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Auto Makers Euphoric After Brexit Deal, Potential Chaos Avoided

Auto Makers Euphoric After Brexit Deal, Potential Chaos Avoided.

“Britain will have to reckon with a further creeping dismantling of its auto industry”

Europe’s auto manufacturers were breathing sighs of relief as a Brexit free trade deal was agreed between the EU and Britain, and first reports of its details showed potential hurdles like rules of origin worries concerning electric car makers had been settled.

Now Brexit is settled, the auto industry will have to face down existential problems like the upcoming electric revolution.

The European Automobiles Manufacturers Association, known by its French acronym ACEA, welcomed the deal, said it was a great relief for its members but warned details of the 2,000-page agreement need to be understood before a clean bill of health can be assumed for the massive auto business between mainland Europe and Britain.

“There is no other industry that is more closely integrated than the European automotive industry, with complex supply chains stretching right across the region,” said ACEA Director General Eric-Mark Huitema.

Huitema added though that ACEA cannot make a full assessment of the implications of the deal until all the technical details have been made public.

Every year, almost 3 million motor vehicles worth $66 billion are traded between the EU and the U.K., and cross-Channel trade in automotive parts accounts for almost $17 billion, according to ACEA.

Professor Ferdinand Dudenhoeffer, director of Germany’s Center for Automotive Research (CAR), welcomed the deal, but said this won’t stop the inevitable slow slide of Britain’s auto industry.

Badly damaged
“The British auto industry was badly damaged by Brexit (worries that no deal would be agreed and WTO tariffs would have to be charged), but also this year by Corona. Without a trade deal, one would have expected another dramatic collapse in the U.K. auto industry. The Brexit deal can slow the crash, but after a brief recovery after Corona, Britain will have to reckon with a further creeping dismantling of its auto industry,” Dudenhoeffer said.

Dudenhoeffer said British auto output has fallen from 1.72 million in 2016 to about 910,000 in this coronavirus-stricken year. He doesn’t expect British output to beat 1.1 million in the medium term and after 5 years will dip below 1 million.

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

Peter Wells, Professor of Business and Sustainability at Cardiff Business School, told me in an interview earlier this month the global industry, not just Britain’s, faces massive threats and only the strongest will survive.

“There’s a huge watershed moment building up for the global industry. The pace of change is frighteningly fast because of pressure to cut carbon (dioxide CO2) emissions and fight climate change.

Wells said Britain in particular and the European industry in general has to change its strategy from producing high-volume low profit margin vehicles to more niche and lower output ones with much bigger margins.

Smaller but diverse
“By 2030 or possibly 2025, Britain’s production will be smaller, maybe 1 million or maybe even less, but it will be more diverse than now,” Wells said.

Meanwhile, Britain’s major auto industry promotor, the Society of Motor Manufacturers and Traders (SMMT), was happy about the agreement, with reservations.

“We welcome a new EU/U.K. trading agreement, which provides a platform for our future relationship. We await the details to ensure this deal works for all automotive goods and technologies, including specifics on rules of origin and future regulatory cooperation,” SMMT CEO Mike Hawes said.

According to London’s Daily Telegraph newspaper the agreement included a six-year transition period to make sure Britain’s electric carmakers could change their supply chains to make sure they didn’t offend the EU’s import content rules.

The SMMT, which includes big European carmakers like BMW, Mercedes and Groupe PSA as well as British companies, has been very vocal during the long-drawn out negotiations between Britain and the EU. It pointed out the British auto industry spent just under $1 billion preparing for Brexit and that it would lose business worth more than $60 billion over the next 5 years without a trade deal. More recently the SMMT said the cost of failure had risen to $74 billion, while “no deal” would cut Britain’s vehicle production by two million over the next 5 years. This would also undercut its ability to research and develop the next generation of electric cars.

According to Office of National Statistics (ONS) data the equivalent of $62 billion of motor vehicle and parts were imported into the U.K. in 2019 from the EU, which generated a $38 billion deficit. Britain now imports over twice the value from the EU than it exports in autos.

CAR’s Dudenhoeffer sees much gloom ahead.

Don’t exclude France, Germany
“The car world is slowly saying goodbye to the production site in Britain. New production is no longer imaginable in Britain. Eastern Europe and Turkey are significantly more cost-effective; the markets of tomorrow are located in Asia,” he said, although the cost-effective equation would also, presumably, apply to France and Germany.

Britain’s Parliament will debate the EU Brexit deal later this week, and so far the political reaction suggests it will be approved.


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