Is the UK car industry on the brink of a £55bn hit?

Is the UK car industry on the brink of a £55bn hit?

At the end of what we’d probably all agree has been a fairly disastrous year for the UK’s economy, there’s now an even greater threat looming over the country than the effects of the Coronavirus pandemic.

Within the next few weeks, days even, we’ll find out if we’re leaving the EU without a deal.

It’s been months since Britain left the European Union on 31st January 2020. And now, the Brexit transition period is due to end on 31st December, which means there isn’t much time left for businesses to prepare.

£55bn hit to car industry

The Society of Motor Manufacturers and Traders (SMMT) has warned how crucial it is that the government gets a deal, and ideally one that doesn’t involve tariffs under World Trade Organisation (WTO) rules.

It suggests that the UK automotive industry could experience production losses as high as £55bn by 2025 if no deal can be agreed.

Chief Executive of the SMMT, Mike Hawes, said a no-deal Brexit would lead to a “severe impact on the sector’s ability to develop and manufacture the next generation of zero-emission cars and vans, as well as holding back market uptake of these vehicles.

“Automotive is nothing if not determined, adaptable and resilient, yet, as the clock ticks ever closer to midnight on Brexit negotiations, the competitiveness and employment we need to get back to growth – green growth – hangs in the balance.”

Why such a loss?

Without a deal, WTO rules could make extensive parts of the UK car industry unviable. The 10% tariffs would be applied to products on 1st January, meaning that the average cost of a car imported from the EU would go up by £1,900 overnight.

Nissan has already stated that its UK businesses will not be sustainable after a no-deal Brexit. They’re unlikely to be the only ones thinking along these lines either. All of the UK’s largest car production plants are owned by foreign partners, whose presence in the UK was largely down to easy access to Europe’s single market. But if further trade barriers are on the horizon, there would be little reason for them to stay.

Impact on Europe

It’s not just leaders of the British car industry that are concerned either. A letter urging the UK government not to default to WTO rules has been signed by 23 trade groups across Europe. Since parts cross so many borders in the production of a single vehicle, there is much at stake for a plethora of parties.

Manufacturers warn that the impact to the rest of the continent could cost as much as £100bn over the next five years. And that’s on top of heavy losses already caused by the pandemic.

The SMMT’s president George Gillespie, who is also executive chairman of Japanese car testing company Horiba Mire, sums up the apprehension. He said: “We need a future trading relationship that works for automotive. We’ve already spent nigh on £1bn preparing for the unknown of Brexit and lost 28 times that to Covid. Let us not also be left counting the cost of tariffs, especially not by accident.”

Where do you think all this is headed? We’d love to hear your opinion, so feel free to drop us a line at info@drivingmonitor.com.