The image is striking: green color, massive construction, and an appearance that refers more to a military vehicle than a conventional pick-up. The latest vehicle from Ford resembles a pick-up truck that has gone through an Incredible Hulk-type mutation. Based on the popular Ranger series, the monstrous vehicle standing outside the entrance of Ford’s factory in Dagenham can carry a payload of two tons, tow up to four tons, and at the same time carry on its shoulders the hopes of roughly 2,000 factory workers who are still manufacturing engines there. Inside the plant, the three-liter diesel engines that will power this military-style vehicle pass through a production line which over the last decade has seen output collapse from roughly 90,000 engines a year to nearly half that number. Ford hopes that shifting toward military vehicles can fill the gap created by the dramatic shrinking of traditional car manufacturing. Lisa Brankin, head of Ford UK, describes today's environment as the most difficult since the automobile was invented. And so, a once-mighty European automotive industry is starting to look... small. Europe is rearming, defense spending is skyrocketing, and carmakers are seeking ways to turn their excess production capacity into a new industrial weapon.
From cars to military vehicles
Ford is not the only automaker that views defense production as a new growth market. The American company is participating in a consortium alongside General Dynamics and Ricardo, bidding for a British Ministry of Defense contract to supply 9,000 vehicles over the next five to seven years. The new vehicles will replace the British Army's aging fleet, which is based on Land Rover-type vehicles. "As a manufacturer, you look at every opportunity that presents itself, and this is a major opportunity that we would like to capture," states Lisa Brankin. Ford, however, is not entering military production for the first time. Before World War II, the factory in Dagenham, east London, was the largest car factory in Europe. When war broke out, civilian production stopped completely and the plant was converted into a military manufacturing facility. Between 1939 and 1945, Dagenham manufactured 360,000 military vehicles for the Allied forces' needs. At the same time, Ford workers in Manchester manufactured 34,000 Rolls-Royce Merlin engines, which were used in Spitfire and Hurricane fighter aircraft. Eight decades later, the European auto industry is once again seeking salvation in the defense industry.
Europe rearms – and automakers take their positions
Europe faces the need to channel hundreds of billions of euros into defense capabilities, as the threat from Russia grows while doubts intensify over whether the US will continue to act as the primary guarantor of European security. At the same time, European automakers face unprecedented commercial pressure from Chinese competitors. The question, therefore, is critical: Can European rearmament efforts save an auto industry and a supply chain currently in crisis?
Renault, Volkswagen, JLR: Defense becomes a new market
Ford is far from the only company considering a pivot into defense manufacturing. French automaker Renault has signed a strategic agreement with defense giant Thales to produce military drones, aiming for production of up to 1,000 units per month. The French military and the General Directorate of Armaments want to leverage Renault’s mass production capabilities to bypass the traditional and slower supply chains of the defense sector. At the same time, Volkswagen has agreed to sell an underutilized plant in Osnabrück in western Germany, which is set to be converted into a military production center through a joint venture with an Israel-based defense investor. And Jaguar Land Rover (JLR), which manufactures Land Rovers, is competing for the same contract as Ford, as the British Army plans to retire its existing fleet of vehicles by 2030. In parallel, JLR has created a dedicated business unit to support its global ambitions in the military sector.
Excess manufacturing capacity
For Mike Hawes of the Society of Motor Manufacturers and Traders (SMMT), transferring production capacity from cars to defense makes sense. The British auto industry and its suppliers rely heavily on a few large manufacturers: Nissan in Sunderland, Toyota in Derbyshire, BMW in Oxfordshire, and, above all in production value, JLR across multiple units in the Midlands and Merseyside. However, the supply chain is particularly vulnerable. "UK car production has been in decline for the last eight or nine years. We are probably at half of where we were 10 years ago," notes Mike Hawes. This contraction hits auto suppliers as well, given that fewer components are manufactured, creating significant idle production capacity. "They have capacity. They may also rely heavily on one specific manufacturer," he adds. Defense, therefore, offers a potential way out. "It is an opportunity to broaden their customer base and potentially cross over into defense supply," he states.
