The auto industry is critical to the economy of the UK. It accounts for some 186,000 manufacturing jobs as well as 856,000 other auto-industry jobs, like car salesmen. Cars account for 12% of the goods exported by the UK, being sold to over 160 other countries around the world. 2500 auto-component suppliers are kept in business by the auto industry in the UK according to UK-auto.
The president of the Confederation of British Industry, Paul Dreschler, expressed grave concerns about the impact Brexit may have on the auto industry. He told CNN “There is a risk that the auto industry in the UK faces extinction if there’s no customs union after Brexit,”.
He also conveyed that industry executives and investors share his concerns. The Society of Motor Manufacturers and Traders says that open trade between the UK and the rest of the EU is the backbone of recent growth in the industry.
Investment, both foreign and domestic, in the auto industry dropped by 34% in 2017. CNN reported that Japanese executives have already warned Theresa May that they will not hesitate to pull out of the UK market if their profits are adversely impacted.
The rest of the EU is currently the largest market for UK-manufactured automobiles; 45% of UK-made vehicles are sold to consumers in fellow EU member states. Right now, those cars can move freely across country borders without going through any customs checks or facing any import tariffs. What the market will look like after Brexit remains horribly unclear.
Other industries are doing their best to prepare for a possible chaotic, even no-deal Brexit; grocery stores and other retailers are stockpiling goods whose supply chains from other countries into the UK are likely to be disrupted when customs checks are reinstated.
Sadly, leaders in the auto industry are unsure of what they can possibly do to mitigate the very negative impact Brexit will likely have on their supply chains, their labour pipelines, and their distribution channels, causing increased costs, reduced quality, slowdowns, and lost revenues.
A recent study found that even those auto-makers that have created whole teams to work on the Brexit issue have seen little in the way of concrete strategic recommendations coming out of them. The tremendous amount of uncertainty surrounding the path forward for Brexit is making it extremely difficult for anyone to prepare for the outcomes reported Wards.
The Society of Motor Manufacturers and Traders, however, is attempting to be proactive. While Mike Hawes, the chief executive of SMMT, was pleased that May recognized the auto-industry will require special attention in the Brexit deal, he feels much more needs to be done in the face of absolutely inevitable inefficient and costly trade barriers regardless of the deal that ends up being struck with the EU. SMMT research has determined that just considering tariffs alone, import costs would increase by about £2.7 billion, and exports would cost about £1.8 billion more.
Hawes has a list of priorities that SMMT is focusing on in the months leading up to Brexit: getting the government to reduce economic uncertainty that is deterring investors; keeping unrestricted access to the EU’s single market for both the sale of cars and the import of components; lobbying for EU regulations favorable to the UK auto industry; ensuring the continued free movement of labor to combat growing labor shortages, especially for highly skilled positions like engineers and scientists; continuing active involvement with UN regulation setting.
Current reports are out from the Office of National Statistics showing that GDP growth has slowed from 0.6% to 0.4%. Manufacturing has remained flat, but vehicle production is now slowing down as Brexit nears with still-unclear outcomes. The trade deficit of the UK increased by £3.1 billion. If a deal between the EU and the UK for an orderly Brexit are not passed by Parliament soon, the outlook for the UK economy in the next six months, at the least, is highly ambiguous.
In an even more telling example of the effects of Brexit uncertainty, the car production slow-down has less to do with auto manufacturers anticipating declining sales next year and more to do with demand. One of the primary drivers of consumer demand is their confidence in the future. But confidence has been lost not just by businesses, but by individuals as well. They don’t want to spend on big-ticket items like a car when they aren’t sure they will have a job after Brexit suggested the Guardian.
Car sales are slower than they have been since the financial crisis. That’s how much of an impact Brexit is having on the economy.
The chief economist of PwC, John Hawksworth, put it succinctly to the Guardian: “Until [Brexit] is resolved, the UK economy is likely to remain in the doldrums as businesses will be reluctant to invest and households may also be reluctant to commit to big-ticket items like house and car purchases.” The head of economics at the British Chambers of Commerce, Suren Thiru, agrees: “Trading conditions for UK exporters are deteriorating amid moderating global growth and uncertainty over Brexit.