How Badly Should Britain’s Car Industry Fear A No-Deal Brexit?

Even though a no-deal Brexit scenario would have multiple political and economic repercussions, we’re here to focus specifically on its impact in regards to the UK’s automotive industry.

As The Economist points out, just by leaving the European Union, Britain is opening itself up to facing potentially damaging consequences financially, with a no-deal Brexit being the most worrying prospect of all.

It all starts with uncertainty, an effect that has already claimed Honda’s Swindon plant, which the Japanese automaker will shut down come 2021.

Brexit is also why Nissan decided against building its latest X-Trail crossover in Sunderland, and why Jaguar Land Rover had to let some of its workforce go. A no-deal scenario would surely mean further restructuring for all automakers. Ford, who only makes engines in Britain nowadays, said that such an outcome would be “catastrophic”, while suggesting that it would almost certainly move production abroad if the worst comes to pass.

Overall, figures from the UK’s Society of Motor Manufacturers and Traders, also point to a steep decline in investments, from £2.5 billion ($3.8 billion) in 2015 to as little as £589 million ($769 million) in the first half of 2018.

What’s going to happen?

If no deal will be in place by the time Britain departs from the EU, then one concern for the car industry is the imposition of tariffs under WTO rules – an average of 10% on cars and 4.5% on parts, raising the cost of imports/exports and impacting demand. Potential chaos at the ports could also ensue, with traffic jams forming because of long lines of semi trucks undergoing customs checks.

Then there’s production itself, where if for example one truck fails to arrive at a factory on time and a car cannot be completed, the production line grinds to a halt as there is no space inside the factories for half-assembled cars. Also, think of all the parts that are brought into factories each day – we’re talking millions of parts, most of which are driven across the English Channel.

In the end, if no-deal Brexit comes to fruition, there is a scenario where in the long term, Britain’s car industry could actually fail, unless suppliers can be persuaded to set up operations in the UK (unlikely), tariffs can be managed and costs can be kept in check.

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  • EM1

    England needs to own its own car companies and only build English cars.

    • Mr. EP9

      There was a time where they did that but it has long since passed.

      • EM1

        Maybe it can happen again. The govt also needs to change as it became too weak.

    • Matt

      ‘Only build English cars’? How is that going to benefit the people of the UK, not allowing outside manufacturers to build there? Misplaced national pride is not going to cancel out economic realities.

      • Bo Hanan

        Apparently that topic never came up during the planning for Brexit…..???

        • Matt

          They skipped over that part…

        • Perry F. Bruns

          That implies there was planning.

          • Six Thousand Times

            Well, there was that bus…

          • LeStori

            From a political perspective, Brexit was never meant to be. The referendum was a sop to satify the Brexiters and show them that they were after something the majority of people living in the UK did not want. You can only imagine the shock when the Referendum went the “wrong way”.

          • Perry F. Bruns

            And now the Tories are exploring the depths of the Sunk Cost Fallacy. Let’s hope it doesn’t hurt the UK too much.

        • LeStori

          Brexit was never meant to be. Politicians of the Major parties thought they would stop the clamor for an exit from the EU with a referendum. It was expected to be return a No Vote. They were largely shocked when it was Yes. Now UK’s policicians are forming a rear guard action to stymy Brexit. The EU do not want the UK to leave as the UK is one of the few countries in the EU actually putting money into funding the EU. If the UK leaves the EU will have to find many billions inorder to keep subsidising the EU “failures”.

      • EM1

        The money won’t leave the country, simple.

        • Matt

          So I suppose the loss of thousands of jobs is just ‘collateral damage’ then? You think brands like Aston Martin and Jaguar will sell as many cars as Honda and Nissan in order to keep their workforce employed?

          • EM1

            New electric start ups can happen.

    • rockyroad

      It is naive to think that the car industry is “British”. It is neither German, nor Japanese, nor American etc. It is an international business with a global outreach. From the product pov alone, a car consists of too many parts that cannot be sourced from 1 manufacturer or within 1 border and they don’t have to be.

      • EM1

        Brexit was designed for England to only trade with the EU while being less global insofar as open borders and manufacturing.

  • EM1

    BTW, but a G in front of “nome”

  • Six Thousand Times

    Enough to pack up and go, clearly.

  • Joe

    Not entirely true, and I’m anti-Brexit and am well aware that it’ll be disastrous for UK industry.
    Honda’s and Nissan’s plans are only partially Brexit-related, and due more to the Japan-EU free trade deal, meaning they no longer need to produce in the region at all. Nissan’s is more Brexit based because they won’t be shutting production completely, and the X-Trail was only assigned to Sunderland because of a shady af deal with the government that the government failed to adhere to. In Honda’s case, they have very small market share here and maintaining production in the UK or EU would be more expensive than moving it back to Japan as the free trade agreement comes into force. Hence the production run will end when the Civic comes to the end of its life this generation, and not immediately after Brexit (although there will be brief planned production stoppages, true of most companies). The effect of Honda’s exit on supply chain companies will perhaps be even more devastating.
    JLR’s woes are very little to do with Brexit. They’ve been completely reliant on diesel-engined models to the point that most of their lineup is diesel in much of the world, and the rapid move away from diesel by buyers was something they didn’t have the flexibility or the foresight to manage, causing a loss of sales as a result. They’re also suffering freefalling sales in China, mostly due to reportedly horrendous quality control at their Chinese JV factory with Chery, plus a ridiculous number of recalls there. These sales losses have murdered their profit margins. For example, in China, JLR sold wholesale in January only 2712 locally made vehicles, dropping over 2/3 year-on-year and despite having launched new models since (such as the extremely poor-selling E-Pace). That’s less than well-documented flop Borgward, super-niche EV brand Ora, or Soueast, a slowly dying purveyor of reskinned old Mitsubishis. For comparison, BMW managed 52922, Cadillac 26801 and even Volvo hit 8882.
    The closing points are more accurate though – the whole point of these companies (Nissan, Toyota, Honda) starting in the UK or, in the case of Mini, JLR etc, continuing to, is that there’s a free flow of goods with the EU and the supply chain is interconnected, plus they were basically wooed into it by the UK government. Mess up that chain and it’ll be very easy for the industry to fail. See Australia.

    There’s nothing in this comment that isn’t well-documented elsewhere across multiple sources.

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