The automotive sector is a key industry for the UK. According to SMMT figures, it employs around 800,000 people and generates over £80 billion in revenues. Accounting for 14.4% of total UK exports of goods, worth £44 billion, it invests £3.75 billion each year in automotive R&D. More than 30 manufacturers are currently active in the UK supported by 2,500 component providers and eight out of 10 cars produced in the UK are exported overseas to 160 different markets worldwide, most to the EU.
Brexit presents two potential significant challenges to this industry. First, the imposition of tariffs on the import and export of car parts and finished products, and secondly any divergence on regulatory standards.
Modern day manufacturing of most vehicles in the UK relies on "just in time" supply chains. As seen during the COVID19 crisis, manufacturing has been extremely vulnerable to any disruption. Whether or not a trade deal is agreed between the UK and EU, the UK will become a third country. Border controls of some nature, either in the UK or in EU import/export ports, have a real potential to create delays in shipping and delivery times, which will need to be factored in to supply chain planning. More significantly, unless a preferential trade deal can be agreed with the EU, in accordance with WTO rules, the UK will be obliged to impose its new Global Tariff on all EU products (and vice-versa for the EU and its equivalent). UK manufacturers may choose to source more parts locally, which could enhance UK investment. But, given most manufacturing relies on exports, significant tariffs on cars, vans and trucks will put considerable pressure on the economic viability of large scale UK manufacturing.
The other major issue is regulation. A car manufactured to EU type approval standards can be sold anywhere in the EU. In the absence of specific agreement, there will be no mutual recognition of standards between the EU and UK: manufacturers may therefore need to comply with two sets of rules. That is not without precedent but some manufacturers may decide to withdraw, as the size of the UK market will not justify the compliance costs of separate regulatory approvals. EU Regulations apply not only to finished vehicles, but also many key components such as engines, telecommunications equipment and tyres. The focus on autonomous and connected cars inevitably creates a need for new EU-wide regulation, and the UK will need to decide whether to follow or not.
A comprehensive trade deal would address these issues but, at present, seems unlikely. The industry will need to watch the negotiations closely and consider carefully the implications for all aspects of their business.