The UKs exit from the EU trade bloc is scheduled for 31 October, but UK-EU trade arrangements after that date remain unclear

The UK's exit from the EU trade bloc is scheduled for 31 October, but UK-EU trade arrangements after that date remain unclear

UK carmakers could be facing an annual bill of GBP4bn in the event of a no-deal Brexit due to challenges such as increased costs for imported components and tariffs on vehicles exported to the EU, says GlobalData, a leading data and analytics company. The research suggests that the UK auto industry - operating in a highly competitive business environment with low margins on many of its products - would, in the event of no-deal, be unable to maintain its current structure.

Highlighted by GlobalData's report, 'Brexit's Impact on UK Auto', no-deal UK-EU trade arrangements would greatly increase the financial burden faced by the UK's automotive businesses. Report writer Ian Henry, Director of AutoAnalysis and Visiting Professor in Automotive Business Strategy at Birmingham City University's Centre for Brexit Studies, comments: "Regulatory alignment with the EU must be maintained if UK manufacturers wish to export their cars overseas, with exports predicted to represent almost 85% of the expected GBP4bn bill. A no-deal Brexit will see costs such as GBP700m for low-volume manufacturers' exports, vehicle companies' components and engine exports; and GBP2,700m for exported cars or LCVs."

Additionally, the report claims that the free flow of data and talent between companies must be upheld if UK manufacturers want to remain internationally competitive.

Henry continued: "The UK Government may like to talk about the opportunities open to the UK economy after Brexit, but it is difficult to see what these are. The Society of Motor Manufacturers and Traders (SMMT) has described Brexit's impact on the automotive manufacturing industry as 'like death by a thousand cuts'. It is very difficult to argue against this view."

The UK car-manufacturing industry relies on tight 'just-in-time' supply chains to deliver the parts it needs.

Henry adds: "A no-deal Brexit could lead to significant delays at borders as new customs checks are applied. Those delays will cost manufacturers money due to lost time and necessitate the stockpiling of components as the Brexit deadline approaches."

GlobalData's report also identifies a number of potential strategies that could be employed to somewhat mitigate the negative effects of a no-deal Brexit. These include increasing the local content of UK-made vehicles, growing exports of vehicles to non-EU markets, or refocusing UK production for the domestic market. However, it is unlikely that these strategies, even if used together, will go far enough to cover the extra costs resulting from a no-deal Brexit.

Henry concludes: "The question surrounding a no-deal Brexit is whether it is a short-term no-deal arrangement or a long-term switch to WTO terms. It is possible that a no-deal Brexit will bring the UK and the EU together quickly and for a basic free trade agreement (FTA) to be reached if the fall-out for both sides was deemed too disruptive. Alternatively, the UK Government may decide or feel able to 'tough it out' and operate on a WTO basis for the medium-term. The implications for UK vehicle production in either circumstance would not be attractive."

Calum MacRae, Director of Automotive Product Development at GlobalData, added: "Under a no-deal Brexit, the model makes it clear that the UK automotive industry's current structure is not sustainable. With the potential for the UK industry to hollow out, the costs of a no deal will no longer be contained to just the automotive players but ripple through the value chain causing widespread economic and social disruption due to the sector's high economic multiplier effect."

See also: Brexit's impact on UK auto - Thematic Research

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