Year in review 2018: Brexit

03 January 2019

Year in review 2018: Brexit

3 January 2019

By Phil Curry

One of the biggest talking points of 2019 will undoubtedly be Brexit. However, the situation and ‘fog’ (as described by Toyota) caused a number of news stories over the last 12 months.

During 2018, the picture over what type of deal, if any, the UK would have with the European Union once the country leaves on 29 March became murkier, rather than clearer, as the days ticked by. While some industries are concerned over the situation, the automotive industry is suffering, as manufacturers postpone investment, highlight concerns over supply chain and consider whether to move production due to potential tariffs and customs checks.

In February, Japanese manufacturers, together with other business leaders from the country, met with UK Prime Minister Theresa May, to voice their concerns over the Brexit process and the impact that any ‘no-deal’ scenario could cause. Nissan Europe Chairman Paul Willcox, Honda Europe boss Ian Howells and Toyota Europe CEO Johan van Zyl were among executives involved.

Jaguar Land Rover said that it would not be able to compete successfully in the global automotive market, while Honda also warned that any departure from the EU’s customs union would push up costs for small and medium-sized parts suppliers, which could see the UK supply chain, seize up.

Bosses at Ford and Vauxhall added their voices to ongoing concerns over Brexit, calling for clarity as their companies make key investment decisions. Ford suggested that tariffs could cost the business an extra €845 million a year, with the company building a majority of its diesel engines in the UK.

PSA Group CEO Carlos Tavares said that uncertainty undermined its Ellesmere Port plant's chances of getting more work after 2021. ‘We cannot invest in a world of uncertainty," he said. ‘No one is going to make huge investments without knowing what will be the final competitiveness of the Brexit outcome.’

Audi’s chief financial officer Alexander Seitz said the automaker was minimising risks relating to its foreign exchange exposure, supply chain and logistics in case of a no-deal. ‘We are taking all precautionary measures for a hard Brexit,’ he told reporters. ‘On the finance side, our currency hedges for 2019 are already at a very high level to safeguard our proceeds, and we have secured warehousing space to store parts. I doubt however that we will be able to offset all the effects.’

Shutdown

Worries about investment in the UK automotive industry were strengthened when supplier Schaeffer announced it was closing two of its three UK plants. The company highlighted Brexit uncertainty as one of the reasons.

Juergen Ziegler, regional CEO, Europe, commented: ‘Brexit is not the single decisive factor behind our decision-making for the UK market, but the need to plan for various complex scenarios has brought forward the timing.’

Tyre supplier Michelin also announced the closure of its plant in Dundee, stating that it cannot offer further investment in the site.

Regulation

The UK Government announced that once the country leaves the EU, it would align its automotive regulations with Europe. According to health minister Jeremy Hunt, when negotiations with the EU on future trade open next month, Britain will ask to keep the bloc’s regulations "on a voluntary basis" for key industry sectors such as car-making.

‘There will be areas and sectors of industry where we agree to align our regulations with European regulations, the automotive industry is perhaps an obvious example because of supply chains that are integrated, but it will be on a voluntary basis,’ he told the BBC.

However, this did not stop some carmakers from seeking alternative arrangements for their Type Approval programmes currently based in the UK. Toyota and Nissan are preparing to obtain vehicle certification in other European countries as concerns over Brexit continue.

Both companies currently have their vehicles type approved in the UK, as EU rules state that certification obtained in one member country is valid throughout the continent. However, with Britain leaving the EU next year, such a procedure could render those obtained in the country invalid if sold in Europe.

Authority reaction

The UK’s Society of Motor Manufacturers and Traders (SMMT) has been very vocal in the past twelve months as it represents the entire automotive industry in the UK on the subject of Brexit.

The body warned, following the announcement that manufacturing in the UK had dropped in Q1, manufacturing and exports were crucial to the UK’s vehicle sector, and tariffs and customs checks would have a big impact.

In June, the SMMT released UK Automotive’s 19th annual Sustainability Report, which revealed the manufacturing sector turned over a record £82 billion (€93 billion) in 2017. This came with a warning that progress on Brexit must be made to secure long-standing investment.

The organisation said that, with decisions on new vehicle models in the UK due soon, the government must take steps to boost investor confidence and safeguard the thousands of jobs that depend on the sector.

As uncertainty continued throughout the year, the SMMT launched a new Brexit Readiness Programme to help the automotive industry, aimed specifically at small and medium-sized enterprises (SMEs) that may not be able to cope.

Speaking exclusively to Autovista Group, SMMT chief executive Mike Hawes said: We have said it before and will continue to do so; we believe we should remain in the customs union and indeed the single market, until whatever our future trading relationship with Europe is both agreed and implemented. Partnership models and so forth will take a number of years to develop, and we cannot just be bobbing along in the meantime, we need that frictionless movement until whatever system is chosen is put in place.

However, once a Brexit document was presented to Government, the SMMT felt that there could be some respite to the situation – although the plan still requires approval from the House of Commons. The 585-page document would see a 21-month transition period come into effect after 29 March 2019, the date the country is due to leave the European Union. In this time, the country would still be governed by EU customs laws, meaning no tariffs or extra checks on imports and exports by manufacturers based in the UK.