The UK car industry is at a crunch point - can it be saved?

A gleaming white Vivaro van drove slowly off the production line at Vauxhalls factory in Luton, beeping its horn, while workers cheered and crowded around taking photographs.

Behind it, the production line came to a halt – forever.

The Luton plant began building cars in 1905. It kept operating for the next 120 years, taking time out to build tanks and aircraft engines during World War Two. But on 28 March, that came to an end.

The factory shut down, a victim of cutbacks at Vauxhalls parent company, Stellantis.

Justin Nicholls, a production shift manager, was one of the 1,100 workers there - he had worked at the plant for 38 years. "It was devastating, because it came out of the blue", he says. "It was a complete surprise."

It followed the closure of Hondas car factory in Swindon in 2021, and Fords engine plant in Bridgend the year before.

Together, they have come to symbolise an apparent long-term decline in the UK motor industry.

In all, just 417,000 new cars and vans were built in the UK in the first six months of 2025, according to the Society of Motor Manufacturers and Traders (SMMT) - the lowest for that period since 1953.

Output for the year is expected to be around 755,000 vehicles — lower even than during the Covid-19 pandemic.

The SMMTs chief executive, Mike Hawes, described the situation as "depressing".

The sector contributes some £22bn a year to the economy, according to the SMMT, and as recently as 2023 automotive manufacturing employed some 198,000 people in the UK.

Andy Palmer, who was previously chief executive of Aston Martin, believes the ecosystem - and the sum it contributes to the economy - can only survive if the industry maintains its current scale.

"There is a critical mass of employment," he explains. "Once you go below that, you see it all fall apart.

"You dont have the university courses, you dont have people coming across from the aero industry, you dont have the pipeline of skilled engineers that allow the luxury firms to exist, and so on."

And the knock-on effect of this could affect regions already facing challenges.

"If we think about parts of the UK that have automotive plants, theyre often disadvantaged regions," says David Bailey, professor of business economics at Birmingham Business School.

"Losing these good quality jobs would have a big impact in terms of wages for workers and also a knock-on effect in terms of the multiplier on the local economy."

He is concerned about what has already been lost. "Id argue that actually weve let too much of this go already. I think once its gone, its really gone."

The question is, can the industry recover - or is it too late?

The UK car industry is sprawling. Alongside large factories run by the likes of JLR, Nissan, BMW MINI and Toyota, there is a network of suppliers and high-tech specialist engineering firms, along with a number of smaller, luxury car firms, such as Aston Martin, Bentley, Rolls-Royce and McLaren, plus bus and truck manufacturers.

In 2016, the UK produced 1.82m new vehicles – more than at any point since 1999. Yet even at that point, storm clouds were already gathering. And the industry has suffered further over the past decade.

Factory closures have had an impact, but other factors have been at play as well, including uncertainty over US trade policy, which has hit exports to a major market.

Then there was the role of Brexit.

"Obviously, Brexit had a big impact", says Santiago Arieu, senior autos research analyst at Fitch Solutions. "It created uncertainty and complicated future visibility."

As a result, experts say new investment suffered – just as the industry was gearing up for the massive changes being brought by the transition to electric vehicles.

The agreement with the EU to guarantee continued tariff-free trade soothed the industrys concerns when it came. But by then, there was another challenge to contend with.

The pandemic caused havoc within the industry globally.

In 2020, output dropped by nearly a third, hitting levels not seen since the mid-1980s. It also threw finely tuned global supply chains out of kilter and created shortages of vital parts.

Although demand for new cars was spiking, manufacturers simply couldnt build them quickly enough.

All of this caused short-term disruption - but the impact concealed a deeper, structural problem for the UK industry.

Quite simply, it has become an expensive place to build cars.

Part of this is to do with labour costs. Although lower than in some other Western European countries, particularly Germany, they are around twice the level seen in Central European nations such as Poland, Slovakia and Hungary.

Then, there are energy costs. British manufacturers currently pay some of the highest electricity prices in the world.

"Car makers operating in the UK also have factories in Europe and elsewhere, so its not hard for them to find a replacement for their UK production," explains Felipe Munoz of JATO Dynamics.

The former chief executive of Stellantis, Carlos Tavares, has previously criticised the cost of manufacturing cars in the UK and northern Europe – while holding up the companys Kenitra factory in Morocco as a model of efficiency.

When the Luton plant shut last year, it was estimated by Luton Borough Council that the move could cost the regional economy £300m per year.

A small part of the workforce relocated to Stellantis other UK plant, at Ellesmere Port in Cheshire, where the company is in the process of investing £50m in expanding production.

Of those who have not relocated, some retired. "[Others] are taking quite a reduction in pay", says Gary Reay, who was a representative of the Unite union at the plant.

The factory site has been bought by a property firm, Goodman - it plans to create more than 1,700 jobs at a new industrial park.

