Aston Martin in a bid to protect itself when the UK leaves the EU scheduled for the end of March, has increased its parts localisation in the UK to more than 55 percent, CEO Andy Palmer said.
Aston was sourcing just 29 percent of its parts in the UK in 2017, the company said, but has switched to enough local suppliers to bump up the localisation rate for its three newest cars above the threshold used by the World Trade Organization (WTO) to measure whether a vehicle qualifies as local in origin, Palmer says.
CEO of Aston Martin; Andy Palmer
Rules-of-origin also play a part in establishing free-trade agreements with new countries, something the UK will need to conclude globally after leaving the EU.
“That’s good news if we do have a hard exit because what is means is our reliance is heavily on the UK supply base,” the executive said. Palmer gave the example of switching supply of carbon fiber parts from Hungary to a company in the Isle of Wight, southern England.
Aston’s drive to use local suppliers is a rare piece good news for the UK parts industry that is deeply worried about the effects of Brexit and the deterioration of the British automotive industry as the country moves closer to leaving the EU without a deal.
Automotive production in the EU fell 18 percent in January, largely due to the fall in demand for Jaguar Land Rover cars in China, while Honda earlier this month announced it would stop UK production in 2021. Palmer acknowledged that his strategy has some risks. “The reverse side of that is, how do you manage to keep your suppliers in the country with a hard exit?” he said. He also said it was also difficult to find “high-quality” automotive suppliers in the UK. “Those that are good at it are world class and there are some we had to help,” he said.
Palmer said there was a “practical maximum” level of UK localization the company could reach because it sources all engines and most gearboxes from Daimler (V-8) and Ford (V-12) in Germany. The aluminum body structure used by the majority of its cars is largely sourced in the UK.
Aston Martin took a 90 million pound ($119 million) hit last year when four suppliers located in the UK and mainland Europe could not increase supply last enough to keep up with demand for parts for the Vantage and DBS sports cars. “We manufactured the cars and ended up having to store them in inventory and retro fit the parts. Fortunately, that was relatively easy,” Palmer said. The cost came when Aston had to offer credit to dealers who did not have space to store cars once they had been completed, but will be returned in the first half of 2019, Palmer said.
The possibility that the UK might delay its exit from the EU was a “further annoyance” Palmer said. Like many other UK automakers, Aston Martin has put in place contingency plans to deal with the disruption in parts supply if the country leaves without a deal from the EU, meaning that those plans would have to be delayed.
Aston Martin has authorized up to 30 million pounds ($40 million) worth of contingencies including flying in components if parts from mainland Europe are held up ports. “You are holding that contingency stock for longer which means that your working capital is tied up for longer,” Palmer told Reuters.
The company posted a 26 percent rise in 2018 volumes and a 25 percent increase in revenues on Thursday.
Adjusted pre-tax profits fell 7 percent to 68 million pounds ($90 million) before one-off costs related to its initial public offering.
