Has Brexit put the brakes on the automotive industry?

14 October 2016

Whilst the UK edges closer to invoking Article 50 and setting the clock ticking on exiting the European Union, companies across the UK are busy analysing the potential impact and identifying strategies they can develop to minimise that impact and to exploit new opportunities. The automotive industry is certainly playing close attention by virtue of the sheer range of businesses in the sector, which includes importers; exporters; international groups; retailers and end users -not to mention employees – being affected in various ways.

Often mentioned in respect of the post Brexit EU is the bargaining power we will have when negotiating the exit due, in part, to the German, French and Italians still being very keen to continue selling cars in the UK as easily as possible. One of the difficulties with this somewhat simplistic argument is the flipside – that irrespective of any increased cost or difficulty in obtaining said luxury cars, the UK consumers are not going to readily give up their wheels for public transport or decide to buy American, or Japanese (or perhaps even UK!) simply due to marginal cost increases. The import market from the EU automotive sector may be more challenging but will still exist – there may be a dip but Mercedes and BMW et all will survive I’m sure.

Perhaps more alarming for the industry is the export market. This may sound negative whilst the industry posts booming production figures, with August in particular being a 14 year record high for car manufacturing in the UK, and the predicted post Brexit Armageddon not having materialised. Sterling may have weakened but, on the back of that, the stock market has recovered its immediate losses and is now back at record levels and the outlook for the economic growth is positive, if not especially exciting. When you lift the hood of the UK economy however, and look somewhat further down the road, in terms of the automotive industry it does look bumpier.

The current weakness of Sterling makes UK goods comparably cheap and that, in part, leads to the strengthening of the Stock Market and increased demand for exports. All well and good currently. But leaving the EU, and importantly potential access to the Single Market, will add layers of complexity and likely financial costs for both importers and exporters. Leading figures in the automotive industry have over the past month highlighted their concern over a departure from the Single Market, including clear messages that only its membership can continue to guarantee the success of the UK car industry. Currently, the UK is able to sell goods and services across the EU without additional tariffs being charged, the loss of which, from an administrative and cost basis, has the potential to eat into already small profit margins, and further exacerbates the higher cost of importing component parts from the EU and the rest of the world. Even a small impact could make the UK automotive industry less competitive than other EU states with damaging long term impact.

The undertone coming out of Brussels has repeatedly linked access to the Single Market with the free movement of EU citizens. As restoration of border control and immigration was one of the key battle lines underpinning the Leave Campaign, the UK Government has a tightrope to walk with the negotiators potentially trapped between the rock and the hard place.

If you would like to discuss the issues raised in this blog, please contact the author, Dan Hutsonor another member of our automotive team. Alternatively, for more of our commentary on key automotive sector issues, visit our automotive industry issues section here.