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How to Save the British Auto Industry: Homegrown Talent + Cheap Chinese Labor

Prince William and Kate Middleton may be about to promise undying loyalty to each other, but the same can't be said of the British auto industry and its home country. Great Britain has given us plenty of well-known car brands, but its carmakers have been failing and selling out for decades. There is a way for the nation of Jaguar and Rolls-Royce to revive itself, however.

Dreamed up in Britain, built in the Middle Kingdom
Earlier this month, MG rolled out its first new car in 16 years. With a little help -- OK, make that a lot of help -- from the Chinese. According to the Guardian:

Production of the car at MG Birmingham â€"- a factory on the former Longbridge site -â€" would not have been possible were it not for the company's Chinese owners, the Shanghai Automotive Industry Corporation (SAIC).

Six years ago, MG Rover Group went into administration and MG was bought by China's oldest carmaker, NAC. Two years later, NAC merged with SAIC and the MG marque was once again reborn.

Despite the ownership, and the fact that it is three-quarters built in China before being shipped over and finished off by the 40 or so manufacturing workers in Birmingham, [the company] insists the five-door hardtop is a true MG.

MG is a storied brand and the car looks pretty sharp. It's entirely possible that people will buy it. And if it succeeds, it will be because the bulk of the heavy lifting was done by low-cost Chinese labor.

So why is this a good thing?
The British auto industry is struggling. The supply chain crisis in the aftermath of the Japanese earthquake has exposed its eviscerated local supplier network, which is struggling to provide parts to carmakers like General Motors (GM)-owned Vauxhall. Rolls and Bentley belong to the the Germans. Jaguar and Land Rover were sold to Ford (F), who sold them to India's Tata.
However, there's still plenty of design and engineering talent in the UK. It may not be deployed in the future to support British cars, however, but rather British brands. That said, the supply chain crisis may promote a parallel change.

Rebirth on one front, outsourcing on another
The Japanese supply chain problem has led some commenters to insist that parts networks can't be spread across the globe but instead need to be concentrated around assembly facilities.

As the Birmingham Post argues, large automakers in the UK:

...are looking to source many more components from the UK if at all possible. They and other assemblers have identified a wish list of components they are looking to source in the UK....

In part this is because sterling's depreciation over the last few years now makes sourcing here more attractive and part because of higher transport costs meaning which means that shipping components from abroad has become more expensive.

Of course, a niche brand like MG may be subjected to narrow profit margins, so doing the high-level design work in England while relying on a Chinese partner to put the vehicle together can make better economic sense.

And in any case, both models have in common more localized production. It's just that one version happens in China, while the other takes place in the UK.

The best of both worlds
If this comes to pass, Britain may be able to preserve and even grow its beleaguered auto industry, while simultaneously perpetuating brands that have over the years amassed tremendous equity, yet have had a tough time in the marketplace.

If you're paying attention, you can also see how this model would allow British labor to stay in the game while also sustaining viable companies, like MG, that can thrive in the same way that Apple (AAPL) does: designed in Cupertino, built in China. It may not lead to an automotive empire, but at least it will keep some British automotive talent in business.

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Photo: David Iliff/WIkimedia Commons
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