U.K. Automakers Seek Robust Trade Deal With EU

LONDON – With Britain formally exiting the European Union today, the U.K.’s main automotive industry association has urged the government to strike an effective trade deal with the EU by the end of a transitional period that ends Dec. 31.

Until then, the U.K. will abide by EU rules and preserve its current market access. But what worries the Society of Motor Manufacturers and Traders is that an agreement will not be forged within this tight timetable and the trading relationship between Britain and the EU would then default to the basic minimum market access guaranteed under World Trade Organization rules.

This, warns SMMT chief executive Mike Hawes, would be the “worst possible outcome” for the U.K. automotive industry, adding £4.5 billion ($5.9 billion) annually to the cost of British auto exports to the remaining 27-country EU.

Speaking in London Jan. 29, Hawes said it was essential for the industry “to avoid expensive tariffs and other ‘behind the border’ barriers that limit market access.”

Under WTO terms, U.K. car exports to the EU would be subject to tariffs of 10%, adding £2,700 ($3,500) on average to the cost of new British cars sold in the EU – likely seriously dampening continental consumer demand.

Around 55% of the U.K.’s 1.06 million car exports were sold to other EU member states last year.

And should the U.K. decide to impose WTO-mandated tariffs on EU exports of cars to the U.K., British consumers could suffer. EU exports accounted for some 70% of new cars sold in the U.K. in 2019 – and these would cost consumers around £1,500 ($1,900) more on average once tariffs were added, as the U.K. typically imports less-costly models than it exports, according to SMMT projections.

Failure to reach a free-trade deal also would hamper the U.K. automotive sector’s global competitiveness at a time when investment is urgently needed to keep pace with technological change, Hawes says.

Investment in the U.K. automotive industry totaled £1.1 billion ($1.4 billion) in 2019, 60% lower than the £2.75 billion ($3.6 billion) averaged over the previous seven years, according to SMMT’s calculations.

U.K. car production, meanwhile, was at its lowest level since 2010 last year at 1.27 million units, a fall of 14.2% compared to 2018 and its third consecutive year of decline. Prior to the U.K.'s EU referendum in June 2016, SMMT had been targeting output of 2 million units per year.

Bucking the trend, the U.K.’s small-volume car manufacturing sector, which principally makes niche luxury and sports models, boosted production 16% last year. While this is good news for manufacturers targeting premium markets in countries such as the U.S. and China, the SMMT warns that increasing sales of niche models cannot replace the income that would be lost from selling large volumes of mass-market cars to the EU without a free-trade agreement.

Hawes says the U.K. automotive industry is exploring the potential to expand exports of British-made mass-market vehicles beyond the EU, to markets including the U.S., India and China, but notes this comes with its own challenges.

Regarding the U.S., which currently levies tariffs of 2.5% on car imports from the EU, simmering trade tensions stemming from political differences between the British government and the Trump Admin. (for instance over Airbus subsidies) could even see the U.S. increase trade barriers, despite the positive noises about a potential post-Brexit U.S.-U.K. trade deal that periodically emerge from White House officials.

“The U.S. is one of U.K. automotive’s most important global partners, second only to the EU in trade terms,” Hawes says. “So, the continued threat of additional tariffs that could endanger the viability of our sector is of huge concern.”

Mini John Cooper Works GP (2)_0

While popular British-made models such as the Honda Civic and the Mini (left) are well-established in the U.S., Hawes cautions the U.K. does not necessarily have the capacity to produce more mass-market cars that fit consumer preferences in the U.S., where pickup trucks and large SUVs are among the biggest-selling types of vehicle.

“Historically, the cars we have exported the most to the U.S. are the premium brands, like Jaguar Land Rover and McLaren,” an SMMT spokesperson tells Wards. “If we did decide to switch to making pickup trucks over here, that sort of scenario would take a long time, as we would have to refit production facilities and because model cycles usually last five to seven years. So, to go through that would certainly be challenging.”

As for continuing the U.K.’s current automotive technical regulatory alignment with the EU, SMMT believes retaining vehicle quality and safety standards as much as possible will be vital to preserving the future of the region’s car industry.

Hawes says SMMT will work with the U.K. government to achieve a “mutually beneficial arrangement on regulation” that allows vehicles built in the U.K. to be sold in the EU and vice versa.

Additional requirements in terms of complying with separate regulatory regimes for the EU and the U.K. “would add billions to the cost of (vehicle) development…which could not be absorbed by manufacturers which already operate on wafer-thin margins,” he says.