What is the Impact of Brexit on the Car Industry?

The UK decided it would be withdrawing itself from the European Union (EU) in June 2016, when a UK-wide referendum saw 52% of people vote in favour of leaving, as opposed to 48% wishing to remain.

The departure was originally scheduled for March 29, 2019, but was delayed after the 2017 general election resulted in a hung parliament before three more extensions to the leaving date were granted.

Since then, the Conservative party, led by Boris Johnson, won the general election set in December 2019 whereby parliament finally ratified the withdrawal agreement, before leaving the EU on January 31, 2020.

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But what does all of this mean for the automotive industry? Well, it’s been made pretty clear from the get-go that anything but a free trade deal between the UK and the EU would have ‘catastrophic’ consequences.

How does Brexit affect the UK and EU automotive industry?

It’s no secret that the automotive industry is one of the most critical within Europe, with highly complex supply chains stretching across the continent and production relying on ‘just-in-time’ delivery.

As per the European Automobile Manufacturers Association (ACEA), 51% of all exported UK-built cars were bought by customers in the European Union last year.

As well as that, more than eight out of 10 passenger cars made in the UK are exported. A no-deal Brexit would likely cause mass problems here alone.

On the opposite side, less than four out of 10 cars made in the EU are exported with only around a third of that number coming to the UK.

How is the UK car market doing since Brexit?

UK car sales have fallen by 30% this year compared to 2019, according to the Society of Motor Manufacturers and Traders (SMMT). The biggest reason obviously being due to the coronavirus pandemic but this does not bode well for the future of the industry outside of the EU.

When things do return to normal, however, it’s highly likely this trend will continue.

There is the worry of economic uncertainty plus the confusion over whether buying a new ICE car is worthwhile given the environmental and costly effects such as an introduction of diesel taxes.

Did Covid-19 affect Brexit?

Felipe Munoz, Jato Dynamics’ global analyst, doesn’t expect coronavirus to have any impact on Brexit, however: “The economy has already absorbed most of the risks derived from Brexit.
 
“All the decisions that were due to be taken due to Brexit were already taken, and this crisis won’t change them.

“The problem for Britain is that other potential commercial partners, like the US, are now heading to a recession, so Britain will have more difficulties substituting trade with the EU."

What the pandemic could threaten, though, is the financial positions of manufacturers that have fought to make some sort of recovery over the past few months.

Eric-Mark Huitema, director-general of the ACEA said: “A no-deal Brexit at the end of 2020 risks undoing efforts to get the auto industry back on track.”

The SMMT has also suggested that EU tariffs on cars could add up to £2.7 billion to imports and £1.8 billion to exports annually by increasing the cost of cars imported to the UK by up to £2,000.

How will Brexit affect employment and skills shortages?

The UK automotive industry employs almost 1 million people - this has dropped this year due to the impacts of coronavirus but that is a substantial workforce.

The UK government hopes fast-tracking the ban on diesel and petrol cars from 2035 to 2030 could deliver an extra 40,000 jobs in the nuclear energy sector but that’s a long way off at this stage.

It has been predicted that the UK and the EU will be unable to strike up a fair deal which will have many consequences when the transition period ends at the end of 2020. 

What we do know is that there is an uncertain future for the automotive industry and we won't really feel the full effects for quite some time.