Europe's car makers are in crisis. Can the prospect of war save them?

Green, bulky and imposing, Ford’s newest model resembles a pick-up truck that has undergone an Incredible Hulk-style makeover. Built on the company’s well-known Ranger line, the muscular vehicle outside Ford’s Dagenham plant can haul two tonnes, tow as much as four tonnes, and is also carrying the expectations of the 2,000-strong workforce still producing engines there.

Inside the factory, three-litre diesel engines destined to power the camo-painted machine move along a production line whose output has fallen over the past decade from 90,000 engines a year to roughly half that figure.

Ford is hoping a move into military vehicles will help make up for what the company’s UK chief describes as the most difficult environment since the motor car was invented. Once dominant, Europe’s car industry is beginning to look small, and it is banking on rising defence budgets as Europe rearms to help it regain industrial strength.

Ford is part of a bid for the British Army's Light Mobility Vehicle (LMV) programme

Ford is involved in a joint venture with defence specialists General Dynamics and Ricardo, bidding for a Ministry of Defence (MoD) contract to provide 9,000 vehicles over the next five to seven years to replace the Army’s ageing Land Rover-based fleet.

Lisa Brankin, chair of Ford UK, says the bid offers a chance to demonstrate how quickly the company can respond to defence requirements: "As a manufacturer you look at every opportunity that comes at you and this is a great opportunity that we would love to take advantage of."

This is not the first time Ford has turned to defence work.

Before World War Two, Ford’s Dagenham factory in east London was the biggest car plant in Europe.

When war began, civilian car production stopped entirely and the site was converted fully to military output. From 1939 to 1945, the Dagenham plant built 360,000 vehicles for the Allied war effort.

Ford workers in Manchester produced 34,000 Merlin engines designed by Rolls-Royce, which powered Spitfires and Hurricane fighter aircraft.

Eighty years on, the UK and European car industries are hoping the engines of war can help ward off what one supplier told the BBC was a "terminal decline".

As Europe feels forced to commit hundreds of billions to boost defence spending in response to the threat from Russia and US reluctance to act as Europe’s protector, car makers under commercial pressure from Chinese competitors have taken note.

So can Europe’s rearmament rescue an auto industry and supply chain in crisis?

Ford is far from alone in seeing defence as a growth sector — and one that could absorb the excess capacity building up at car plants across Europe.

French car maker Renault has signed a strategic deal with defence giant Thales to make military drones, aiming for output of up to 1,000 units a month. The French military and Directorate General for Armament want to use Renault’s mass-production expertise to sidestep traditional, slower defence supply chains.

Meanwhile, Volkswagen has agreed to sell an under-used factory in Osnabruck, western Germany, which will become a military manufacturing centre in a joint venture with an Israeli-based defence investor.

Jaguar Land Rover (JLR), which makes the Land Rover, is also competing for the same contract as Ford, as the Army phases out its current Land Rover-based fleet by 2030. JLR has also created a new dedicated business unit to back its global military ambitions.

Mike Hawes of the Society for Motor Manufacturers and Traders (SMMT) says it makes sense for under-used auto manufacturing capacity to shift into defence.

The UK car industry and its suppliers depend heavily on a handful of major manufacturers — Nissan in Sunderland, Toyota in Derbyshire, BMW in Oxfordshire and, by value of output, the largest of all, JLR at several sites in the Midlands and Merseyside.

Hawes says the supply chain is highly exposed.

"UK automotive output has been in decline over the last eight or nine years," he says. "We're probably half of what we were 10 years ago. Now, that's obviously going to hit the supply chain because they're not making the same number of parts. So they've got capacity. They may be quite dependent on one particular manufacturer as well."

So they will welcome "the opportunity to broaden their customer base and potentially move into defence", he says.

Only two weeks ago, JLR announced 4,000 job cuts from its 30,000-strong UK workforce to reduce costs and remain competitive against international — especially Chinese — rivals. Dave Roberts of Evtec, which supplies cooling system components to JLR, says he is concerned about the consequences.

"JLR is the critical mass in the UK automotive manufacturing space," he says. "It is the glue that holds the whole of the sector together. Because remember, when you're making volumes for JLR, they're significantly higher than any other car maker in the UK.

"If they suffer, the ripples run deeper through the supply chain."

Earlier this week, major JLR suppliers called on the government to help automotive manufacturers move into aerospace and defence, warning that large-scale car production in the UK faces long-term decline.

Executives have warned of a "visible crack" in the UK automotive supply chain

In an open letter to the prime minister, chancellor and West Midlands Mayor Richard Parker, industry leaders said Britain’s automotive supply chain was "not in decline" but "in the wrong market".

The letter was signed by executives representing businesses with more than 8,600 direct employees, together with the Confederation of British Metalforming, which represents about 75,000 workers.

Those signing the letter said the redundancies were "the first visible crack" in a UK automotive supply chain supporting about 183,000 manufacturing jobs.

Across Europe, the sector is facing what Sigrid de Vries, director general of the ACEA auto industry manufacturers' association, called "a perfect storm". Car makers are spending billions to switch to electric vehicles and argue that government EV sales targets are moving faster than consumer demand.

