Brexit deal is insufficient for UK auto sector

(Bloomberg) – The auto industry averted disaster when the UK and the European Union sealed a post-Brexit trade deal, but not soon enough to prevent automakers from announcing factory closures and canceling plans to make multiple vehicles new to the country.

Still more damage could be seen, even with the deal reached last week. Carmakers, including, could have a hard time getting some UK-built models to qualify for duty-free export to the European Union, while also assessing whether they source enough components locally. The costs associated with having to switch suppliers, and the burden of customs declarations, certifications, and audits may still end up convincing auto companies that it is better to invest elsewhere.

“This is still a small deal with significant implications and costs for the automotive industry,” said David Bailey, professor of business economics at the Birmingham School of Business in England. “Much will depend on the degree of flexibility allowed and the degree of gradual introduction.”

The Brexit deal eliminates the risk of widespread exodus, but it could still be insufficient for automakers with very little room to bear more spending. Any other consequence could have big implications for the UK economy. The country’s auto industry employs more than 860,000 people, of which more than a fifth work in vehicle and parts factories. Automakers shipped 42.4 billion pounds ($ 57 billion) of cars and components overseas last year, 13% of the nation’s total exports.

The domestic market is unlikely to make up for any lost sales abroad. Enrollments had already fallen for three consecutive years before being decimated by the pandemic, registering a 31% drop through November.

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Carmakers’ tariff requirements in the future may be affected by their plans to bring more of their battery supply chains to the region. Electric vehicles will have an additional six years for their foreign components to fall below 45%, while the threshold for gasoline and diesel cars will be imposed immediately.

“The deadlines underscore the urgent need for the Government to create the conditions that will attract large-scale battery manufacturing to the UK and transform our supply chains,” said Mike Hawes, Chief Executive Officer of the UK Automotive Industry Trade Group. Kingdom, called the Society of Motor Manufacturers and Traders. “Improving the competitiveness of the UK will be essential to help mitigate the additional costs and burdens caused by our new business relationship.”

‘Green light’

Other automakers have postponed investments in UK plants pending the outcome of trade talks.

“The deal is now expected to give the green light to big investments in the UK that had stalled amid Brexit uncertainty,” said Bailey, a professor at Birmingham Business School. “There will be additional costs for the industry in terms of non-tariff barriers, but things could have been much worse.”

Nota Original:Brexit Deal Is Too Little, Too Late for U.K.’s Car Industry (1)

©2020 Bloomberg L.P.

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