A Brexecutive Briefing on the automotive industry sector…
Britain’s vote to exit the EU in June 2016 spurred an immediate reaction from the domestic car manufacturing industry. The Society of Motor Manufacturers and Traders (SMTT) demanded that the UK government protect existing tariffs, arguing that any change to the current system could see the cost of cars soar by up to £1,500 (US$1,900) per sale if retailers failed to cover the additional costs that were incurred. Other estimates suggest the cost of building a car in the UK could rise by over £2,000 (US$2,600) per unit should an unsatisfactory trade deal be struck with Brussels.
The stakes are high for an industry that is pivotal to the health of the British economy. There are currently over 30 auto manufacturers in the UK that together generate over £70 billion (US$90 billion) in annual turnover. Around 50% of the 1.7 million vehicles turned out by the industry each year are manufactured by Japanese companies that view the UK as an ideal springboard for their cars to enter the EU marketplace. The migration of any of those carmakers to the continent would have a seriously negative effect on British industry, especially as the EU is the largest consumer of British vehicle components.
The UK government was quick to take note of the immediate risk posed to the car industry in the wake of the Brexit vote, with Prime Minister Theresa May offering assurances to Nissan that its business interests in the country would be safeguarded. The Japanese car giant employs 6,700 people at its plant in Sunderland, which turns out over half a million cars per year. The Prime Minister also offered reassurances to Toyota that its operations would remain competitive after Brexit.
But May’s optimism could be misjudged. In a recent study, the Institute for Government noted that for every pound the UK car industry spends abroad, 44 pence (57 cents) goes on the import of components from overseas. The report also identified car manufacturing as being the most heavily reliant of all British industries on input from EU Member States. Most car builders in the country rely on parts they need from Europe moving freely through the UK’s ports and being delivered directly to the factory door, ready for use in the “hour-by-hour” manufacturing processes the industry relies on. Exiting the customs union would make this almost impossible, and highlights the severe risks facing the industry. The migration of operations away from the UK and into EU states is another very real risk for the industry. For example, France-based Renault owns 43.4% of Nissan. The car making giant is in turn itself part-owned by the French state, which has a 15% stake. There is little doubt that economic policymakers in Paris would covet getting their hands on Nissan’s Sunderland manufacturing operations and moving them to France.
Aside from the exacerbated risk profile facing the industry, there are signs of opportunities emerging. An example of this was Germany-based BMW’s recent announcement that an all-electric Mini would be built in Oxford. The decision – which coincidentally will see the new Mini go on sale in 2019 when the UK leaves the EU – has offered some relief to the industry and also given the government a fillip as it negotiates a trade deal.
Fundamentally, the automotive industry is a global business that relies on free movement of goods and easy access to markets. UK-based car manufacturers will be watching closely to see what the roadmap for their industry looks like before Brexit fades in the rear-view mirror.
B2Brexit’s manufacturing experts can help your business to make sense of that roadmap as it emerges and ensure you avoid any of the obstacles that Britain’s EU exit might throw up.