UK auto industry could lose up to £43 billion in 5 years with a No Deal Brexit after December 31 (Getty)

Originally written for The Birmingham Perspective:

It’s been a rocky road for the UK auto industry (excuse the pun) over the last few years. And now, with Brexit, the road is going to get a lot rougher.

Just five years ago, UK car production was growing and on target to hit 2 million units a year by 2020. Now output it is running at around 1.3 million units a year, and risks falling below 1 million.

By 2019 a “perfect storm” had hit the auto industry. It faced a triple whammy of declining sales in China, as the world’s largest car market contracted after 20 years of breakneck growth; a massive shift away from diesels across Europe in the wake of the VW “dieselgate” scandal; and Brexit uncertainty slowing the UK market and investment.

The industry took several hits. Jaguar Land Rover announced that it would shed another 4,500 workers on top of the 1,400 lost in 2018. Honda confirmed that it was shutting its Swindon plant and Ford its Bridgend plant, while Nissan reversed its decision to build the XTrail model at Sunderland from 2020, citing Brexit as a complicating factor.

A few investments, such as JLR in electric vehicle production and Aston Martin in its new DBX model, stood out as positive stories. But investment in the auto industry installed amidst uncertainty over the nature of the future trading relationship with the European Union

Up to £8 Billion Per Year At Risk

The Conservatives’ overwhelming general election win in December means that the UK left the EU on January 31 and entered into a transition phase. That much we know.

But while UK Prime Minister Boris Johnson campaigned on the slogan “Get Brexit Done”, leaving the EU at the end of January doesn’t really get it done. The UK will enter negotiations on the form of the trade deal with the EU. And exactly what form of Brexit the UK is seeking is still not clear.

The first deadline to note is the end of June, when the UK must request any extension to the transition period. Otherwise, London and the EU are locked into the final date of December 31.

The risk of a no-deal Brexit rises dramatically if no extension has been requested, as many think it unlikely that a trade deal – even a bare-bones, Canada-style Free Trade Agreement – can be struck in less than a year.

In the event of a No Deal, 10% tariffs will be applied to UK car exports to the EU. Ian Henry of Auto Analysis forecasts additional costs of £3 billion, just in the tariffs, for UK output and far more when non-tariff barriers are added:

We calculate that 1.5 million vehicles would be lost from otherwise expected UK production from 2020 through to 2024. Taking into account the different mix of vehicles involved, from Opel Astra’s through to Rolls Royce’s, the loss of economic value at the factory gate would be nearly £43 billion, or more than £8bn a year on average….

Between £3 billion a year and £8 billion a year in lost economic value creation are sums which any industry would struggle to bear unscathed. Given the global headwinds battering UK vehicle production, we can expect further major challenges for this once thriving, but now troubled, sector.

Justin Cox and David Oakley of LMC Automotive say, in the event of a No Deal at the end of 2020, “The loss of models made in the UK could see output in the latter part of the next decade being 500,000 units lower per year than in a base-case scenario of a managed deal and an orderly Brexit.”

This would decrease output to levels not seen since the 2008 global financial crisis, with a big hit to jobs in assembly and the supply chain.

Peugeot, The French car manufacturer, has already said that a no Deal would see no new investment at the Ellesmere Port plant to make their new Astra Model in 2021, while Nissan has said that it can’t guarantee that the new Qashqai model will come to Sunderland.

“Taking Back Control” for A Carmageddon

But suppose a limited trade deal that simply eliminates most tariffs is achieved this year. This could still cause severe headaches for the auto industry, given issues of regulatory divergence and the UK outside the EU customs union, especially given just-in-time supply chain arrangements.

While “taking back control” means the ability for the UK to set new regulations and standards after Brexit, the knock-on effect will likely mean more checks and possible delays to manufacturing components moving across borders.

The stakes from on¬going Brexit uncertainty remain high for the UK auto industry, just at a time when the sector is starting to transform itself towards an electric future. The UK could risk losing a wave of investment, and with it, a raft of new technologies.

“Carmageddon? Brexit and Beyond for UK Auto“, edited by David Bailey, Alex de Ruyter, John Mair and Neil Fowler, has just been published by Bite-size Books.