Ford is participating in a bid to supply vehicles for the British Army's light mobility program — Photo: BBC
It's green, robust and intimidating. Ford's latest car looks like a pickup truck that's undergone a transformation worthy of the Incredible Hulk. Based on the popular Ranger line, the model parked outside the Ford factory in Dagenham, east London, can carry up to two tonnes, tow up to four tonnes and also carries the hopes of the approximately 2,000 employees who still produce engines at the site.
Inside the factory, the three-liter diesel engines that will equip the camouflaged vehicle pass through a production line that, in the last decade, has seen the annual volume drop from 90,000 units to around half.
Ford hopes that its entry into the military vehicle market will help offset this decline. The head of the company in the United Kingdom describes the current moment as the most challenging scenario for the sector since the invention of the automobile.
Once powerful, the European automobile industry is beginning to show signs of weakening and is betting on a sharp increase in defense spending, amid the rearmament of Europe, to once again demonstrate its industrial strength.
Ford is part of a joint venture with defense specialists General Dynamics and Ricardo who are vying for a contract with the UK Ministry of Defense to supply 9,000 vehicles over the next five to seven years, replacing the Army's outdated Land Rover-based fleet.
Lisa Brankin, president of Ford UK, says this is an opportunity to showcase the company's ability to respond quickly to the needs of the defense sector: "As a manufacturer, you evaluate every opportunity that comes your way, and this is a great opportunity that we would love to take advantage of."
This is not the first time that Ford has dedicated itself to production for the defense sector.
On the eve of the Second World War (1939-45), Ford's Dagenham plant was the largest car assembly plant in Europe.
When the war began, the production of cars for civilian use was completely stopped, and the factory began to dedicate itself exclusively to military production. Between 1939 and 1945, the Dagenham site manufactured 360,000 vehicles for the Allied war effort against the Axis.
Ford employees in Manchester, in northwest England, produced 34,000 Merlin engines, designed by Rolls-Royce, which powered Spitfire and Hurricane fighters.
Eighty years later, the UK and European car industries are hoping wartime production will help stem what one supplier described to the BBC as a "terminal decline".
Faced with the threat from Russia and the reluctance of the United States to continue as Europe's protector, European countries find themselves under pressure to allocate hundreds of billions to increased defense spending. Automakers, who face strong commercial competition from Chinese rivals, are paying attention to this movement.
But can Europe's rearmament save an auto industry and supply chain in crisis?
The shift towards the defense sector
Ford is far from the only automaker to see the defense sector as an area with potential for growth, and capable of taking advantage of the growing idle capacity at car factories in Europe.
➡️ French automaker Renault signed a strategic agreement with defense giant Thales to produce military drones, with the goal of manufacturing up to 1,000 units per month. The French Armed Forces and the General Directorate of Armaments want to take advantage of Renault's mass production capacity to bypass traditional defense sector supply chains, which are slower.
Meanwhile, Volkswagen has agreed to sell an underutilized factory in Osnabrück, western Germany, which will be transformed into a military production hub in partnership with an Israel-based defense investor.
British luxury car manufacturer Jaguar Land Rover (JLR) is also competing for the same contract as Ford, while the British Army prepares to withdraw its current fleet based on Land Rover models from service by 2030. JLR has also created a new division dedicated to supporting its military expansion plans in other countries.
For Mike Hawes, from the Society of Motor Manufacturers and Traders (SMMT), it makes sense to direct part of the automobile industry's idle capacity to the defense sector.
The British car industry and its suppliers depend heavily on a few large carmakers: Nissan in Sunderland; Toyota, in Derbyshire; BMW, in Oxfordshire; and JLR, which, considering the value of production, is the largest of them and maintains factories in different locations in the Midlands and Merseyside regions, in England.
Hawes says the supply chain is very vulnerable.
“Production in the British car industry has been falling for eight or nine years,” says Hawes. "Today, we are probably producing half of what we did ten years ago. This obviously affects suppliers, because they no longer manufacture the same number of parts. So there is excess capacity. And they can also depend heavily on a single assembly plant."
Therefore, says Hawes, these companies should welcome "the opportunity to broaden their customer base and potentially enter the defense sector."
Just two weeks ago, JLR announced it was cutting 4,000 jobs from its 30,000 staff in the United Kingdom, in an attempt to reduce costs and remain competitive against international rivals, particularly Chinese ones. Dave Roberts, from Evtec, a company that supplies cooling system components to JLR, says he is concerned about the consequences.
“JLR is a decisive player in the British car industry,” says Roberts. "It's the glue that holds the whole industry together. Because, remember, when you produce for JLR, the volumes are significantly higher than for any other UK carmaker.
“If it [JLR] has problems, the impact ripples through the entire supply chain.”
Earlier this week, major JLR suppliers called on the government to help car manufacturers enter the aerospace and defense sector, warning that large-scale car production in the UK faces a long-term decline.
In an open letter to the British Prime Minister, the Chancellor (a position equivalent to Minister for the Economy) and the Mayor of the West Midlands, Richard Parker, industry representatives stated that the supply chain problem in the British automotive sector is "not in decline", but "it is in the wrong market".
