One in three car firms are cutting jobs and one in eight have divested from their UK businesses in a sign that Brexit is already causing damage to the sector.
A survey by the Society of Motor Manufacturers and Traders (SMMT) shows that almost 14% of companies in the industry, including manufacturers, components and services companies, have already relocated amid the continuing uncertainty over the UK’s departure from the EU.
The industry has been one of the most vocal regarding a no-deal Brexit, firing its first warning shots three years ago when Nissan sought reassurances from Theresa May. The survey comes just days after Nissan issued a fresh warning that its business model was “unsustainable” in the event of the UK crashing out without a deal.
If the UK leaves the EU without a deal it would by default, become a “third country”, with no overarching post-Brexit plan in place and no transition period. The UK would no longer be paying into the EU budget, nor would it hand over the £39bn divorce payment.
The UK would drop out of countless arrangements, pacts and treaties, covering everything from tariffs to the movement of people, foodstuffs, other goods and data, to numerous specific deals on things such as aviation, and policing and security. Without an overall withdrawal agreement each element would need to be agreed. In the immediate aftermath, without a deal the UK would trade with the EU on the default terms of the World Trade Organization (WTO), including tariffs on agricultural goods. This has also been referred to by government ministers as an "Australia-style deal". Australia does not have a free trade agreement with the EU.
The UK government has already indicated that it will set low or no tariffs on goods coming into the country. This would lower the price of imports – making it harder for British manufacturers to compete with foreign goods. If the UK sets the tariffs to zero on goods coming in from the EU, under WTO “most favoured nation” rules it must also offer the same zero tariffs to other countries.
WTO rules only cover goods – they do not apply to financial services, a significant part of the UK’s economy. Trading under WTO rules will also require border checks, which could cause delays at ports, and a severe challenge to the peace process in Ireland without alternative arrangements in place to avoid a hard border.
Some no-deal supporters have claimed that the UK can use article XXIV of the General Agreement on Tariffs and Trade (Gatt) to force the EU to accept a period of up to 10 years where there are no tariffs while a free trade agreement is negotiated. However, the UK cannot invoke article XXIV unilaterally – the EU would have to agree to it. In previous cases where the article has been used, the two sides had a deal in place, and it has never been used to replicate something of the scale and complexity of the EU and the UK’s trading relationship.
The director general of the WTO, Roberto Azevêdo, has told Prospect magazine that “in simple factual terms in this scenario, you could expect to see the application of tariffs between the UK and EU where currently there are none”.
Until some agreements are in place, a no-deal scenario will place extra overheads on UK businesses – eg the current government advice is that all drivers, including lorries and commercial vehicles, will require extra documentation to be able to drive in Europe if there is no deal. Those arguing for a “managed” no deal envisage that a range of smaller, sector-by-sector, bilateral agreements could be quickly put into place as mutual self-interest between the UK and EU to avoid introducing or to rapidly remove this kind of bureaucracy.
Mike Hawes, the chief executive of SMMT, said: “As the Brexit clock ticks ever closer to midnight, this survey reveals the bleak future that awaits this vital sector in the event of no deal.
“Damage has already been done: investment is haemorrhaging, competitiveness being undermined, UK jobs cut and vast sums wasted on the impossibility of preparing for no deal. Make no mistake, every day no deal remains a possibility is another day of lost investment, another day that makes it harder to recover investor confidence in the UK.”
Nissan’s European chairman, Gianluca de Ficchy, said a 10% tariff on exports to the EU under World Trade Organization terms would put the “entire business model for Nissan Europe in jeopardy”.
It is the strongest warning yet from the Japanese car manufacturer, which employs 7,000 people at its Sunderland plant.
Hawes said it was not too late to repair the damage caused by three years of uncertainty.
The government must strike a deal with the EU that includes a transition period to enable a return to “business as usual”, and a long-term trading agreement that ensures “free and frictionless trade”, he said.
“UK jobs, innovation, trading strength and economic growth all depend on the automotive sector, so we urge all parties to get a good deal done before it is too late,” he said.
The SMMT survey shows that more than £500m has been spent on measures that will not deliver returns, rather than being invested in research and development, and that 80% say they believe leaving the EU without a deal will have negative consequences.
The industry is increasingly exasperated by government claims that the car sector is ready for no deal.
Last month, Jaguar Land Roverm (JLR), which employs more than 40,000 in the UK, announced it would halt production at British factories for a week in November, joining BMW and Toyota in staging a shutdown to mitigate potential disruption from a no-deal Brexit. Speaking a day after Michael Gove said the automotive industry was ready for no deal, the JLR chief executive, Ralf Speth, said the company had no choice but to stop production lines at four facilities.
The concerns centre on disruption to the “just-in-time” flow of car parts underpinning an industry that employs more than 800,000 people in the UK.
