A no-deal Brexit will put a bright future for automotive in the shade
With less than two weeks to go before the UK leaves the European Union the automotive industry still has no idea whether vehicles and components will be subject to tariffs and quotas on January 1, 2021. One thing is clear: a no-deal Brexit would damage the UK car industry, which is still dealing with the impact of the Covid-19 pandemic.
Four and half years of Brexit negotiation have seen deadlines come and go, as did what was supposed to be the final one on Sunday, December 13. However, with the Brexit transition period concluding at the end of December, there is no coming back, and the UK could be trading outside of the customs union and the single market on New Year’s Day.
As the chief executive of the Society of Motor Manufacturers and Traders (SMMT), Mike Hawes, put it at the organisation’s 2020 industry update in November: “The political impasse is putting jobs and livelihoods at risk. Just a few years ago we were on course to build 2m cars by 2020. We’ll be lucky to make half that today.”
An SMMT survey released last month revealed that the cost to the UK automotive industry of preparing for Brexit comes to £735m ($881m), with more than £235m spent in 2020 alone. The survey also revealed that 70% of companies had secured GB Economic Operators Registration and Identification (EORI) numbers, 60% said they had been stockpiling in significant numbers and 52% had employed customs agents, evidence that automotive companies were trying to prepare for any disruption or delay to supply chains.
That preparation in the face of political impasse has been made a lot worse by Covid. The pandemic is estimated to have cost the UK automotive industry around £20.5 billion (and £100 billion in lost production across Europe). It cut annual car and light commercial vehicle production volumes in the UK by a third to just 920,000 units this year. Dealership closures during the first lockdown were estimated to have reduced UK car sales by 33% to September this year. Figures for November, when a second lockdown was imposed in England, saw car sales in the country drop by more than 27%, equal to 42,840 vehicles and a dent in revenue of £1.3 billion.
The automotive industry has remained resilient throughout Covid and gone the extra mile in delivering personal protective equipment (PPE) and manufacturing ventilators. There is now hope for a return to normality next year since the development and delivery of vaccines to control Covid-19. “A vaccine for Covid offers all of us hope,” said Mike Hawes. “Sadly there is no vaccine for Brexit.”
Which makes it more important than ever that the UK automotive industry has the most favourable trading conditions. It desperately needs a deal without tariffs and with rules of origin, and it needs time to implement it. With an ambitious, tariff-free deal in place, full recovery is still expected to take up to five years, with output reaching pre-crisis levels of 1.35m units by 2025, according to SMMT figures. Without a deal there will be 2m fewer vehicles built by 2025 and £55 billion of lost potential, according to Hawes.
That could hamper the UK carindustry taking full advantage of the opportunities offered by the switch to electrification. The UK government has brought forward the end date for the sale of vehicles driven by internal combustion engines by a decade to 2030 but it has promised investment. Its Ten Point Plan for a Green Industrial Revolution policy paper makes clear it will commit up to £1 billion to support electrification of UK vehicles and the supporting supply chain. That includes the development of battery gigafactories, a crucial factor in the localised development of electric vehicles.
The future for UK engineering and the battery chain services supporting it are bright but it will be considerably more difficult for those companies overshadowed by a no-deal Brexit to make the most of it and be internationally competitive. Join us in the new year for a full insight into how to navigate global trade and customs post-Brexit and, in the meantime, have a very happy festive holiday.
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