If automakers in Britain are receiving Covid-19-related government help, is it 100% justifiable as Covid-related?

If automakers in Britain are receiving Covid-19-related government help, is it 100% justifiable as Covid-related?

UK-based carmakers forced to halt or reduce production in recent months have been placing workers on Covid-19 furlough and claiming their wages from the Coronavirus Job Retention Scheme, according to newly published government figures.

But were their struggles directly attributable to the pandemic or due to other issues such as the well-known semiconductor shortage that has been hitting several industries in the past few months?

The question lies at the heart of government efforts to help businesses cope with Covid-19, as the circumstances in which furlough money can be claimed are not entirely clear.

The carmaking industry has been hard hit since last December by shortages of semiconductors, the silicon chips needed in large quantities to make modern cars. Car manufacturers that spoke with Verdict mostly declined to break down how much of their furlough claims could be directly attributable to the semiconductor shortage.

Honda of the UK Manufacturing, a subsidiary of the Japanese carmaker, claimed between £1m and £2.5m in government furlough grants in January 2021.

That same month it temporarily paused production at its Swindon factory, where it makes the Civic car, for four days due to "Covid-related supply issues". Honda declined to confirm or deny whether any of the £1m to £2.5m furlough grant was a result of chip shortages.

A Honda spokesperson told Verdict: "At times when our ability to maintain our operations has been impacted by the Coronavirus pandemic, Honda of the UK Manufacturing has utilised the UK government's Coronavirus Job Retention Scheme to support our continued business activities and retention of staff.

"The details of Honda's claims are commercially sensitive and further details will not be disclosed."

Nissan Motor Manufacturing UK, the British car-building arm of the Japanese company, temporarily paused two production lines in January at its Wearside, Sunderland, assembly plant, citing "supply chain disruption caused by the Covid-19 pandemic".

That same month, recently published government records show that Nissan claimed between £100,001 and £250,000 from the Coronavirus Job Retention Scheme (CJRS), which pays up to 80% of employees' salaries if they are unable to work because of Covid-19.

In February the BBC reported that "about 750 workers" were furloughed due to the parts shortage. Nissan told Verdict that this number was "not accurate" but did not provide an alternative figure.

A Nissan spokesman said: "In recent months a global shortage of semiconductors has also affected parts procurement in the auto sector. Due to the shortage, Nissan is adjusting production and taking necessary actions to ensure recovery. We continue to work closely with our supplier partners to assess the impact on our supply chain and production, and minimise inconvenience for our customers."

The company also claimed £25,001 to £50,000 in furlough grants in December 2020. The government's published furlough data shows claims in bands rather than specific amounts.

Tata-owned Jaguar Land Rover, which paused production in December at its Castle Bromwich factory due to a "supplier issue related to Covid", claimed between £1m and £2.5m that month.

In January it again claimed between £1m and £2.5m. A Jaguar Land Rover spokesperson said that its supply issue in December was not one of semiconductors. The spokesperson told Verdict last week that at that point it had "not put any employees on furlough due to semiconductor issues".

Later that day the company announced that it would temporarily close its plants in Castle Bromwich in the West Midlands and Halewood on Merseyside, and this time stated specifically that this was because of the chip shortage.

The company said Jaguar Land Rover was yet to make a decision as to whether it would put the 6,000 workers spread across the two plants on the furlough scheme.

Ford, which has manufacturing sites in Dagenham and Halewood, claimed between £100,001 and £250,000 in January 2021 from the CJRS. It also claimed £50,001 to £100,000 in December.

However, a Ford spokesperson told Verdict that these claims were "not associated with the ongoing semiconductor shortage". The spokesperson explained that Ford's UK plants build diesel engines and transmissions, which are not as dependent on chips.

In January 2020, Aston Martin Lagonda claimed between £500,001 and £1m from the CJRS. It did not reply to questions sent by Verdict asking if these claims were in any way related to the global chip shortage.

Toyota Manufacturing, which claimed up to £10,000 in December, also did not return a request for comment.

A fire in Hitachinaka felt as far as Swindon

The chip crisis is having a knock-on effect in various industries including carmaking. The shortage began when demand for consumer electronics such as laptops and games consoles surged during the pandemic. The foundries that make the physical chips, including TSMC in Taiwan and Samsung in South Korea, found themselves unable to keep up with this sudden surge in demand despite operating at full capacity.

At the same time car manufacturers that operate using "just in time" supply chains cancelled orders of semiconductors in the early stages of the pandemic due to factory closures and slumping sales. When demand for cars picked up again in the final quarter of 2020, many automakers found themselves at the back of the queue with semiconductor suppliers who had shifted production out of automotive chips and into other types of product. Today's cars can easily contain more than 100 chips and according to GlobalData Automotive analysts, "modern vehicles are as reliant on computer chips as they are on their engines and chassis".

Problems in the semiconductor supply chain have caused nearly all automakers across the world to halt vehicle production at some point this year.

This supply squeeze was compounded by severe weather closing Samsung's chip factory in Austin, Texas in February and a fire at a factory in Japan run by chipmaker Renesas that halted semiconductor production. Some companies, including Chinese telco Huawei, stockpiled chips last year ahead of trade blocks, which strained supply before the pandemic.

The publication of the furlough payments raises questions regarding the circumstances in which companies should claim taxpayer money to furlough staff. According to the government guidance, companies can claim from the Coronavirus Job Retention Scheme if they cannot maintain their workforce because "operations have been affected by Covid-19".

Verdict understands that the government sees a fairly broad scope for companies to claim from the CJRS due to the complexity of determining how much Covid is a factor in a business' ability to operate.

However, Julian Hemming, employment law partner at law firm Osbourne Clarke, told Verdict that "businesses should not make use of the CJRS where the reason for supply issues is not solely (or at least primarily) due to coronavirus".

He added: "The purpose of the CJRS is to provide financial support to businesses who cannot maintain their current workforce because their operations have been impacted by Covid-19. For instance, the coronavirus pandemic may have impacted the supply of semiconductors globally, but there are other factors which cannot be clearly attributed to Covid-19 that have had a more profound impact on this situation."

He cited the fire at the Renesas factory and the long-running US-China trade war that had disrupted the flow of semiconductors before the pandemic.

"In my view, there is not a strong enough connection between the impact of the coronavirus outbreak and the semiconductor shortage to access the CJRS," Hemming said.

Automakers across the UK were forced to suspend vehicle production in March 2020 due to the first national lockdown. They were permitted to resume production with coronavirus safety measures in place from July, and there has been no government restriction on the operation of car factories since then.

Early indications of a chip shortage emerged in November 2020 but it wasn't until December that it had a notable impact on the automobile industry.