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UK Auto Industry Spooked By Possible “No-deal” Brexit

UK Auto Industry Spooked By Possible “No-deal” Brexit.

“As the Brexit clock ticks ever closer to midnight, this survey reveals the bleak future that awaits this vital sector in the event of ‘no-deal’”

The automotive industry in Britain is getting increasingly nervous that as Brexit negotiations with the European Union (EU) reach a climax, they could collapse without a deal.

The Society of Motor Manufacturers and Traders (SMMT), which represents most aspects of the industry in Britain, published the results of a survey Tuesday which said that a third of participants have already cut jobs as they worry negotiations will fail to reach a deal, while 80% are worried the lack of a deal when the deadline expires October 31 will damage their business prospects.

Talks are currently taking place ahead of an EU leaders’ summit in Brussels Thursday where an outline deal could be agreed. Newspaper reports in Britain suggest there may be an extraordinary summit before October 31 if an agreement appears to be close.

The SMMT said the results of the survey provided a reality check on the impact of a failure to agree a deal on Britain’s exit from the EU, and made these points.

  • More than 500 million pounds ($640 million) has already been wasted on preparation measures that will not deliver returns, rather than being invested in much-needed R&D.
  • Profitability, new business opportunities and investment are all under threat as the industry faces 5 billion pounds ($6.4 billion) on WTO (World Trade Organization) tariff bill on cars and vans alone – a cost which cannot be mitigated.
  • All sides are urged to agree an orderly withdrawal with sufficient transition time to negotiate an ambitious free and frictionless economic relationship between the U.K. and the EU.

Britain voted to leave the EU in June 2016, and deadlines set for Brexit on March 31 this year and a month later were missed.

David Leggett, Automotive Editor at British-based Global Data, said uncertainty is taking its toll on the British industry, and the long-term future is at risk.

“Profit margins in the automotive industry – especially on volume segment car products – are thin and extremely vulnerable to any cost shocks. The adverse impact on U.K. plant competitiveness (of a bad deal) could lead to more automotive manufacturing activity moving elsewhere, especially for plants that are heavily dependent on exports to the EU,” Leggett said.

“The industry in Britain has taken considerable steps to prepare for the possibility of no-deal, with the vast majority actively preparing for post-Brexit disruption. Investment in stockpiling and warehousing to mitigate against the risk of border delays and production stoppage is a distraction from essential investments in emerging advanced technologies such as electrification and autonomous drive that will shape the industry over the next ten years,” he said in a statement.

Losing patience
Mike Hawes, SMMT chief executive is losing patience.

“As the Brexit clock ticks ever closer to midnight, this survey reveals the bleak future that awaits this vital sector in the event of ‘no-deal’. Damage has already been done: investment is haemorrhaging, competitiveness being undermined, U.K. jobs cut and vast sums wasted on the impossibility of preparing for ‘no-deal’. Make no mistake, every day ‘no-deal’ remains a possibility is another day of lost investment, another day that makes it harder to recover investor confidence in the U.K.,” Hawes said in a statement.

“As yet, the damage is not irreversible. But we need a deal. A deal that, in the short term, enables a “business as usual” transition for as long as it takes to negotiate and implement the future trading relationship. In the longer term, that deal must replicate all of the benefits we currently enjoy which means an ambitious deal that delivers free and frictionless trade. U.K. jobs, innovation, trading strength and economic growth all depend on the automotive sector so we urge all parties to get a good deal done before it is too late,” Hawes said.

Britain’s auto industry comprises big mainstream manufacturers like Jaguar Land Rover, Nissan, BMW’s Mini, Toyota, Honda, PSA Group’s Vauxhall, and niche companies like Aston Martin, BMW’s Rolls-Royce, McLaren and Bentley.

Some experts say that given just over half of Britain’s exports are already conducted under WTO rules, it wouldn’t be too difficult to switch to that scenario for all exports.

Europe’s carmakers recently published a joint statement demanding that the EU and Britain forsake a ‘no-deal’ Brexit because the consequences would be catastrophic.

Organizations representing the European auto industry including those from Germany, Britain, the European Automakers Association, known by its French acronym ACEA, and supplier organisations, joined forces to underline the impact a ‘no-deal’ Brexit would have on what it called one of Europe’s most valuable economic assets. Barrier-free trade was crucial for the continued success of the highly integrated European auto sector.

Not a catastrophe
Not everybody thinks a lack of agreement will be a catastrophe.

Roger Bootle, chairman of Capital Economics, said in a Daily Telegraph column recently the use of the phrase ‘no-deal’ distorts reality.

“What leaving without a deal means is simply leaving without an overarching agreement as laid down in Article 50 of the Lisbon Treaty (under which countries can leave the EU). It does not mean a breakdown of relations, nor a cessation of trade. Nor does it necessarily mean the absence of a trade agreement in due course,” Bootle said.

If there was ‘no-deal’, Britain and the EU could continue to trade without tariffs by mutually agreeing to do so under the General Agreement on Tariffs and Trade’s Article 24, pending the conclusion of a Free Trade agreement, Bootle said. 


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