JLR cuts 4,000 jobs – The shock hits the supply chain
Just two weeks earlier, JLR announced it was cutting 4,000 jobs from its British workforce of approximately 30,000 employees. The goal is cost reduction so that the company remains competitive against international, and especially Chinese, rivals. Dave Roberts of Evtec, a company supplying JLR with cooling systems components, warns that the impact could be far greater. "JLR is the critical mass in the UK automotive space. It is the glue holding the entire industry together," he emphasizes. When JLR faces problems, the consequences transfer throughout the entire automotive network. "If it suffers, the ripples go much deeper into the supply chain," he warns. In fact, major JLR suppliers asked the British government to assist automakers in pivoting toward aerospace and defense, warning that large-scale car manufacturing in Britain faces a long-term downturn.
A "visible crack" in the British auto industry
In an open letter to the Prime Minister, the Chancellor of the Exchequer, and West Midlands Mayor Richard Parker, industry executives argued that the British automotive supply chain is not merely declining. It is, as they argued, "in the wrong market." The letter was signed by executives from companies employing more than 8,600 manufacturing workers, while receiving support from the Confederation of British Metalforming, which represents roughly 75,000 workers. The signatories described the job losses as the "first visible crack" in a British auto chain that supports around 183,000 manufacturing jobs.
A "perfect storm" in Europe
However, the crisis is not a uniquely British phenomenon. Across Europe, the automotive industry faces what Sigrid de Vries, director general of ACEA, describes as a "perfect storm." Automakers are spending billions to transition to electric vehicles, while contending that government EV sales targets move faster than consumer demand. And the problem becomes even bigger: The electric vehicles that consumers do buy originate increasingly from Chinese manufacturers.
The "Chinese trap" that backed Europe into a corner
In the early 2000s, Western businesses viewed China as a promised land. The rapidly growing middle class possessed money and seemed to have an insatiable demand for cars, including the most expensive and profitable models. For Volkswagen, the Chinese market once represented half of its profits. However, the party is over. China wanted to build its own car industry and poured massive state subsidies into high-tech sectors, including electric cars. Today, the Chinese market is overcrowded with domestic and foreign brands and characterized by extreme competition. Chinese carmakers turned to international markets and used the EV transition as a vehicle to capture global market share. BYD, Chery, and Geely are expanding aggressively into Europe.
EVs backfired on Europe
For European brands, the Chinese invasion came at the worst possible time. The loss of stable profits from China and the arrival of Chinese rivals in the European market coincided with massive investments by European groups in electric mobility. Yet electric car sales did not grow at the pace manufacturers anticipated. Company executives themselves admit they struggle to compete with the low production costs and development speed of Chinese companies. The result? European automakers are now rushing to achieve cost cutting, while simultaneously wondering what to do with expensive plants that can produce millions more cars than they can actually sell.
Volkswagen: 100,000 jobs in the crosshairs
Volkswagen has already announced plans to eliminate 100,000 jobs over the coming years. Closing German factories was once considered unthinkable. Now, Volkswagen has already closed a facility in Dresden and is considering closing up to four manufacturing plants. Among them is the site in Zwickau, where VW had invested over 1 billion euros to convert production lines to build electric vehicles. That conversion was completed just four years ago. Industry estimates indicate that auto plants in Western Europe possess excess annual production capacity of roughly 2.5 million vehicles. It is hardly surprising, then, that car manufacturers are looking with envy at Europe's swelling defense budgets.
Defense cannot replace the automotive market
Sigrid de Vries maintains that automakers possess substantial capabilities that can be utilized in Europe's rearmament push. "Many of the capabilities that defense needs are also provided by the automotive sector," she notes. Automakers and their suppliers possess industrial assets, manufacturing expertise, logistics, advanced technologies, and vast, integrated supply networks. However, she cautions that the equation is not that simple. There are security protocols, political and economic rivalries within Europe, and defense manufacturing cannot replace the massive volume of the consumer auto market. "These are two very different worlds," she points out. Governments want to invest in their defense capabilities, making it far more interesting for manufacturers and suppliers to explore what is possible. Yet, according to her, defense is insufficient to absorb the vast underutilization of capacity that exists today.