The signatories said the layoffs were "the first visible crack" in a British car industry supply chain that supports around 183,000 manufacturing jobs.
Across Europe, the sector is facing what Sigrid de Vries, director general of the European Automobile Manufacturers Association (Acea), called the "perfect storm". Automakers are spending billions on the transition to electric vehicles and say sales targets set by governments are advancing faster than consumer demand.
At the same time, an increasing share of electric vehicles purchased by consumers are produced by Chinese companies, which have become the main threat to European automakers.
The China factor
In the early 2000s, Western companies saw China as a market full of opportunities. The country's middle class was growing rapidly, had more money to spend and seemed to have an insatiable appetite for cars, including the most expensive and profitable models. It was a highly profitable business. At one point, the Chinese market accounted for half of Volkswagen's profits.
But this scenario did not last. China wanted to develop its own automobile industry and allocated large volumes of public resources to transform the country into a powerhouse in high-technology sectors, including electric vehicles.
Today, the Chinese market is saturated with brands, both domestic and foreign, and is marked by fierce competition. Chinese automakers then began to turn their attention to other markets and took advantage of the transition to electric vehicles to expand their participation. Companies like BYD, Chery and Geely are advancing rapidly in Europe.
For European brands, this move came at an especially difficult time. Profits obtained in China decreased, while Chinese competitors gained space within the European market itself, after local automakers invested heavily in the production of electric vehicles.
But sales of these cars did not grow as quickly as expected. Industry executives admit that they have difficulty competing with the low production costs and speed of development of Chinese competitors.
As a result, European automakers are now racing to reduce costs and look for a way out of expensive factories, capable of producing millions more cars than they can sell.
Volkswagen has already announced plans to cut 100,000 jobs in the coming years. If it was previously unthinkable to close factories in Germany, the company has already closed the activities of one unit in Dresden and may close four others.
Among them is a factory in Zwickau, where Volkswagen invested more than €1 billion (around R$5.9 billion) to adapt production lines to the manufacture of electric vehicles, a process completed just four years ago.
Industry estimates indicate that Western European car factories have idle capacity equivalent to producing around 2.5 million vehicles per year.
It's no surprise, then, that automakers are keeping an eye on sharply rising defense budgets across Europe.
Sigrid de Vries states that car manufacturers are able to contribute to European rearmament. “Many of the capabilities that the defense sector needs also exist in the automobile industry,” says de Vries.
"Automotive manufacturers and suppliers have industrial facilities, production expertise, logistics capabilities and advanced technologies. They also have broad, tightly integrated supply chains, which can be useful for the broader objective of strengthening Europe's defense capability."
But the transition is not that simple, according to her. Security protocols, political and economic rivalries within Europe and the fact that, outside of a war situation, military demand is unlikely to reach mass consumer market volumes are some of the obstacles.
“They are two very different worlds,” he says. "Governments want to invest in their defense capabilities and, therefore, more than ever, manufacturers and suppliers are interested in evaluating what is possible. But this will not be enough to solve the problem of idle industrial capacity that we see today."
Make room for Chinese competition?
If the defense sector cannot fill the huge spare capacity in the UK and European car industry, perhaps it is time to make room in the factories for Chinese competitors.
To reduce the burden of high fixed costs of keeping assembly lines idle, traditional automakers in Europe and the United Kingdom are opening their factories to Chinese rivals.
Stellantis (owner of the Vauxhall, Fiat, Peugeot and Citroën brands) acquired a 20% stake in Chinese electric vehicle manufacturer Leapmotor. The production of Chinese brand cars began in Poland two years ago.
Leapmotor later moved production to Spain after Poland voted to impose high tariffs on Chinese electric vehicles while Spain abstained, an example of the complexity of trade disputes.
Nissan and Chery International UK have signed a non-binding memorandum of understanding to evaluate the possibility of Nissan manufacturing Chery vehicles under contract at its Sunderland site in northeast England.
In April this year, Volkswagen's chief executive, Oliver Blume, stated that the company was considering sharing the idle capacity of its European factories with Chinese partners.
In one respect, the agreement could benefit both sides. European factories would receive more orders, while Chinese automakers could avoid high tariffs by selling to the US and the European Union by producing cars within those markets.
But making cars in Europe does not necessarily mean creating or preserving European supply chains.
Some factories may be limited to final assembly, while many of the components — especially batteries — would continue to come from China.
Car production is still seen as a central part of a country's industrial capacity. In the past, the phrase was repeated in the USA: "What's good for General Motors is good for the USA."
Something similar could be said of Volkswagen, Mercedes and BMW for Germany and JLR for the United Kingdom.
Auto plants are often among the largest employers in their regions and support local supply chains, so job cuts can have especially strong impacts. It is also for this reason that governments make great efforts to protect and preserve these units.
“Over the next decade…the effects reached the entire industry,” says Roberts. "The country lost infrastructure. It lost advanced production capacity."
"It has become vulnerable. These sectors no longer have the same capacity to resist shocks."
