Auto Industry at Risk If U.K. Quits EU, Report Warns

A U.K. withdrawal from the European Union would be a disaster for the auto industry, a new report warns.

Produced by corporate advisory group KPMG for the Society of Motor Manufacturers and Traders, the report says the attractiveness of the U.K. as a place to invest, and the competitiveness of the domestic automotive industry, is enhanced by the region’s membership in the EU.

British Prime Minister David Cameron said in January 2013 that if elected in the 2015 general election, a Conservative government would negotiate new agreements with the EU and then would then hold a referendum on whether to remain as a member country.

But the new report says access to the single market is fundamental to U.K. vehicle manufacturing, supporting sales and facilitating supply-chain growth.

A separate survey of SMMT members covering companies of all sizes in the industry, including supply chain, aftermarket, manufacturing and distribution, found 92% of respondents believe staying in the EU would be best for their business. More than 70% say withdrawal from Europe would harm their business in the medium to long term.

The report says EU bargaining power in trade negotiations is critical to improving access to international growth markets.

“In shaping regulations and standards, the U.K. needs a powerful voice at European-level discussions to ensure the specific needs of the U.K. industry are met, safeguarding competitiveness and supporting its diverse nature,” the report says.

EU funding has boosted R&D and innovation at businesses and universities in the U.K., and the free movement of labor allows manufacturers and suppliers in the region to blend domestic and international talent, it says.

But survey respondents say reform still is needed to remove burdensome EU regulations and reduce complexities that can undermine international competitiveness.

SMMT CEO Mike Hawes says the position of the U.K. automotive industry is clear: Being part of a strong Europe is critical for future success.

“This (KPMG) report, and our member survey, shows that Britain’s EU membership is fundamental to investment, growth and jobs in automotive companies of all sizes,” he says in a statement.

The U.K. automotive sector’s recent success, he says, is the result of global competitiveness enhanced by a supportive business environment at home and access to the huge EU single market.

“If we are to maintain this position and increase access to growing global markets, the U.K. must play a key role in shaping EU policies, budgets and regulations,” Hawes says. “We must also increase our share of EU innovation funding to take advantage of the expertise the U.K. has in low-carbon and other automotive technologies.”

KPMG Head of U.K. Automotive John Leech says the report underscores the importance of the EU to the U.K. automotive market, as it is a highly globalized industry already integrated within the economic and political coalition.

“This integration gives global manufacturers with facilities in the U.K., for example, access to European consumers,” Leech says. “Our analysis shows that, for the automotive industry, it is not a question of the EU versus emerging markets; they want to do business with both.”

Leech says the automotive businesses KPMG contacted also see the EU as a key force in global trade negotiations. Moreover, R&D, vital to the U.K.’s ability to lead innovation in car manufacturing, is heavily funded by the EU and requires access to the expertise and free movement of skilled engineers within the EU.

“While our report outlines the importance of EU membership to the U.K. automotive industry, it also poses some challenges to the sector,” he says. “There is a clear demand for regulatory reform and consistent application of regulation so that complexity can be reduced.”

The survey of SMMT members finds them wanting the benefits of EU membership safeguarded while calling for reform.

One of the most important features of EU membership for the industry is the ability to flexibly deploy skills and expertise across the region to meet local needs. Members also want to see improvements in the way the EU operates, especially in the application of regulations, and in creating a stable and successful eurozone.

The U.K. automotive industry accounts for more than £60 billion ($100 billion) turnover and £12 billion ($20 billion) value added. More than 700,000 jobs are dependent on the industry, which accounts for 10% of the region’s exports.

SMMT says more than 30 manufacturers build 70-plus vehicle models in the region, supported by about 2,500 components producers.