Britain’s Auto Industry Demands Favorable Brexit Deal, Cites $60 Billion Cost Of Failure

Britain’s auto industry painted a bleak picture of its future if the country fails to agree a free-trade deal with the European Union (EU), saying it has cost just under $1 billion preparing for Brexit with more than $300 million spent this year and it would lose business worth more than $60 billion over the next 5 years.

Brexit negotiations between Britain and the EU resumed Monday in London. A deal needs to be agreed by the middle of November to allow time for ratification by EU member states by the end of the year. Britain formally left the EU on January 31, 2020.

Britain’s leading automotive industry mouthpiece, the Society of Motor Manufacturers and Traders (SMMT), was a vocal opponent of Brexit before Britain voted in a referendum in 2016 to leave the EU.

The SMMT said the loss and cost figures came from a survey of members.

Toyota, Nissan and Honda are biggest auto manufacturers in Britain although Honda is closing its factory next year. Other manufacturers include Tata of India’s Jaguar Land Rover, BMW’s Mini, and Groupe PSA’s Vauxhall. PSA has threatened to close its British plants in the event of no-deal with the EU. Nissan has raised similar questions.

The SMMT said the industry is having to pay for new processes to make sure the industry can function efficiently outside the EU, and for stockpiling vehicles in case supply chains are damaged.

The main obstacles to a deal are said to be guarantees on fair competition, especially over state aid rules, and fisheries, a symbolic sector for Brexit supporters.

Lack of clarity

“Significant gaps in the industry’s ability to plan still exist, with a lack of clarity on the nature of the U.K.-EU’s future relationship hampering the efforts of almost nine in 10 (86%) firms to prepare,” the SMMT said.

“Critical questions remain unanswered. With the industry’s competitiveness built on Just-in-Time deliveries, companies cannot afford any supply chain delays so clarity is vital,” it said.

“Moreover, even if the U.K. and EU do conclude a Free Trade Agreement from the end of 2020, there is uncertainty as to how companies will prove origin of products; if firms cannot do this then they will not be able to benefit from preferential trading terms. No amount of preparation can mitigate the devastating impact of ‘no deal’, with this outcome – or even an unworkable deal – costing the U.K. automotive sector up to £47 billion ($60 billion) in lost trade in cars and vans alone over the next five years,” the SMMT said.   

Last month the industry said it was worried about the impact of the EU’s local content rules on the free flow of auto trade. Under EU rules, a vehicle must have about 55% of its content locally made to qualify for zero-tariffs.

The British government has been adamant that rather than settle for a deal it believed was not in its interests, it would walk away from the talks and revert to World Trade Organisation terms of trade.

Last month, when the local-content rules seemed to be a sticking point in the talks and the SMMT again voiced its worries,  Phil Radford, trade analyst and author of nothingtofear.co.uk, said it shouldn‘t worry because U.K. negotiators have some automotive aces in their hands as they negotiate with the EU.      

“The SMMT is hugely in favor of a deal, but what it’s really defending is a £48.1 billion ($62 billion) of motor vehicle and parts imports into the U.K. in 2019, which generated a £29.6 billion ($38 billion) deficit in 2019, according to Office of National Statistics (ONS) data,” Radford said.

Most overlooked

“And that simple fact – that the U.K. now imports over twice what it exports in autos – is the fact most overlooked in U.K.’s negotiations, so far as they impact the auto sector, and by the SMMT. The EU supplied precisely 83.0% of U.K. auto imports in 2019, but took just 43.5% of U.K. exports (ONS data). So the big question is, why isn’t U.K. playing hardball?” Radford said.

But SMMT CEO Mike Hawes worries that unless a deal with the EU is precisely suitable, it will devastate future prospects, in particular in new electric technology.

“As the U.K.-EU free trade agreement negotiations enter the endgame, now is the time for both sides to deliver on promises to safeguard the automotive industry. Securing a deal is absolutely critical but it cannot be any deal. To work for U.K. Automotive it must deliver for U.K. products and that means securing the right terms and conditions that allow our exports – now and in the future – to be zero tariff and zero quota trade,” Hawes said.

“A deal that failed to achieve this would be the equivalent to no deal at all, devastating jobs and slamming the brakes on the U.K.’s ambitions to be a world leading manufacturer and market for electrified mobility and battery technologies,” he said.