We all breathed a collective sigh of nervous relief when the UK and EU finally did their Christmas Eve deal.
Few had much hope for it and it was of course already too late for the likes of Nissan, Honda, JLR, BMW and others who had struggled with supplies due to delays at ports or who had by then announced factory closures or had stalled or abandoned plans entirely to build a number of new cars in the country. BMW AG, Chief Financial Officer Nicolas Peter even said they would consider making Mini cars in Germany or China if tariffs undermined the business case of producing them in the U.K.
UK automotive employs over 860,000 people. Of course, the deal is better than a no deal but no one should kid themselves that automotive plc is not going to be hit economically. Growth is going to be extremely sluggish and will lag considerably behind where it would otherwise have been. Brexit is going to impact automotive to a far greater degree than COVID has because there is no vaccine round the corner for it. It is not as if the domestic market can backfill lost exports. The statistics show that registrations fell for 3 years in a row even before the pandemic.
Whilst we are therefore all being encouraged to glory in our theoretical sovereignty, there’s going to be a cost. Carmakers might well find it tough to qualify for some UK-assembled models for tariff-free exports to the EU. There will be supply chain issues too. Stockpiling of parts of typically 1-2 days is expected. Bentley is talking perhaps 10 days. All of this stifles competition. Together with the added burden of audits, not to mention form-filling, customs declarations and certifications, the likes of PSA Group will still be asking themselves whether there exists a business case for making their Vauxhall cars at Ellesmere Port unless the government compensates them.
We continue to live in interesting times. It will be fascinating to see what deals the UK can strike with the new Biden government in the US. There will always be opportunities, particularly with electric and some hybrids but now that the Brexit deal has been done, time will tell whether automotive has been too.
If you have any questions, please get in touch with our specialist Automotive team who would be happy to help.
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