Question

How would the motor parts industry be affected with the withdrawal of the UK, in depth analysis over Britain separating from the European union?

Answer 1

Britain’s automotive industry was among those to give a cautious welcome to Theresa May’s controversial Withdrawal Agreement that set out the way in which Britain would extricate itself from the EU.

The deal was far from the frictionless scenario that the industry had hoped for in the aftermath of the referendum. After the referendum, industry body, the Society of Motor Manufacturers and Traders, which had ahead of the referendum, made clear that it believed remaining in the EU was critical to the UK automotive industry’s future, said that securing tariff-free access to the EU as well as ensuring they could continue to recruit talent from the EU would be key for the industry going forward.

Nevertheless, the industry was among those to give its backing to the deal, fearful that the alternative was a cliff-edge no-deal Brexit that would bring down borders and leave the industry and economies in entirely new territory. No-deal remains a possibility: while MPs voted to rule out no-deal it is non-binding on the government, which has now insisted on attempting to re-open negotiations with the EU over the withdrawal agreement.

The withdrawal deal would have also provided a degree of certainty about the future for industry. That has been lacking, and had led to companies – in the automotive sector and beyond – putting investment plans on hold.

Industry’s fears

Britain and continental Europe’s auto industry have been among the most vocal in expressing concerns over the direction of Brexit and in particular with a failure by MPs to agree on a route ahead the increased risk of the default scenario: crashing out without a deal reached, and without an extension sought.

In July last year, Tata-Motors-owned Jaguar Land Rover issued a stark warning that a bad Brexit deal could cost the company more than £1.2 billion profit each year, putting £80 billion of further investment and jobs at risk.

If the UK automotive industry is to remain globally competitive and protect 300,000 jobs in Jaguar Land Rover and supply chain,Tariff and customs-free access to trade and talent needs to be retained with no change to current EU regulations

Other auto giants sent out a similar message: Japanese car maker Nissan highlighted its UK plants’ dependence on just-in-time supply chains that brought in components from the EU mainland and depended heavily on swift, delay free passage.

In evidence to a parliamentary select committee in 2017,a senior Nissan executive set out some of these. The costs of a Nissan car, manufactured in the UK was typically around 70 per cent bought-out parts, with the actual manufacturing cost in the UK Sunderland plant comprising just around 7 per cent of the total cost.

With much of this 70 per cent coming from Europe, and Britain’s supply place not being “competitive globally” from a cost and technology point of view, the relationship with Europe was essential. This was all the more the case going forward, as the industry shifted to electronic vehicles, autonomous driving and high-technology manufacturing.

If one look at the technology that goes into those cars high definition cameras, high capacity processes, electric motors, batters all of that does not exist in the UK at the moment. What is more, many of the cars produced in the UK were for a European market (60 per cent of Nissan’s popular Qashquai produced in the UK went to Europe). A bad exit deal or crash out with tariffs of around 10 per cent would therefore mean massive cost increases.

Moreover, the industry has been heavily dependent on its ability to rely on global talent, including from the EU. Adding to its troubles, the uncertainty has come at a time when the global auto industry has other major challenges to confront not least the regulatory push against the conventional combustion engine, and the shift away from diesel vehicles. Certainly, Europe’s auto industry’s problems don’t end with Brexit, but it is adding a level of complexity and uncertainty that could prove particularly injurious at a critical time.