Brexit. What does it mean for the automotive industry?

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The uncertainty around Brexit is, at this point, daily news. Every day we get an update regarding the latest in-government fighting about what is best to do, who thinks what and just what on earth will happen next. It’s easy to see why most of Britain is confused about what outcome will be best for us and what the consequences will be if and when we leave in both a deal or no-deal scenario.

The uncertainty spans all industries and the automotive sector is no different. In fact, uncertainty is one of the main problems we’re facing (more on that later). Until we know what exactly will happen, we can’t plan and we can’t make good whatever situation we find ourselves in. To that end, we’ve taken the time to look into what the experts are saying in regards to Brexit and it’s potential impact on our industry.

No deal
One thing that the industry has been consistent and united on is the fact that a no-deal Brexit would be the worst-case scenario for everyone involved. As you will know, our industry relies on a well-established, well-organised trading agreement with the EU and beyond to partners in places such as Japan, Canada and South Korea. Additionally, we rely heavily on the free movement of employees between all of these places. In addition to this, according to the SMMT*, at least 10% of those permanently employed within the UK automotive sector come from a country elsewhere in the EU.

The SMMT goes on to say that if we were to leave the EU without a new deal in place, our well-established trade agreements would be in tatters, free movement of people would be in jeopardy, as would the residency of those that live here but are from other EU nations. Additionally, billions of pounds worth of extra costs would be applied to importing and exporting goods and this also would put thousands of jobs at risk. A no-deal Brexit would indeed paint a bleak picture for the future of the UK automotive industry.

Brexit with the current deal proposal (or a version of)
What the current deal proposal will mean for the automotive industry is largely irrelevant as it has been rejected by parliament and therefore is unlikely to happen. However, if an alternative for the Irish backstop could be found and other issues ironed out it is perhaps worth considering a version of Theresa May’s deal may become reality.

It’s safe to say that while this kind of deal would still mean a certain degree of uncertainty for the UK automotive scene, it would provide some comfort and stability for manufacturers and the supply chain in coming months.

There are two key areas of the current deal that would soften the blow of Brexit. Firstly, the transition period of 21 months which would at least allow businesses more time to plan and prepare for an exit and any new trade deals that have to be agreed. Secondly, the rights of EU citizens living here and UK citizens living elsewhere in the EU would largely remain the same, meaning that free movement of automotive industry employees would be the same as it is now. Anyone living here for more than five years would also be able to apply for permanent citizenship, giving stability to the workforce.

So, in short and in basic terms a version of the current deal being discussed would prove more beneficial than the aforementioned potentially catastrophic consequences of a no deal. However, what’s key to remember when it comes to potential impacts on the automotive sector is the fact that the industry works on a ‘just in time’ model whereby smooth processes and seamless production and delivery of products is vital. Any change is likely to have a detrimental impact on this way of working unfortunately.

Current situation
At the time of writing, it is still very much unclear what situation the UK will find itself in in just seven weeks when we are due to leave the EU. What is clear is that this uncertainty is causing an issue in itself.

According to media reports**, figures released earlier this year revealed that investment in the UK car industry had collapsed by 70% in the continuing uncertainty over Brexit. Just £90 million was invested in the UK in the first half of 2019, compared with £2.7 billion annualised average over the past seven years.

Additionally, output fell by a fifth in the first six months of the year to 666,521 cars built here, down 168,052 on the same period last year. Figures released by the Society of Motor Manufacturers and Traders (SMMT) also showed that car manufacturers spent ‘at least £330 million’ on contingency plans, as they organised factory shutdowns in advance of the original 31 March Brexit deadline.

These figures make for sobering reading and this is the impact before Brexit has actually happened. What is reassuring to read is that automotive bosses are investing in preparations. Additionally, bodies such as the SMMT are working hard to push the needs of the sector up the agenda and remind government of its important to the economy, those it employs and the UK’s identity as a hub for manufacturing excellence as a whole. However, as deadline day draws ever closer and the likelihood of a no deal becomes more and more a likely, the reality is that the automotive industry must brace itself for a period of great change whatever the outcome, perhaps the greatest it has experienced. The consequences of this change will be vast and impact the industry and all those it employs for years to come. We wait with baited breath to see how we’ll cope. 2020 will be an interesting year for us, there is no uncertainty there.

*https://www.smmt.co.uk/industry-topics/brexit/
**https://www.carmagazine.co.uk/car-news/industry-news/brexit/

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