SMMT also warns car price will go up by average of £1,500 if UK leaves EU with no agreement
The Ford engine plant in Bridgend, Wales, which is set to close.
Photograph: Dimitris Legakis/Athena Pictures
The cost of car manufacturing will go up £70m a day if the UK leaves the EU without a deal, making the British automotive industry more vulnerable to closures, the industry has said.
It also warned for the second time this year that car prices will go up by an average of £1,500.
“Leaving the EU without a deal would trigger the most seismic shift in trading conditions ever experienced by automotive, with billions of pounds of tariffs threatening to impact consumer choice and affordability,” said the Society of Motor Manufacturers and Traders (SMMT) at an industry conference in London.
“The end to borderless trade could bring crippling disruptions to the industry’s just-in-time operating model. Delays to shipments of parts to production plants are measured in minutes, with every 60 seconds costing £50,000 in gross value added – amounting to some £70m a day in a worst case scenario,” it added.
The warning comes as Boris Johnson continues to be the frontrunner to be the next prime minister.
Q&A
What does a ‘No deal’ or ‘WTO rules’ Brexit mean?
In a ‘no deal’ scenario, the UK would leave the single market and the customs union immediately with no ‘divorce’ arrangement in place. The European Court of Justice would cease to have jurisdiction over the UK, and the country would also leave various other institutions including Euratom and Europol.
The UK would no longer be paying into the EU budget, nor would it hand over the £39bn divorce payment. There would be no transition period. Free movement of people into the UK from the EU27 would stop.
Trade between the UK and the EU would be governed by basic WTO rules. The UK government has already indicated that it will set low or no tariffs on goods coming into the country. This would lower the price of imports – making it harder for British manufacturers to compete with foreign goods. If the UK sets the tariffs to zero on goods coming in from the EU, under WTO ‘most favoured nation’ rules it must also offer the same zero tariffs to other countries.
WTO rules only cover goods – they do not apply to financial services, a significant part of the UK’s economy. Trading under WTO rules will also require border checks, which could cause delays at ports, and a severe challenge to the peace process in Ireland without alternative arrangements in place to avoid a hard border.
Some ‘No Deal’ supporters have claimed that the UK can use Article 24 of the General Agreement on Tariffs and Trade (Gatt) to force the EU to accept a period of up to ten years where there are no tariffs while a free trade agreement (FTA) is negotiated. However, the UK cannot invoke Article 24 unilaterally – the EU would have to agree to it. In previous cases where the article has been used, the two sides had a deal in place, and it has never been used to replicate something of the scale and complexity of the EU and the UK’s trading relationship.
Until some agreements are in place, a ‘no deal’ scenario will place extra overheads on UK businesses – for example the current government advice is that all drivers, including lorries and commercial vehicles, will require extra documentation to be able to drive in Europe after 31 October if there is no deal. Those arguing for a ‘managed’ no deal envisage that a range of smaller sector-by-sector bilateral agreements could be quickly put into place as mutual self-interest between the UK and EU to avoid introducing or rapidly remove this kind of bureaucracy.
In a new report, the SMMT said the imposition of tariffs for trade in passenger cars along would be £4.5bn, a “knock out blow” to the sector’s competitiveness.
The industry has already seen the loss of two big names in the past year with the closure of Honda in Swindon in 2021 and the axing of the Ford plant in Bridgend in Wales with the loss of thousands of jobs.
While neither Honda nor Ford cited Brexit as a cause, the industry fears Britain’s competitiveness and unstable political environment will deter future investment by global car manufacturers.
“We are already seeing investment stall. As a manufacturer you constantly invest in machinery to make sure you are more efficient, make sure you are competitive.
“When the big investment decisions come with a new model, that’s when you are competing with other plants, that’s when you need to be at your most efficient and if in the previous two or three years you have underinvested it makes it much harder,” said Mike Hawes, SMMT chief executive.
Few car companies want to go public on their fears over Brexit because of the backlash in the media and some political interests, sources say.
Hawes said today’s analysis was based on facts, on industry and government data and warned his pleas were not fearmongering.
“We are not making claims that the entire industry will close doors overnight, this industry is adaptable and agile, but it can only do so much if the barriers are particularly high, he said.
He warned the industry would decline with a “death by a thousand cuts”.
Costs could be hit by stoppages in production lines in the event of delays to supply of components over the Calais-Dover transit route and also by the imposition of tariffs of between 2% and 4.5% by the EU.
The car industry has little to no warehousing capacity to stockpile in the event of no deal with production based on just-in-time and just-in-sequence systems.
“We have 1,100 vehicles a day coming into the UK with parts, components, we need them to move seamlessly. If we have delivery delays, that means production stops,” he said.
Some component manufacturers have also been hit by the Brexit uncertainty, Hawes said, including one company in south Wales.