Author Mark Fairlie
The leader of the UK’s major trade body representing the car industry has stated that Brexit means that the sector’s “success could be put at jeopardy”.
Prior to the 2016 referendum, only 10% of the Society of Motor Manufacturers and Traders (SMMT) supported leaving the European Union with 80% wanting to stay.
Mike Hawes, the trade body’s chief executive, said that the result of the vote was a “shock to everybody” and that “people have gone beyond bewilderment” trying to figure out what the actual impact of Brexit will be prior to the outcome of the ongoing negotiations becoming known.
UK car industry not as important to remaining EU27 as Brexit-supporters think
Before the referendum, many Brexit-supporters said that car manufacturers in Germany, France, Spain, and other nations would put a lot of pressure on their own governments to make sure that tariff- and customs-free export into the UK continued after the separation. This demand by European manufacturers for easy access to sell to Britain would then be a strong bargaining chip in the hands of UK negotiators looking for a similar deal to get into Europe’s markets.
Hawes dismissed the probability of this outcome, speaking in an interview with POLITICO. He stated that, whereas seven out of ten new cars sold in Britain are manufactured in the EU, UK-manufactured cars only account for 6.3% of cars sold in the remaining EU27 nations.
“You’re exporting into a market where you’re not the dominant market player,”
explained Hawes going on to say that that cost could not be passed onto the consumer. Hawes’ view is that British manufacturers will have to absorb an additional 10% cost, making them less competitive.
Rules on where a car is actually “built”
Coming to an agreement on tariff- and customs-free access to the EU would be an advantageous outcome, however, Hawes also expressed worry about the “rules of origin”.
What “rules of origin” describe are the regulations car manufacturers (and every other company involved in manufacturing) have to abide by when describing where a car was manufactured.
Most free-trade agreement sets the bar at 55% local content for something to be described as, for example, “made in the UK.”
According to Hawes, only around 41% of a car’s 30,000 components can be described as being made in Britain. This means that when a car is exported to the remaining EU27, it may attract tariffs anyway because of the relatively low amount of the car and its components which were manufactured here in the UK.
What does this mean for workers in the UK car industry?
Around 170,000 people are directly employed in the manufacturing of cars with another 600,000 people working in jobs supported by it. The sector is responsible for 12% of the value of the goods that the UK exports and the SMMT believe that the sector could “take a £4.5bn hit.”
In addition, some car manufacturers are having trouble attracting workers from overseas to fill vacant positions. “We have around 5,000 vacancies in our industry at the moment,” Hawes told the Telegraph newspaper,
“Carmakers can’t get enough people. It’s not about replacing British jobs, it’s about supplementing those we can’t fill.”
Nissan believes that the UK government needs to spend at least £100m attracting car part manufacturers to Britain to help it overcome the “rules of origin” regulations.
Is it all doom and gloom in the car industry at the moment?
Despite uncertainty over Brexit, Nissan decided to keep its UK plant in Sunderland last year, having received assurance over Brexit from the government about the future of car making in the UK after March 2019 (when the UK leaves the European Union).
Car production hit an all-time high in March 2017 fuelled by demand for vehicles from abroad, reported The Guardian.
If there is no Brexit agreement, 18,000 German auto jobs would be affected by Brexit, reports Deutsche Welle, Germany’s equivalent to BBC World News TV. As the deadline draws near, manufacturers in both the UK and EU could start applying major pressure to governments for a mutually-desirable outcome.
There are clear advantages economically for both sides to reach an agreement. There are 18 months left to see if politicians on both sides of the argument can achieve this.