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Honda's U.K. plant closure adds to rising Brexit worries

Honda closing plant in England

Tokyo - Japanese carmaker Honda plans to close its car factory in western England in 2021, a fresh blow to the British economy as businesses struggle with the uncertainty associated with the country leaving the European Union next month.

The company announced the decision, which will imperil 3,500 jobs and possibly many more, at a news conference in Tokyo.

Honda President and CEO Takahiro Hachigo said the decision was not related to Brexit but was based on what made most sense for the carmaker's global competitiveness in light of the need to accelerate its production of electric vehicles.

Still, experts say the uncertainty surrounding Brexit would likely be a contributing factor in a decision like Honda's. There's still no clarity on what leaving the EU will mean. In a worst case it could lead to heavy tariffs and border checks, raising costs and slowing deliveries.

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That comes at a time when the auto industry is already in serious flux, with manufacturers shifting to cleaner cars, coping with more tariffs and a slowing global economy.

"We still don't know what sort of changes Brexit will bring at this point," said Hachigo. "We have to wait until we have a better idea about the situation."

Hachigo said the company would begin discussions with affected workers at the factory in Swindon right away. "I very much regret this," he said, adding that "this was the best choice under the circumstances."

Honda makes its popular Civic model at the factory, 70 miles west of London, with an output of 150,000 cars per year. Its restructuring is aimed at adjusting its operations to reflect stronger demand in Asia and North America, Hachigo said.

The next model of Civic to be sold in Britain will be exported from Japan, the company said.

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Honda is also adjusting its operations in Turkey, where it makes 38,000 Civic sedans a year. It said it would continue operating there, however, and hold a "constructive dialogue" with local stakeholders.

British businesses are issuing increasingly urgent warnings about the damage being done by the lack of clarity surrounding Britain's divorce from the EU. The U.K. has yet to seal a deal laying out the divorce terms and establishing what trade rules will apply after Brexit.

In presenting the restructuring plan, Hachigo stressed that Honda was striving to adjust to a fast-changing global industry. Technology is driving the change.

"We are facing increasingly severe competition from Chinese and Indian manufacturers," he said. "We have to move more quickly."

Japan and the EU have also struck a free trade deal, which makes a manufacturing presence in the EU less important. The U.K.'s decision to leave the bloc could create further uncertainty for Japanese companies in Britain.

Businesses fear chaos

Christian Stadler, a professor at Warwick Business School in England, said the loss of free entry into the European market from Britain undoes one of its top advantages as a manufacturing base.

Many businesses fear economic chaos if an agreement isn't reached on the rules and conditions that will replace the 45 years of frictionless trade that came with the U.K. being an EU member. The uncertainty has already led many firms to shift some operations abroad, stockpile goods or defer investment decisions.

Earlier this month, Japan's Nissan announced that it would not build a new SUV at its plant in Sunderland, England, as previously planned.

"Car manufacturers have repeatedly warned the government about the threat Brexit poses to British industry," Stadler said, noting that Jaguar Land Rover had also scaled back its operations.

"Honda faces the same challenges as fellow Japanese carmaker Nissan. The global economy is slowing down, which has hit key markets such as the U.S. and China."

Growing exhaustion in U.K. over Brexit

L. Alan Winters, director of the U.K. Trade Policy Observatory at the University of Sussex, said the backdrop of Brexit means the U.K. is less able to respond to challenges in the industry.

"Honda, like all other car manufacturers, has a major problem to solve, and having a chaotic government that doesn't seem to care about industry makes it less inclined to try to solve them here," he said, adding that it will be difficult for Britain to face the shock. "With Brexit sucking life out of the U.K. economy, it will be much more difficult to find new activities and jobs to compensate for the losses at Honda and elsewhere."

Devastating news

The planned closure will hit Swindon hard. Beyond the plant's jobs, those who supply the plant will also be at risk, as the auto industry has proved to be a bellwether of the economy.

Local lawmakers described the news as devastating, and unions pledged to fight for the jobs.

British Trade Union Council General Secretary Frances O'Grady put the blame squarely at Prime Minister Theresa May's door, saying her refusal to rule out a Brexit without a deal has put thousands of jobs in jeopardy.

"Workers at Honda must not pay the price for the prime minister playing to the hardliners in her party," O'Grady said, "and we urge Honda to sit down urgently with Unite to discuss a way forward for the plant."