently exported out of the UK"
https://www.theguardian.com/business/2017/mar/06/vauxhalls-luton-and-ellesmere-port-factories-will-face-battle-after-2021
"Ellesmere Port... then exports 80% of the cars"

I'm done with this. I strongly suspect that you're not as knowledgable as you think you are.