What cabinet reshuffles and a UK-China free-trade deal might mean for the tyre industry

Wednesday 27th July 2016 | 0 Comments

 
During the last decade both the OEMs (Hyundai, Kia and Daewoo/Chevrolet) and the Korean tyremakers (Hankook, Kumho and Nexen) have done great jobs of both market share building and brand building. The EU-South Korea FTA will have helped too
During the last decade both the OEMs (Hyundai, Kia and Daewoo/Chevrolet) and the Korean tyremakers (Hankook, Kumho and Nexen) have done great jobs of both market share building and brand building. The EU-South Korea FTA will have helped too

It seems reports of the demise of the Department for Transport (DfT) were over stated. On 16 July – coincidently the day of the annual TyreSafe briefing – the new post-Brexit UK Prime Minister, Theresa May, embarked on a cabinet reshuffle. As it turned out this was no simple parlour shuffle, but a full-on single-hand pharaoh shuffle. As heads rolled and others moved in, while still others moved around, unnamed sources told The Telegraph that the Department for Transport (DfT) was being shut down. At the time, it looked like the Department of Business, Innovation and Skills and the Department for Energy and Climate Change were also being axed to make way for more streamlined departments for Industry and Infrastructure.

However, all was not as it seemed. The story began with the news that former Transport secretary Patrick McLoughlin had become chairman of the Conservative Party, fuelling speculation that DfT was for the chop. But when Chris Grayling MP, the former leader of the House of Commons and former justice secretary, was named as secretary of state for transport later the same day it demonstrated that the Department for Transport (DfT) wasn’t going anywhere yet.

For some, who complained about the cumbersome governmental setup of even the new trimmed down structure, there is still a tendency for departments to crossover into each other’s territories and therefore a) tread on each other’s toes on certain issues and b) take longer to consult/make decisions. In the case of tyres, such rationalisation could have help make it easier to communicate directly to government regarding the issues that are most important to the industry. However, while the term uncertainty is certainly over used in the current post-Brexit milieu, this episode does exemplify how much can and has been changing in recent weeks and how unpredictable politics is at the moments

Possible Chinese Free trade deal

A second unexpected consequence of the unexpected Brexit vote is that the UK’s new chancellor of the exchequer, Phillip Hammond MP – himself a former transport secretary – has opened Free Trade talks with the Chinese. Speaking at the close of the recent G20 summit in China, he implied Britain’s membership of the EU has constrained its ability to deals with nations outside Europe. So far it is just a question of talk because the UK is still part of the EU (until we all agree on just how exactly a Brexit can mean Brexit) so, as Hammond told journalists: “that’s about as far as we can go while we are members of the European Union. But once we are out of the European Union then I have no doubt on both sides we will want to cement that relationship into a firmer structure in a bilateral way that’s appropriate.”

Should these talks come to fruition, a Sino-British Free Trade Agreement (FTA) would be great for those parts of the British economy that export to China – think of OEMs luxury OEMs like Rolls-Royce, Bentley and Jaguar Land Rover, which generates 80 per cent of its turnover from exports. In China the average age of the owners of such cars is 33.6 years old. It would therefore also be good for any tyre companies that have OE tyre supply deals to the OEMs like these, which make models in the UK. However, FTAs are two-way streets, meaning the UK’s penchant for Chinese tyres could turn into an open door policy. The result, that such and FTA could simultaneously support the beleaguered British tyre manufacturing industry and allow for the increase in low-price volume market product that undermines its stance.

A second possible effect of such a free trade deal would be to impact the success of Korean car and tyre makers in the UK. During the last decade both the OEMs (Hyundai, Kia and Daewoo/Chevrolet) and the Korean tyremakers (Hankook, Kumho and Nexen) have done great jobs of both market share building and brand building. This was no-doubt helped by the FTA South Korea signed back in 2010, which was said to have been worth 19 billion euros and which the EU called “the most important ever negotiated between the European Union and a third country.” However, this deal was – by definition – with the EU. So while Phillip Hammond is busy setting up new FTAs to help take up the UK’s export slack when the UK leaves the EU (whenever that is), all the FTA the UK is currently signed up to (including the EU-South Korea one) won’t be in effect. Therefore, unless we get a similar deal with South Korea directly in the interim, it will be easier (or at least cheaper) for Chinese product to enter the market than Korean-made tyres. And who know’s what the result of that will be?

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