And the EVs buyers are choosing are increasingly from the industry’s biggest new threat — China.

In the early 2000s, Western companies saw China as a major opportunity. Its fast-growing middle class had plenty of money and a seemingly endless appetite for cars, including the most profitable premium models. It was highly lucrative — China once accounted for half of Volkswagen’s profits.

But it did not last. China wanted a domestic car industry, and huge state funding was poured into making the country a leader in high-tech sectors, including electric vehicles.

Today, the Chinese market is crowded with brands, both foreign and domestic, and defined by fierce competition. Chinese car makers have turned their attention to overseas markets and have used the shift to electric vehicles as a route to gaining market share. Companies such as BYD, Chery and Geely are moving aggressively into Europe.

For European brands, the timing could hardly be worse. The loss of reliable profits from China, and the arrival of Chinese rivals on their home ground, has come after they invested heavily in EV production. Yet EV sales have not risen as quickly as expected. Executives admit they have struggled to match the low production costs and rapid development pace of the Chinese challengers.

As a result, European manufacturers are scrambling to cut costs while wondering what to do with expensive factories capable of producing far more cars than they can sell.

Volkswagen has already said it will cut 100,000 jobs over the next few years. Where shutting plants in Germany would once have been unthinkable, the company has now closed one in Dresden and may close four more. That includes a site in Zwickau, where VW spent more than €1bn (£857m) converting production lines to build electric vehicles — a process completed only four years ago.

Industry estimates suggest western European car plants have around 2.5 million vehicles’ worth of spare annual capacity.

No wonder car makers are eyeing Europe’s soaring defence budgets with envy.

Sigrid de Vries says car makers are well placed to help Europe rearm.

"Many of the capabilities that defence needs are needed for and also delivered by the automotive sector," she says. "So automotive manufacturers and suppliers possess industrial assets, they possess manufacturing expertise, logistics capabilities, also advanced technologies. They have vast and also very integrated supply chains that may be relevant for Europe's broader defence preparedness objective."

But she says it is not straightforward: security rules, political and economic rivalries within Europe, and the fact that unless there is actual war the volumes will not replace the mass consumer market all create obstacles.

"These are two very different worlds," she says. Governments want to invest in their defence capabilities and that is why it's now, more than ever, interesting for manufacturers and suppliers to see what's possible, but it will not be enough to address the underutilisation of manufacturing capacity we currently see."

If defence cannot fill the huge gaps in UK and European car production, is it time for the henhouse to rent a room to the fox?

In other words, should Chinese companies be allowed into European production facilities?

To offset the enormous fixed costs of keeping idle assembly lines running, long-established European and UK automakers are opening their doors to Chinese rivals.

Stellantis — owner of the Vauxhall, Fiat, Peugeot and Citroen brands — has taken a 20% stake in Chinese EV maker Leapmotor, and production of the Chinese brand began in Poland two years ago. (Leapmotor later shifted production to Spain after Poland voted to impose steep tariffs on Chinese EVs while Spain abstained — a reminder of how complicated trade politics can become.)

Nissan and Chery International UK have signed a non-binding Memorandum of Understanding to study contract manufacturing for Nissan to build Chery vehicles at its Sunderland plant.

VW chief executive Oliver Blume said in April this year that Volkswagen was considering sharing spare European factory capacity with Chinese joint-venture partners.

In one sense, it could work for everyone. European factories would get more work, while Chinese manufacturers could avoid high tariffs on sales into the US and the EU by making and exporting cars from those markets.

But building cars in Europe does not automatically mean building or preserving European supply chains.

Some plants may only carry out final assembly, while many components — especially batteries — may still come from China.

Cultural treasures are being destroyed worldwide - so why is no-one being punished?

War may be coming. Are we psychologically ready?

Why a fresh wave of North Korean soldiers may fight in Russia's war in Ukraine

Car manufacturing is still seen as central to a country’s sovereign industrial strength. In the old days, the saying was: "What's good for General Motors is good for America." The same could be said for Volkswagen, Mercedes and BMW in Germany, and JLR in the UK.

Car plants are often the biggest employer in their region and support local supply chains, so job losses can be especially severe. That is why countries go to great lengths to protect and preserve them.

Australia is one example. When its last locally made car rolled off the production line in 2017, it did not just lose a car industry, says Dave Roberts of Evtec — it lost an engineering mindset and vital skills.

"Over the next decade... ripple effects crept into all manufacturing," he says. "So they lost infrastructure capability. They lost advanced manufacturing capability.

"They're vulnerable. They're not resilient in those sectors anymore."

Ford UK’s Lisa Brankin accepts that 9,000 engines over five to seven years is nowhere near the 90,000 a year the plant once produced, but says every bit helps.

"It is a drop in the ocean but every single opportunity is worth having, isn't it?"

A Ministry of Defence spokesperson says it wants UK industry to play a "central role" in supplying thousands of modern light mobility vehicles. The spokesperson adds: "We are backing British businesses and supporting our defence industrial base with 85% of our defence spending currently staying in the UK, driving reindustrialisation and making defence an engine for growth."

It is easy to see why a declining European car industry wants to crash the defence spending boom. But even if it succeeds, it is still hard to see how it will ever regain the muscle it once had.