Experts: U.S. Won’t Fill U.K. Automakers’ Brexit Gap

British automakers who may be eyeing lucrative U.S. markets as an alternative to sales that could be lost if the U.K. quits the European Union as planned could be disappointed, experts say.

This is despite data released last month by the U.K.’s Society of Motor Manufacturers & Traders indicating exports of U.K.-made cars to the U.S. rose 7% year-on-year in 2017 to almost 210,000 units.

Britain’s pending “Brexit” departure from the EU in March 2019 could end the U.K.’s tariff-free trade with the bloc’s remaining 27 member states, defaulting to World Trade Organization 10% tariffs on automobiles if the U.K. fails to negotiate a replacement or interim deal in the next 12 months.

This may push U.K. automakers to try to expand sales in other markets, including the U.S., which sets tariffs of just 2.5% on automotive imports.

According to the SMMT’s analysis, the U.S. is the British automotive sector’s second-largest trading partner after the EU, accounting for 15.7% of its car exports. The industry association says the figures are evidence of the increasing popularity of the U.K.’s “ever-growing range of premium, luxury and sports cars” in America.

“It is vital that we maintain open trade links with the U.S., as well as our EU partners, for the benefit of consumers and our respective industries and economies,” SMMT CEO Mike Hawes says.

However, the SMMT declined to respond directly to WardsAuto requests for comments about whether it believes U.K. exports to the U.S. can replace a meaningful proportion of sales to the EU that might be lost in the event of a WTO-default Brexit deal.

The U.S.’s National Automobile Dealers Assn. is doubtful, saying “most (U.S.) dealers do not have U.K.-built vehicles on their radar.” A NADA spokesperson adds the association is not aware of any data that would support an assertion that British cars are poised to command a substantially bigger share of the U.S. market.

The Michigan-based Center for Automotive Research (CAR) also is dubious about the prospect of a near-term hike in British car imports.

“U.K. imports’ share of total U.S. imports has not yet come back to the pre-recession levels reached between calendar 2003-2005,” a CAR spokesperson says. “The U.S. could be an attractive option for U.K. exports should the Brexit deal end badly for automotive trade with the EU, but the U.S. can only absorb so many U.K. exports.”

U.S. Market for U.K. Exports Marginal

Sales of U.S. cars and light trucks totaled 17.1 million units in 2017, according to WardsAuto data.

This means that even with the jump in exports, British-built cars accounted for only about 1.2% of the U.S. market last year.

The Honda Civic was the best-selling U.K.-built car in the U.S. last year, with 64,944 deliveries. The No.1 U.K. brand imported into the U.S. was Mini, with 32,232 units, WardsAuto data shows.

By contrast, data from EU statistical agency Eurostat show the EU took about half of the U.K.’s 1.7 million new and used exported cars in 2017, at 858,773 units. For new cars, of which the U.K. shipped 1.52 million overseas in 2017, the EU took 831,951, a 55% share.

David Bailey, a professor of industrial strategy at the U.K.’s Aston Business School, is skeptical that the U.S. will compensate for any shortfall.

“Most U.K.-made cars currently sold in the U.S. are premium luxury models rather than mass-market cars,” he says. “American demand for these vehicles may be increasing, but sales of these cars are not going to make up for current EU sales volumes.”

Although American tariffs on automotive imports are relatively low, U.K. automakers looking to export to the U.S. face several challenges in the form of non-tariff barriers.

These include differences in emissions standards between the U.K., which complies with EU rules, and the U.S., which does not. For example, EU limits on nitrogen oxide (NOx) pollutants are set at 0.06-0.08 g/km, whereas in the U.S. the restriction is 0.04 g/km. On the other hand, EU limits on carbon-dioxide emissions are lower than for U.S. vehicles.

The technology required for altering vehicle emissions is expensive and consequently not economical to add to automobiles with low to midrange retail prices.

Rules on features as small as how seatbelts are bolted to vehicle frames also vary between the U.K. and the U.S. And whereas most cars produced in the U.K. are manual models, which account for some three-quarters of domestic new-car sales, U.S. drivers overwhelmingly prefer automatics, which make up more than 97% of annual sales.

Making cars compliant with American safety standards and customer requirements therefore would likely require U.K. manufacturers to re-equip their plants, at considerable cost.

Bailey also points out the U.S. market already is well supplied by domestic production from international manufacturers with U.K. operations.

“Jaguar Land Rover already sells quite a lot in the U.S. It’s unlikely Japanese producers (including Honda, Toyota and Nissan), will make cars in the U.K. for the U.S. market when they already have quite a lot manufacturing capacity in the U.S.,” he says.

The National Franchised Dealers Assn., which represents franchised car and commercial-vehicle retailers in the U.K., tells WardsAuto the U.S. is just one of the international markets already being targeted by British auto producers.

“The U.S. has played a significant role for U.K. manufacturers, but countries such as Japan and China have also become increasingly important,” NFDA director Sue Robinson says. “We expect the EU to remain a crucial partner post-Brexit, although other markets will be exploited by the U.K. as new opportunities arise.”

Most U.K. and European industry bodies are focusing on maintaining existing U.K.-EU free-trade relationships, rather than pushing for more transatlantic sales post-Brexit.

“A political deal that reflects the business realities of European economic integration is the only way in which we can minimize the fallout of Brexit for the auto industry – and the European economy in general,” a spokesperson for the European Automobile Manufacturers’ Assn., says.