UK automotive industry welcomes Brexit deal but uncertainty remains

21 October 2019

UK automotive industry welcomes Brexit deal but uncertainty remains

21 October 2019

British businesses are allowing themselves a moment of cautious optimism as the UK Prime Minister Boris Johnson and the EU have reached an agreement, potentially avoiding a no-deal Brexit.

However, it is unclear if the new deal can be voted through the UK Parliament in time for the 31 October following an amendment made in a rare Saturday sitting in the House of Commons, calling for a delay until legislation to see the deal through is set in place.

The agreement envisages an ambitious, wide-ranging and balanced economic partnership through a free trade agreement that ensures no tariffs, fees, charges or quantitative restrictions across all sectors, with appropriate and modern accompanying rules of origin.

Improving fortunes

Shares of Tata Motors, owner of the Jaguar and Land Rover brands, jumped the most in a decade after the deal was announced, although Jaguar Land Rover was hesitant to declare an end to the Brexit struggles of Britain’s car industry.

‘We welcome the latest developments and await the next steps, but we cannot comment further until we have considered the detail of the deal and know whether it is supported by Parliament,’ the company said in a statement.

One possible sticking point for the automotive industry revolves around ‘appropriate and modern’ rules-of-origin provisions that would potentially add cost and complexity to manufacturing in the UK, as carmakers would have to certify where parts came from. Under the plan put forward by former Prime Minister Theresa May, these checks would be unnecessary.

Investment stalled

A no-deal Brexit would represent a catastrophic blow for the UK’s automotive industry, with two of its biggest manufacturers, PSA Group and Nissan, suggesting the future of their British plants would be in jeopardy.

Should the UK leave without a deal on 31 October, World Trade Organisation rules dictating a 10% tariff on imports and exports would come into effect. Volkswagen is stockpiling vehicles and has admitted it could not absorb the extra costs, meaning it would pass these onto customers, a move already planned by Honda.

European manufacturer association ACEA highlighted that WTO tariffs on cars and vans could add €5.7 billion (£5 billion) to the collective EU-UK auto-trade bill, raising prices for customers if manufacturers cannot absorb the additional cost. 

Carmakers have also halted investment in the UK due to the uncertainty surrounding Brexit. In the first half of this year, just £90 million (€105 million) was pumped into the industry, down 70% in the same period in 2018.

In 2016, almost £1.7 billion (€1.9 billion) was invested in the automotive market, which was also down in 2015, when £2.5 billion (€2.8 billion) was put in.

Parliament plea

Trade bodies are now calling on the UK Parliament to ratify the deal, passing it into law and therefore preventing no-deal occurring. However, with the Northern Ireland DUP party, which has been shoring up the Government in most votes, announcing that it could not accept the deal, it may go the same way as Theresa May’s previous withdrawal agreement.

Due to the vote on Saturday, the Prime Minister has been forced to send a letter to the EU Commission asking for a delay. A second communication was sent alongside it, suggesting that an agreement to this request would be bad for all involved.

The EU could look to propose Brexit until January 2020, or offer a flexible arrangement with the UK leaving the union when it is ready. Such a move could spell further trouble for the automotive industry, with some factories planning additional shutdowns on 1 November, and investments waiting to be made.

There is still the possibility that the Prime Minister will pass his deal through Parliament in time for the current deadline, with further discussions set to take place later today (21 October).