The boss of BMW has urged Boris Johnson to respond to calls from business to find a compromise on Brexit – and offered to travel to the UK to deliver the message to the prime minister in person.
Speaking as the German carmaker reported falling profits due to its investment in electric vehicles, BMW chief executive Harald Krüger said it would be a “lose-lose” scenario if the UK leaves the EU without a deal.
BMW has previously warned that a no-deal scenario might force it to stop making the Mini at its Cowley plant near Oxford, putting more than 4,500 jobs and more than 100 years of carmaking at the site at risk.
Asked if he had a personal message for the prime minister, who was heavily criticised for allegedly saying “fuck business”, Krüger urged Johnson to find a compromise to avoid a hard Brexit.
He said: “Listen to the economy and listen to the people. You need to have a dialogue with business. I would visit Johnson to tell him this.”
Krüger’s comments undermine Johnson’s claims that German carmakers will pressure the EU to give ground to prevent a no-deal situation in which tariffs are applied to exports. The UK is the biggest single export market for the German car industry, accounting for one-fifth of its production.
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.
In a July 2016 Facebook post backing comments made by billionaire Brexit-backer James Dyson, who recently moved his company to Singapore, Johnson wrote: “As Dyson points out, tariffs would mean the Germans would be cutting their own throats. It won’t happen.”
Johnson has also suggested he knows more about car manufacturing than Dr Ralf Speth, the chief executive of Jaguar Land Rover, after the 30-year veteran of the automotive industry warned the company could not stockpile enough parts to cope with a no-deal scenario.
BMW’s intervention in the Brexit debate makes the German powerhouse the latest in a long line of carmakers to issue warnings about the impact of Brexit on the UK automotive industry, which employs around 850,000 people.
Krüger was speaking as the carmaker reported a 1.5% rise in sales to 647,500 vehicles during the second quarter of the year, although net profit fell 29% to €1.48bn (£1.35bn) as the company invested heavily in electric cars.
Figures released earlier this week showed that investment in Britain’s car industry has ground to a halt amid fears over Brexit, with a “pitiful” £90m pledged for new developments in the first six months of this year.
Before Brexit clouded the horizon, the automotive industry was investing between £2.5bn and £2.7bn a year in R&D.
The Society of Motor Manufacturers & Traders said a Brexit deal was imperative to help the embattled industry to bounce back, otherwise the government will face demands for the same type of tax breaks farmers need to stay afloat.
