The Automotive Industry Will Survive a No-Deal Brexit

Matt Snape

Following the outcome of the 2016 EU Referendum, car manufacturers have become increasingly worried about Brexit. Car Magazine reports that Theresa May’s failure to deliver a free trade deal has generated further anxiety in the automotive industry.

It is understandable why so many car manufacturers are worried about a no-deal Brexit. Car Magazine says that investment in the British automotive industry collapsed by 70 percent because of the uncertainty that it is causing. £90 million was invested in the UK car industry in 2019, compared to the annualised average of £2.7 billion over the past seven years.

Numerous companies have also drafted alternative plans in preparation for October 31st. Honda has confirmed that it will close its sole UK factory in Swindon from 2021, and Nissan is cancelling its production plans for the X-Trail at its Sunderland plant. However, since Japan and Brussels signed a trade deal that Reuters claims will remove EU tariffs of 10 percent on Japanese cars, there is little incentive for them to remain in Europe anyway. JLR is another company that is anxious about Brexit, and they are moving production of its Land Rover Discovery model to Slovakia. But as the Daily Telegraph notes, this is because they received £110 million in EU aid.

Despite all of this, the UK car industry is perfectly equipped to survive a no-deal Brexit. Bullas Plastics’ industry study suggests that, although car manufacturers are right to be concerned about the disruption leaving the EU can cause to production, as a 15-minute delay can cost companies £850,000 in damages, Britain has a wealth of experienced and skilled component manufacturers able to meet automotive manufacturers’ needs in the possible event of no-deal. For example, plastics manufacturer B.G. Bullas has extensive experience working in lean manufacturing supply chains. They manufacture high quantities of items from seals to heat-proof engine components.

Instead of threatening to cancel production plans in the UK, car companies should be looking to their long-established relations with their suppliers who may be small in scale, but still entirely capable of producing faultless high-quality components following a no-deal Brexit. Successful manufacturers acknowledge complete dependence on one supplier for vital components is a mistake, and in the era of global supply chains, they should be multi-sourcing from across the world. BMW were reliant on a black pigment called Xirallic years ago for their black paints, which came from Japan. The Automotive Council UK states that 70 models of vehicle in this country are supported by 2,500 component providers and some of the world’s most skilled engineers. Leaving the EU is an opportunity for manufacturers to strengthen their relationships with these suppliers to ensure there is a continuity in production post-Brexit.

A no-deal Brexit could also damage the German car industry too. Market Watch warns that it could cost BMW and Volkswagen 100,000 jobs. Both companies fear that 10 percent import duties on cars and car parts would disrupt trade and cause prices to rise. Prior to the original March 31st deadline for Britain to leave the EU, the German car company told the Daily Express they had to make £10.5 billion of savings, as their profits plummeted by 17 per cent to £6.25 billion.

Nonetheless, Politico reports that Dieter Kempf, President of the German Federation of Industries, and the German Employers Association (which represents Volkswagen) said that the Single Market’s integrity must come before Brexit. This proves that they are not bothered about how Britain leaves the EU, but about the latter’s internal market’s survival instead. Indeed, only one in five German cars are exported to the UK. Automotive News Europe states that Daimler and BMW have the most at stake from US trade tariffs, as America is their second-largest market behind China.

As long as Trump and Chinese President Xi Jinping can agree a trade deal, this will ease pressure off of the German car market in the longer term. Trading with these two nations is more important to them than a no-deal Brexit. It is also down to the WTO to ensure that there is a temporary trade agreement between the UK and the EU to maintain the current arrangements the British and German car industries enjoy.

The automotive sector has much to fear from the UK leaving the EU without a deal on both sides of the English Channel, but much to gain. It is an opportunity for British and German car manufacturers to reduce their dependence upon Europe and trade with the rest of the world. A no-deal Brexit will inevitably cause a short-term shock, but there are other problems they face as well, like the pressure to shift to electric cars from their domestic governments. It is the duty of politicians to make car manufacturers’ lives easier, and they must do so to ensure this industry’s survival, which goes beyond Brexit.