From Ranger to War Machine: Ford's Gamble on Defence Contracts

It sits outside Ford's Dagenham plant, a bulging, green machine that looks like a pick-up truck subjected to an Incredible Hulk transformation. Based on the popular Ranger series, the camouflaged vehicle can carry two tonnes, tow four and bears the hopes of the 2,000-strong workforce still building engines at the east London site. Inside, three-litre diesel engines destined for this military beast drift down a production line whose output has halved over the past decade, from 90,000 units a year to roughly 45,000.

Ford hopes a pivot towards military vehicles can fill the void created by what its UK chairman calls the most challenging environment since the invention of the motor car. Once mighty, the European car industry is starting to look puny. It now hopes that surging defence budgets, as Europe re-arms in the face of Russian aggression and American reluctance to remain the continent's protector, can help it flex its industrial muscles once more.

The American giant is part of a joint venture with defence specialists General Dynamics and Ricardo, bidding for a Ministry of Defence contract to supply 9,000 vehicles over the next five to seven years. The Light Mobility Vehicle programme would replace the Army's ageing Land Rover-based fleet. Lisa Brankin, chair of Ford UK, sees it as a chance to showcase the company's ability to respond swiftly to defence needs. "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," she says.

This is not Ford's first encounter with war work. Before the Second World War, its Dagenham factory was the largest car plant in Europe. When hostilities began, civilian assembly stopped entirely and the site converted to military production. Between 1939 and 1945, it built 360,000 vehicles for the Allied war effort. In Manchester, Ford workers manufactured 34,000 Rolls-Royce-designed Merlin engines, which powered Spitfires and Hurricanes. Eighty years later, the UK and European car industries are hoping that the engines of war can defend against what one supplier described to the BBC as a "terminal decline".

As Europe commits hundreds of billions to defence, car makers under commercial attack from Chinese rivals have taken notice. So can rearmament save an industry and a supply chain facing crisis? Ford is far from alone in seeing defence as a growth industry—and one that can absorb the growing overcapacity at car plants across the continent. Renault has signed a strategic agreement with defence giant Thales to produce military drones, targeting up to 1,000 units a month. The French military wants to tap Renault's mass-production capabilities to bypass slower traditional defence supply chains. Volkswagen, meanwhile, has agreed to sell an underused factory in Osnabrück, western Germany, which will become a military manufacturing hub in a joint venture with an Israeli-based defence investor.

Jaguar Land Rover, which makes the Land Rover, is bidding for the same Army contract as Ford, as the service retires its existing fleet by 2030. It has established a dedicated business unit to support its global military ambitions. Mike Hawes of the Society of Motor Manufacturers and Traders says it makes sense for under-utilised capacity to switch to defence. The UK car industry and its suppliers rely heavily on a few big manufacturers: Nissan in Sunderland, Toyota in Derbyshire, BMW in Oxfordshire and, largest by value of output, JLR across the Midlands and Merseyside. Hawes warns the supply chain is highly vulnerable. "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." They would welcome, he adds, "the opportunity to broaden their customer base and potentially move into defence".

Two weeks ago, JLR announced it was cutting 4,000 jobs from its 30,000-strong UK workforce to reduce costs and stay competitive with international rivals, particularly Chinese ones. Dave Roberts of Evtec, which supplies cooling system components to JLR, is worried. "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 urged the government to help automotive manufacturers move into aerospace and defence, warning that large-scale car production in Britain faces long-term decline.

In an open letter to the prime minister, the chancellor and West Midlands Mayor Richard Parker, industry leaders argued 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, alongside the Confederation of British Metalforming, which represents about 75,000 workers. Signatories described the redundancies as "the first visible crack" in a supply chain supporting some 183,000 manufacturing jobs.

Across Europe, the industry faces what Sigrid de Vries, director general of the ACEA manufacturers' association, calls "a perfect storm". Car makers are spending billions to shift to electric vehicles while insisting that government sales targets outpace consumer demand. The EVs people are buying increasingly come from China, the biggest new threat to the industry. In the early 2000s, Western firms saw China as a land of opportunity. Its rapidly growing middle class had money and an apparently insatiable appetite for cars, including the most profitable upmarket models. The Chinese market once accounted for half of Volkswagen's profits. It did not last. China wanted a home-grown car industry, and lavish state funding made the country a leader in high-tech businesses, including electric cars. Today its market is overloaded with brands, foreign and domestic, and characterised by cut-throat competition. Chinese makers have focused on foreign markets, using the transition to electric vehicles as a pathway to market share. BYD, Chery and Geely are moving aggressively into Europe.

For European brands, this could not have happened at a worse time. The loss of steady profits from China, and the emergence of Chinese rivals on their home turf, has come after heavy investment in producing electric vehicles. But EV sales have not risen as quickly as expected. Executives admit they have struggled to match the low production costs and development speed of the Chinese insurgents. The result is that European manufacturers are rushing to cut costs while wondering what to do with expensive factories capable of producing millions more cars than they can sell. Volkswagen has announced plans to cut 100,000 jobs over the next few years. Once unthinkable, closing plants in Germany is now reality: the company has shuttered one in Dresden and may shut four more, including a site in Zwickau where it spent over €1bn converting production lines to build electric vehicles, completed just four years ago. Industry estimates indicate western European car plants have roughly 2.5 million vehicles' worth of annual spare capacity.

Little wonder that car makers are eyeing soaring defence budgets. De Vries says manufacturers 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 it is not simple. Security protocols, political and economic rivalries within Europe, and the fact that unless one is actually at war the volumes will not replace the mass consumer market all present challenges. "These are two very different worlds," she says. "It will not be enough to address the underutilisation of manufacturing capacity we currently see."

If defence cannot plug the gaps, is it time to let the fox into the henhouse? To offset the immense fixed costs of idle assembly lines, European and UK automakers are opening their doors to Chinese rivals. Stellantis, owner of Vauxhall, Fiat, Peugeot and Citroen, has taken a 20% stake in Chinese EV maker Leapmotor, with production of the brand starting in Poland two years ago before moving to Spain after Poland voted to impose steep tariffs on Chinese EVs while Spain abstained—an illustration of how trade politics complicates matters. Nissan and Chery International UK have signed a non-binding memorandum of understanding to study contract manufacturing at Sunderland. Volkswagen's chief executive, Oliver Blume, said in April that the company was considering sharing spare European factory capacity with Chinese joint-venture partners. In one sense it could be a win-win: European factories would have extra work while Chinese manufacturers could avoid high tariffs when selling into the US and EU by building and exporting from those markets. But building cars in Europe does not automatically mean creating or saving European supply chains. Some plants may only perform final assembly while many components, especially batteries, continue to come from China.