"Letting the fox into the henhouse?"
And here lies the great dilemma. If defense cannot fill the massive production voids in the European and British auto industries, is it time for European automakers to open their doors to Chinese rivals? In other words: Are they letting the fox into the henhouse? To limit the massive fixed costs of underperforming factories, European and British carmakers are gradually opening their doors to Chinese companies. Stellantis, owner of Vauxhall, Fiat, Peugeot, and Citroen, acquired a 20% stake in Chinese EV maker Leapmotor. Production for the Chinese brand started in Poland two years ago. It subsequently shifted to Spain, after Poland voted in favor of imposing heavy tariffs on Chinese EVs, while Spain abstained. This offers a telling example of how complex trade policy can become.
Nissan and Chery explore joint production
Nissan and Chery International UK signed a non-binding Memorandum of Understanding to explore contract manufacturing of Chery vehicles at Nissan's plant in Sunderland. In April, Volkswagen CEO Oliver Blume stated that Volkswagen is considering sharing excess capacity at its European plants with Chinese joint-venture partners. In theory, this represents a win-win scenario. European plants gain extra production and Chinese firms can bypass high tariffs on sales to the US and the European Union by manufacturing cars directly inside those markets. However, there is a major catch.
European assembly does not mean a European supply chain
The fact that a car is assembled in Europe does not automatically mean European supply chains are built or saved. Some factories may handle only final assembly, while many components—and crucially, EV batteries—may continue to be imported from China. Herein lies the strategic dilemma for Europe. The automotive sector remains a cornerstone of national industrial sovereignty. In the US, there was once the famous phrase: "What is good for General Motors is good for America." Something similar applies to Volkswagen, Mercedes, and BMW in Germany, and to JLR in the UK. Car plants are frequently the largest employer in a region, supporting entire networks of local suppliers. This explains why job cuts carry such a powerful impact.
The Australian precedent serves as a warning
Australia serves as a prime case in point. When the last car built in the country rolled off the assembly line in 2017, the nation did not merely lose its auto industry. According to Dave Roberts of Evtec, it lost an entire mindset surrounding engineering and critical skills. "Over the following decade, the fallout spread across all of manufacturing," he argues. The country lost infrastructure, advanced manufacturing capabilities, and ultimately resilience across key industrial sectors.
"A drop in the ocean, but every opportunity counts"
Lisa Brankin of Ford UK acknowledges that 9,000 military vehicles produced over five to seven years are a far cry from the 90,000 engines the Dagenham plant once produced annually. Nonetheless, she maintains: "It is a drop in the ocean, but every opportunity is worth taking, isn't it?" The British Ministry of Defense, for its part, states that it wants British industry to play a "central role" in manufacturing thousands of modern light mobility vehicles. A ministry spokesperson notes that 85% of UK defense spending remains in the country today, supporting reindustrialization and making defense a driver of economic growth.
Europe searches for a lifeline in the war economy
It is entirely understandable why a shrinking European auto industry seeks to participate in the boom in defense procurement. Europe is ramping up military investments, governments are searching for new manufacturing capacity, and car plants possess the infrastructure, technical expertise, and workforce. Yet the big picture remains stark. Defense can offer breathing room, military contracts, and new scope for a portion of European industry. However, it cannot single-handedly replace the lost, massive consumer auto market. While Europe searches for ways to utilize its factories, Chinese manufacturers expand aggressively, electric cars fail to sell at projected rates, and excess capacity continues to swell. Thus, the European auto industry stands at an historic crossroads: it will either find a new role within Europe’s new industrial and defense reality or continue losing production, plants, jobs, and engineering expertise. The war economy may provide a temporary lifeline. The question is whether it can restore to the European auto industry the industrial power that was once taken for granted.
www.bankingnews.gr
Σχόλια αναγνωστών