European Automakers Brace for No-Deal Brexit, Multi-Billion Dollar Losses

Jay Ramey
·4 min read
Photo credit: Nissan
Photo credit: Nissan

From Autoweek

  • No-deal Brexit could cost U.K. auto industry $74 billion over 5 years

  • Automakers have already been stockpiling parts for years ahead of Brexit

  • WTO rules could see steep tariffs on EVs and PHEVs

After four years of preparations, delays, and now a production and sales slump sparked by the coronavirus pandemic, being an automaker or supplier with a footprint in a post-Brexit U.K. is looking less and less appealing. And not just in the U.K., but across the channel as well.

After suffering a 33.8% decline in the year-to-date output compared to 2019, automakers and suppliers with U.K. manufacturing presence still face something set into motion more than four years ago, as the threat of a no-deal Brexit and an uncertain EU trading environment looks more likely with each passing week. The Society of Motor Manufacturers and Traders (SMMT), a U.K. automotive industry trade association, warned days ago that tariffs possibly set in place on Jan. 1, 2021, could cost the U.K. auto industry £55.4 billion over five years, approximately $73.85 billion at today's exchange rate. A no-deal Brexit would also cost the pan-European auto sector some €110 billion in lost trade by 2025, the SMMT noted earlier this fall, or about $132 billion. This would add to some €100 billion in losses attributed to disruption caused by the pandemic in just several months this year.

"For the UK industry alone, new figures reveal that production losses could cost as much as £55.4 billion over the next five years if the sector was forced to trade on WTO conditions long-term," the SMMT noted after an online event for industry leaders and politicians. "Even with a so-called 'bare-bones' trade deal agreed, the cost to industry would be some £14.1 billion, reinforcing how, for the automotive sector, Brexit has always been an exercise in damage limitation. With scant time left for businesses to prepare for new trading terms, the sooner a deal is done and detail communicated, the less harmful it will be for the sector and its workers."

Without a formal trade deal in place by January 1, the EU and the U.K. would be forced to do business under World Trade Organization (WTO) non-preferential rules. They would impose a 10% tariff on cars and as much as a 22% tariff on vans and trucks. It's easy to see how this could quickly make automotive trade between the two regions unappealing and costly, with these costs likely to be passed along to consumers.

As for EVs and plug-in hybrids, WTO tariffs could add on average £2,000 to the cost of each British-built EV sold in the European Union, hurting British-produced models in the marketplace. And conversely, each EU-built EV could see a £2,800 tarrif per car, wiping out government incentives now offered for BEVs and plug-in hybrids. Just for EVs alone the tariffs would impede further investment in U.K. manufacturing, which has already a slow capital withdrawal and planning by some automakers in response to the 2016 vote on leaving the European Union. In fact some executives have openly questioned the feasibility of maintaining a U.K. manufacturing presence in a post-Brexit environment, and not only as it concerns EVs.

"These figures paint a bleak picture of the devastation that would follow a 'no deal' Brexit," Mike Hawes, SMMT Chief Executive. "The shock of tariffs and other trade barriers would compound the damage already dealt by a global pandemic and recession, putting businesses and livelihoods at risk. Our industries are deeply integrated so we urge all parties to recognize the needs of this vital provider of jobs and economic prosperity, and pull out every single stop to secure an ambitious free trade deal now, before it is too late."

The SMMT points out that the commercial vehicle sector is also under unique pressures from the pandemic, with a 52.9% drop year to date. Just 76 buses were produced in the U.K. during October, the SMMT noted, with operators being reluctant to place new orders.

Still, these projected losses for U.K.-based automakers and suppliers and EU-based automakers assume no major exodus from the U.K. in the next five years, something which has seemed unlikely even since 2016.