Automakers: UK car industry will stall without Brexit deal

first_imgHawes added British-based manufacturers faced a “big, big challenge” if tariffs were imposed because they would not be able to absorb the blow to competitiveness as easily as EU producers.The reason for this disparity was obvious from the numbers. Hawes noted that seven out of 10 new cars sold in the U.K. came from the EU27 countries. This meant that the EU producers have a dominant market position and would be able to pass tariff costs onto consumers. He predicted that the cost of importing a vehicle to the U.K. from any of the hundreds of plants across the EU would add at least £1,500 to the price tag.On the other hand, cars exported from the U.K. to the EU would have nowhere near the same market power, with just 6.3 percent of cars sold in the EU27 made in Britain, according to data from IHS.”You’re exporting into a market where you’re not the dominant market player, so you couldn’t pass that cost on to the consumer. So you would have to absorb that cost, which would immediately make you 10 percent less competitive,” he said.Premium productivityHawes suggested it would be difficult to offset these problems through productivity gains. He argued Britain was “already one of the most competitive” places to build a car. “So how would you recoup that cost?”To avert that risk, Hawes called for “another system which mirrors the customs union.” His association hopes that leaders will find a way to juggle the numbers.“There are some ways around it. You have diagonal accumulation, where parts produced in other countries count for European content. Now, we’re looking for some arrangement where EU content would count as British content and vice versa to ensure you could overcome those obstacles that are intentionally there,” he said.About two-thirds of the non-local content is made of up of EU parts, Hawes said. Each vehicle is typically made of 30,000 parts.The EU’s automotive industry association also says it has a lot riding on how talks pan out over the next two years.“Our industry is unique in that it has a business model based on a full integrated supply chain that has developed across Europe,” said Erik Jonnaert, the secretary general of European automotive industry association ACEA. “Whatever we do over Brexit will cause pain.”Pulling out of the single market and the customs union makes Europe’s biggest automotive country nervous. Britain’s car industry has issued a stark warning that it will struggle to compete if Prime Minister Theresa May delivers on a threat to walk away from an EU deal.The nightmare scenario for British industry is that the U.K. will crash out of the EU without a trade deal in 2019 and move on to tit-for-tat tariff arrangements. In the case of the carmakers, the EU’s external duties are high, with tariffs of 10 percent on cars and about 4 percent on car parts.”The prime minister said that no deal is better than a bad deal. It’s hard to envisage a deal that would be worse than [no deal],” the chief executive of the U.K.’s Society of Motor Manufacturers and Traders, Mike Hawes, said in an interview with POLITICO. EU leaders are due to meet on Saturday to formulate a starting position in Brexit talks, while U.K. Prime Minister Theresa May has been clear she will wave goodbye to the single market. Cars represent a huge strategic consideration for the U.K. because the country is a production center for Japanese carmakers, such as Nissan and Toyota, which have stressed the importance of Britain’s terms of trade to continued investment in the country.The U.K. is the second-biggest passenger car market in Europe after Germany | Carl Court/Getty ImagesHigh two-way duties are probably only a risk if Brexit negotiations collapse over citizens’ rights and the U.K.’s multibillion-euro divorce settlement. EU officials have said that a more likely option is some kind of tariff-free arrangement on goods that would squeeze Britain harder on services, particularly banking and aviation.Rules of originHowever, even the tariff-free arrangement would not get around the thorny issue of “rules of origin.”According to Hawes, some 41 percent of the parts in U.K. cars are British, while the majority come from abroad.The percentage of foreign content will be key in determining whether a car is covered by a trade deal with the EU. Even without tariffs, British carmakers are at risk of regulatory extra costs in proving that balance of components is in line with EU requirements.“If you look at most free-trade agreements, they generally set the bar at about 55 percent local content for rules of origin. We’re at 41 percent, there’s a big gap,” said Hawes. The U.K. is the second-biggest passenger car market in Europe after Germany, with around 2.7 million registrations last year. Imports made up 86 percent of that and while local production is growing, some 80 percent of British production in 2016 was exported, with over half of that going to EU markets.Pulling out of the single market and the customs union makes Europe’s biggest automotive country nervous too. Even though BMW puts together the iconic Mini at a plant in Oxford, some components are assembled in Munich before being shipped to the U.K. and parts are also imported from elsewhere in Europe.“The EU needs Britain, and Britain needs the EU,” said Matthias Wissmann, president of Germany’s powerful Association of the Automotive Industry. “There is no doubt that a ‘hard Brexit’ would also damage the British automotive industry, and would be both difficult and expensive. The consequence would be a long phase of uncertainty.”Car giants with plants in the U.K. like Nissan, Toyota or BMW plan their operations years ahead as they decide on new models and where to base production, Jonnaert said. The uncertainty over Brexit steers investment choices for the mid-2020s.“The consequence would be a long phase of uncertainty. It will take years before new treaties are concluded. Prospects like that deter investors,” said Wissman. Also On POLITICO ‘Tolls are coming’ to Germany’s autobahns By Janosch Delcker Interim EU trade deal to hit UK services hard By Hans von der Burchard How to stop trucks from being turned into weapons By Joshua Posanerlast_img

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