Mr Reay is unimpressed. "The problem for the workforce… is this is years down the road… Its too far away for most of our workers."

Yet there is hope in some quarters: it is possible this years output may turn out to be a low point, as recent investments start to bear fruit.

In 2024, for example, Nissan stopped building its ageing electric Leaf model at its Sunderland plant — having previously been building about 30,000 a year. But it is due to begin making a new version this year and will start building an electric version of the Juke in 2026.

Nissan is also one of the manufacturers set to benefit from investments in gigafactories. Nissans battery partner AESC is building one in Sunderland, which will be able to make power packs for 100,000 electric vehicles a year.

JLRs parent company, Tata, meanwhile, is investing in its own plant in Somerset, through its subsidiary Agratas.

The government says it wants to increase the number of cars and commercial vehicles built annually to 1.3m by 2035. The SMMT believes 803,000 vehicles will leave the production lines next year but bringing that up to 1.3m looks like a very tall order, according to Mike Hawes.

Greg McDonald, the CEO of Goodfish Group, is also circumspect. "I dont think many people think theres going to be a resurgence," he says.

His business makes injection moulded components for carmakers and has four sites across the UK. It also has a base in Slovakia.

"Suppliers like us are used to being constantly bid at for price and cost reductions, and theres a limit to how much you can do."

One way of mitigating this is for businesses to diversify - something more viable for smaller businesses in the sector.

Burnetts Manufacturing, based in Northampton, is one of many automotive suppliers clustered around the Midlands Corridor. A manufacturer of specialist rubber and plastic parts, it relies on the motor industry for about 40% of its business. But it also provides components for shipbuilders and oil and gas firms.

According to technical sales manager, Rich Dixon, smaller companies are more flexible and able to adapt to changing circumstances.

"I think were lucky in some ways, because 60% of our business is diversified across many different industries," he says. "The last thing you want to be is 100% automotive.

"The difficulty is that higher up the food chain, there are some big companies that are very reliant on automotive."

Some argue there is another way forward. Chinese giants such as Chery Group and Dongfeng want to expand their international operations – and see the transition to electric vehicles as an opportunity to do this in the European market.

"If you embrace the move to electric vehicles and become a leading light in attracting Chinese investment, then you can do what China did to us in the past, which is essentially use collaboration to rebuild your industry," argues Andy Palmer, who now owns and invests in clean energy companies.

This would, he adds, require significant government action, including negotiations with Beijing.

The question is, is it already too late?

One senior executive, who has spent decades in the European industry, doesnt believe the UK will become a major player in the EV market.

"I dont think governments have spent the necessary time and energy preparing for the shift to EVs.

"I dont see much opportunity for new players to come in," says the executive, who asked not to be named. "Its all about encouraging those who are already here to stay, and if possible to expand."

Another option, Felipe Munoz believes, is that the UK could double down on its position as a key player in the market for high-end cars.

This could mean becoming a hub for the production of luxury Chinese designs, while allowing cheaper mass-market models to be built elsewhere.

"I think people globally are willing to pay a premium for a British-made luxury car," adds Prof Bailey.

There is plenty at stake here, and it goes beyond the impact on local communities when factories are lost or suppliers stop trading.

"I also worry about it in terms of impacts on productivity, exports, and research and development," says Prof Bailey.

"Part of the reason why weve got poor productivity performance in the UK is that we have allowed too much manufacturing to go."

This is where we differ from our European counterparts, argues Steve Fowler, EV editor for The Independent. "We tend not to support our homegrown industries in the same way that other countries do".

What is harder to assess is the loss of national prestige. When MG Rover collapsed in 2005, there was an outcry, not just because thousands lost their jobs, but also because it was perceived as a symbol of the wider decline of British industry.

This became even more marked when MG – a classic British brand – became a boutique badge for cars made in China.

Many of the upmarket brands that still build cars in this country deliberately trade on their British identity. Think of Rolls Royce, Bentley, McLaren and Lotus. Even BMW-Mini, a mass market manufacturer, is more than willing to wave the Union Jack – or rather, have it painted on door mirrors and roofs.

If those cars were no longer built in Britain, it might well be perceived as a national humiliation. And for some, the decline of the auto industry would almost certainly be perceived as a symptom of a much wider loss.

"I do think people are [becoming] much more aware of where things are made," argues Mr Fowler. "This isnt necessarily a nationalistic thing, but more a sustainability thing. Do you want your car to have travelled halfway around the world to reach you?"

Ultimately, he says, there is already "a bit of a brain drain of talent, because the opportunities, bluntly, arent here in the UK.

"[But] the UK is a great place to make cars, we have incredible expertise, we have some of the best engineers and people who can build them better than anybody else."

Top image credit: Chris Ratcliffe/Bloomberg via Getty Images

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