No UK car manufacturer ready for Brexit, industry warns

Firms ‘increasingly concerned' about looming prospect of no-deal Brexit, says Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders

The British motor industry has warned that “no one would confess to being Brexit ready” in their trade.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), argues that his members are “increasingly concerned” about the prospects for the UK leaving the EU on World Trade Organisation (WTO) terms, in the light of developments since Theresa May published the government’s latest Brexit white paper, which he and the SMMT welcomed.

Michel Barnier, the EU’s chief negotiator, has since expressed scepticism about the proposed Facilitated Customs Arrangement (FCA), which would have been of particular value to manufacturing and the automotive sector.

In the light of EU resistance, and growing UK political volatility, the chances of the UK going to a “no deal” exit are increasing, meaning that Britain would move to WTO terms, as opposed to staying in the Single Market, the customs union or the FCA.

This would imply tariffs of up to 10 per cent in UK-EU trade in cars and parts, and greater bureaucracy in both directions, which would only be partly mitigated by “stockpiling” in the short run, given the demands of “just in time” manufacturing techniques and integrated cross-border supply chains.

There is a tail risk that factory production of models such as the Mini at BMW’s plant in Oxford could be disrupted if crucial car components become unavailable.

Mr Hawes added that the prospect of a “no deal” Brexit was something no-one wished to see and that industry leaders wished to see “all options open as long as possible”.

Reflecting on the 1,100 trucks that enter the UK from Europe every day to feed its factories, he said that the eight months remaining until formal Brexit on 29 March 2019 were “a real challenge”.

British car production for the home market almost halved in June, compared to the same month a year ago, due to what the industry calls “a perfect storm” of factors that resulted in a freakish result.

Overall, UK manufacture of cars was just 3.3 per cent down in the year to the end of June 2018, buoyed by exceptionally high demand for British products in certain export destinations, notably Japan (up 77.3 per cent), Korea (up 67.8 per cent) and relatively stable demand in China, the US and Europe.

America is the biggest single national market for British automotive exports but is dwarfed by the combined market of the other 27 members of the EU, who took just over a half of exports (53.4 per cent in the first six months of 2018).

The steep decline in production for UK market specifically (47.2 per cent) was said to be due to certain-one off and some short-run actors, such as manufacturers’ changeovers of model lines, and the hurried adoption of real-world fuel consumption standards, but also from a sharp reduction in UK home market demand, which was in turn driven by continuing weakness in consumer sentiment, uncertainty about the future for diesel cars and the general fog surrounding Brexit.

However, given that about four out of every five cars made in Britain goes abroad to be sold, British domestic demand is relatively small contributor to overall demand. The SMMT said it was confident that UK production would end the year at about 1.6 million cars, around the same level as in 2017.

Although broadly supportive of the government’s white paper, derided by some critics as “dead on arrival” in Brussels, Mr Hawes added that the FCA is just “an idea at the moment” which required “a huge amount of work and investment” even to make practical.

The SMMT’s position remains, as it has since the EU referendum, that the industry requires the same degree of frictionless access to its EU markets as it enjoys today, and that anything that falls short of that will damage competitiveness and, eventually, investment and jobs.

Key investment decisions by major companies such as Nissan, Honda and Tata (Jaguar Land Rover) on fresh investment on new models, engines and componentry still hang in the balance.

The SMMT is firm that any current arrangements, governed by the EU Customs Union and Single Market, should continue until satisfactory new rules have been implemented, not merely agreed in theory or principle.

If not, then the negative effects will be felt unremittingly through the 2020s, given the nature of the industry’s investment cycle, driven by relatively long model cycles.

The industry also called on the government, once again, to provide more clarity about the future of diesel engines, claiming that successive government white papers had failed to do so and had left consumers postponing orders. Mr Hawes called on the Philip Hammond, the chancellor, to “give a clear signal that the latest diesels won’t be punished”.