Automotive : A no deal Brexit would be hugely challenging

The prospect that the United Kingdom (UK) will exit the European Union (EU) next March without having negotiated any deal looms on the horizon after Theresa May’s Chequers plan was rejected outright by EU leaders. Carmakers have sounded the alarm time and time again regarding the perils of a no-deal Brexit, warning as to the effects on their sales, earnings and industrial operations ; whether they manufacture in the UK or merely import their models , a ll are urging the government s to negotiate a deal, threatening to slash investments, even production capacity in the event of a cliff edge. With 2.7 million new car registrations in 2017, the British market is the second largest in Europe in volume and in value. In addition, carmakers with operations in the UK export to the EU around half the 1.7 million passenger cars assembled in the country. While our own estimates suggest that the impact would be somewhat less than the sometimes alarmist predictions bandied about by certain carmakers or by the Society of Motor Manufacturers & Traders (SMMT), we concur with the view that a hard Brexit would have major consequences for the UK’s automotive industry, even for its economy, notwithstanding some minor benefits. Unsurprisingly, problems would stem mainly from an erosion in the competitiveness of British exports right across the EU, an increase in input costs for parts and components, possibly disruptions to production due the likely requirement to certify models exported to the EU when previously they were certified only by the UK’s Vehicle Certification Agency (VCA). Jaguar LR, Nissan and Toyota would be most affected, then BMW, VW and PSA, at least in absolute terms, for while the bulk of the British carmaker’s profit could be wiped out, its Asian and European competitors have the necessary financial and industrial resources to weather the storm, if it comes about. This constraint is on top of the other risks that are starting to overshadow the sector, what with the tougher competition in China, the premise of a slowdown in Western Europe, the upturn in US interest rates, possible litigation costs and fines linked to Dieselgate and, finally, the huge investments needed to de sign and manufacture vehicles with lower pollutant and greenhouse gas emissions.