How Brexit is affecting the Car-Making Industry?

Car Manufacturers have begun preparations for a no-deal Brexit with many major manufactures moving operations from the UK to other parts of Europe.

 

In order to prepare for alternative regulatory arrangements, which is a concern for the vehicle industry, Toyota, Honda and Bentley are a few of the manufacturers who have begun to look for new regulators in the EU since Theresa May’s Brexit vote. Companies such as Vauxhall and BMW have started stockpiling parts to cover any potential disruption when the UK leaves the EU on the 29th March.

 

The automotive industry in the UK currently employs approximately 856,000 people and the sector itself adds £20.2 billion to the UK economy. 8 out of 10 cars produced in the UK are exported and 54% of that is exported to the EU. A no-deal Brexit would have potential catastrophic effects as the European automotive industry is very tightly integrated with very complex supply chains that span across Europe. Take the Mini for example, the front bumper, lights and grille are engineered from dozens of suppliers from Austria to Poland to Hungary to the UK. Each made at the right time in the right place. The crankshaft in the engine is made in France and then integrated into an engine in Bavaria and then it arrives in the factory in Oxford and the components are put together to create a finished Mini. 1,000 finished Mini’s are created each day. If tighter restrictions are put in place at the border then the supply chain will become more time consuming which means less cars are produced daily and car manufacturers will lose out.

 

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, has made it clear that a no-deal Brexit will be not ideal for the car industry. He said “It would cause immediate and irreversible damage to our sector, putting business and thousands of jobs at risk. A no-deal scenario could result in severe disruption at the borders and, with over 1,100 trucks crossing into the UK every day, such delays would render just-in-time manufacturing impossible, stopping production. Stockpiling is not a viable alternative, given the scale and complexity of the products and thus the space needed.”

 

 

Currently the vehicle industry has regulatory harmonisation which means that the UK can sell cars across EU markets without gaining approval from each individual country. Without this permission, a long-term cost for car manufacturers will occur as they may have to produce slightly different cars that meet different levels of regulation. This means a higher cost for manufacturers which may then result in a higher cost for consumers. There is also the fear that if the car manufactures move their operations completely over to EU countries then this threatens the UK industry as it is the second biggest market for passenger cars in the EU. In addition, this migration of factories will lead to increased unemployment in the UK. Jaguar Land Rover has announced plans to cut thousands of jobs in order to cut down on costs.

 

This is the scenario if the UK leaves the EU without any deal, however there is hope that a deal will go through that will consider the divergence of regulations and prevent that from happening. For now, the industry can only wait for the decision and prepare a Plan B to cover potential losses

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