EU Exit No Benefit to U.K. Automakers, Studies Say

BRUSSELS – In the lead-up to this week’s first official discussion between European Union leaders on what the U.K. government wants to change about the EU to remain a member state, several studies conclude a Brexit (British exit from the EU) is not a real choice for the country’s automotive industry.

The U.K. auto sector would be expected to see steep losses in value added “because of being so heavily incorporated into a European value chain,” Bertelsmann Stiftung, a German foundation, says in an analysis released in late April.

Open Europe, a think tank advocating reforms in the EU, says in a March report the U.K.’s “leaving the EU’s customs union would mean adjusting to new administrative procedures at the EU border and could lead to uncertainty over EU-wide supply chains” for the automotive industry. It claims U.K. automotive manufacturing adds just 37% of value to the average vehicle that is officially “British-made.”

Following a potential Brexit, U.K. car exports could face EU import tariffs as high as 10%, Open Europe contends. “This would have a particular impact on volume manufacturers in the U.K., such as Honda, Nissan, Toyota and Vauxhall, which are oriented to the EU market.”

However, premium automakers such as BMW and Jaguar Land Rover are less reliant on the EU for sales and thus would be less affected, the Open Europe report says.

The U.K. would be expected to negotiate a relationship with the EU based on models provided by the European Free Trade Assn. countries: Iceland, Norway, Switzerland and Liechtenstein. But it is not known if this new relationship would offer the U.K.-based automakers the same unrestricted access to the EU’s unified market of some 500 million consumers that it enjoys now.

“Access to the EU market is reflected in the fact that 49% of U.K.-produced vehicles are sold across the largest single market in the world, unhindered by any tariffs or costly regulatory barriers,” according to a study commissioned by the U.K.’s Society of Motor Manufacturers and Traders and published in April 2014.

The EU not only is the most valuable market for British-made vehicles, but also is an important gateway for privileged access to the world market in general, the industry group says.

“The EU’s bargaining power in trade negotiations around the world is immense; paving the way for the U.K. to export over 50% of locally manufactured vehicles to growth markets across the rest of the world,” the SMMT report notes.

Quitting EU Could Curtail Free-Trade Agreements

If the U.K. decides to leave the EU, the region’s automotive industry may lose at least some of the advantages gained through the EU’s trade deals with South Korea, South Africa, Mexico, Colombia, Peru and Chile, among others.

It also may end up denying itself whatever benefits the EU automotive sector may derive from the Transatlantic Trade & Investment Partnership being negotiated between the EU and the U.S., where aligning, at least partially, some technical regulations between the two sides is a key issue.

Brussels often is seen by the British as dictating complicated and technical laws, but the U.K.’s seat at the table where these laws are negotiated should not be lost, the SMMT report said last year.

Also at stake is the R&D money coming from EU coffers.

Automotive developers, among others, “currently benefit from the EU’s largesse in the form of subsidies or research and development grants,” says a report entitled “Softening the Blow” released by the London-based Institute for the Study of Civil Society last September.

And while extreme-right parties in the U.K. are trying to paint a frightening picture of massive immigration from other EU countries into Britain, the SMMT report indicates automakers are concerned with a potential shortage of skilled workers to staff their plants.

Since other EU citizens would not be allowed to work unrestricted in the U.K. under a Brexit, it would become much harder to hire foreigners in the country.

But the Open Europe think tank is sure than the EU would end up granting the U.K. access similar to the one it enjoys as a member, especially given the Brexit’s impact on other countries and industries in Europe.

The think tank also sees acknowledges some benefits of a Brexit, such as the possibility of the U.K. negotiating a free-trade agreement with China, “where a Range Rover Evoque currently attracts a 25% import tariff, 17% sales tax and 9% consumption tax.”

Expert: Auto Investment Curtailed Ahead of Exit Vote

With such uncertainties over what a Brexit would entail for the automotive industry and the entire U.K. and EU economies, many do not expect to really see the country leaving the politico-economic union.

“My view is that realistically the U.K. is going to stay in the EU,” Peter Cooke, emeritus professor of automotive management at the University of Buckingham, tells WardsAuto. “The short-medium term situation is that vehicle manufacturers may not invest in the U.K. before they know what will happen.”

Cooke is however sure that automotive companies will continue to invest in their existing factories in the country, since they are “superbly efficient.”

Citing the SMMT study, the European Automobile Manufacturers Assn. says that, in a period of increasing global competition, the U.K.’s place in the EU ensures it has direct access to one of the world’s largest vehicle markets.

“It also ensures that the U.K. has a large degree of influence on the EU trade policies, EU vehicle standards and EU laws that affect its economy and its people,” it says.

The U.K. parliament on June 9 overwhelmingly approved an EU Referendum Bill published May 28, which will authorize giving voters a straight question to answer: “Should the United Kingdom remain a member of the European Union?”

Votes will be restricted to British, Irish and Commonwealth citizens aged 18 and over who reside in the U.K., along with U.K. nationals residing overseas for less than 15 years. It means Gibraltar, Maltese and Cypriots living in the U.K. will get a vote, but other EU citizens will not.

The referendum would have to be staged by Dec. 31, 2017.

A government statement notes that “ahead of the referendum, the Prime Minister will discuss with EU leaders how the U.K. can work with partners to reform the EU and renegotiate our relationship with it.”