U.K. car industry assessing EU deal

The auto industry dodged disaster when the U.K. and European Union sealed a post Brexit trade accord, but not before carmakers announced factory closures and called off plans to make several new vehicles in the country.

More damage may still be done even with the recent deal. Automakers including Nissan Motor might struggle to qualify some U.K.-assembled models for tariff-free export to the EU as they evaluate whether they source enough of their components locally. Costs associated with having to switch suppliers and the burdens of customs declarations, certifications and audits could still leave car companies convinced they’re better off investing elsewhere.

“This is still a thin deal with major implications and costs for automotive,” said David Bailey, a business economics professor at Birmingham Business School in England. “Much will depend on the degree of flexibility allowed and the degree of phasing in.”

The Brexit deal eliminates the risk of widespread exodus but still could fall short for carmakers with too little leeway to take on more expenses. Any further fallout could have big implications for the U.K. economy. The country’s auto industry employs more than 860,000 people, over a fifth of whom are on staff at vehicle and parts factories. Carmakers sent $57 billion worth of autos and components overseas last year, 13% of the nation’s total exports.

The domestic market is unlikely to compensate for any lost overseas sales. Registrations already dropped for three consecutive years before being decimated by the pandemic, plunging 31% through November.

Nissan and its Japanese peers are the companies to watch in the wake of the deal. The outlook already was bleak before the Brexit accord was clinched.

The company recently decided against making an electric model at its Northern England factory and almost two years ago scrapped plans to build another sport utility vehicle at the same site.

Nissan and Toyota Motor’s hybrid and electric models built in England are cut some slack in the Brexit trade deal, with the accord allowing a greater proportion of vehicle content to come from outside the U.K. or EU. Still, the initial so-called rules of origin require 10 percentage points more local content than what the U.K. sought.

It’s unclear whether Nissan’s all-electric Leaf hatchbacks built in Sunderland have enough local content to avoid levies. While Nissan welcomes the trade agreement, it will now “assess the detailed implications for our operations and products,” Azusa Momose, a spokeswoman in Yokohama, said by email.

Toyota’s Corolla hybrid and combustion-engine compact cars built in Burnaston will qualify for tariff-free export to the EU, said Sonomi Aikawa, a spokeswoman in Tokyo. The company benefits from its engine plant in Wales, she said.

The carmakers’ tariff requirements going forward may be affected by their plans to bring more of their battery supply chains to the region. Electric vehicles will be given another six years to bring their amount of foreign content below 45%, the threshold gasoline and diesel cars will be held to immediately.