Government report highlights damage of ‘no-deal’ Brexit

19 July 2019

19 July 2019

A new government report has highlighted the dangers that a no-deal Brexit would bring to the UK’s automotive industry.

Several factors would combine to put the UK market on the back foot, with costs of preparation and tariffs on vehicles and parts combining to affect every automotive item produced in the country for foreign shores, in and out of Europe, suffering.

The report: The consequences of ″No Deal″ for UK Businesses was published by the Exiting the European Union Committee, and highlights the consequences of leaving the European Union without an agreement on a number of different markets.

Increased costs

The report highlights that leaving the EU without a deal would mean that the UK automotive sector would be subject to the EU’s Common External Tariff on its exports to the EU27, its largest market, adding costs estimated at around £2,700 (€3,006) for UK cars.

These costs would undermine the competitiveness of UK exported cars compared to cars manufactured and traded within the EU and cars manufactured in countries, including South Korea and Japan, with free trade agreements with the EU.

Additionally, without any agreement on cumulation with the EU, it would be difficult for UK-manufactured cars to benefit from any trade deals reached with third countries as, for most lines, the proportion of UK-produced content is currently below 50%.

While some suppliers and manufacturers are looking to on-shore production, both in the UK and the EU, the report suggests there is evidence of jobs being lost in the supply chain as manufacturers in the EU27 reduce their own exposure to the disruption of a no-deal exit.

Supply chain

The committee also highlighted that Turkey is one of the UK’s biggest suppliers of components, and as a member of a customs union with the EU, a no-deal exit would require the country to erect new barriers and checks in its bilateral trade with the UK, placing further costs on the UK automotive sector. The Committee notes that trucks attempting to enter the EU via the border between Turkey and Bulgaria can be subject to tailbacks of up to 17km and delays of up to 30 hours.

As the UK automotive sector relies on highly integrated supply chains, delays at the border will create disruption and inefficiency for businesses relying on components arriving ″just in time″ and in the correct sequence. Failure to maintain these processes risks putting the UK automotive sector at a competitive disadvantage in a highly competitive industry.

′We welcome the Exiting the European Union Committee report and its categorical finding that a ′no deal’ Brexit would be a fundamental risk to the UK automotive industry’s competitiveness and jobs,’ comments Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT).  ′We have always been clear about the devastating consequences of ′no deal’, and as the report says, planning for such an outcome has already ′had a chilling effect on investment in the sector’.

′UK and EU automotive industries are deeply integrated, and it is vital we maintain all the conditions that have made us globally competitive. As echoed in the report, at the very least, this means tariff-free trade, frictionless borders.  ′No deal’ must be avoided at all costs or risk irreversible damage to this vital sector.’