Brexit deal brings cold comfort
The UK car industry breathed a sigh of relief with the Brexit trade accord, but it may not stop car companies from investing elsewhere, find Craig Trudell and Siddharth Philip.
The auto industry managed to avoid disaster when the UK 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 deal. Automakers including Nissan Motor Co might struggle to qualify some UKassembled 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. ‘‘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 UK economy. The country’s auto industry employs more than 860,000 people, more than one-fifth of whom are on staff at vehicle and parts factories. Carmakers sent £42.4 billion (NZ$80b) worth of autos and components overseas last year, 13 per cent 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 per cent to November.
Nissan and its Japanese peers are the ones to watch in the wake of the deal.
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 site. Honda Motor Co is closing its only UK car plant this year.
Nissan and Toyota Motor Corp’s hybrid and electric models built in England are cut some slack in the Brexit trade deal, which allows a greater proportion of vehicle content to come from outside the UK or EU. Still, the so-called rules of origin require 10 percentage points more local content than the UK 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,’’ said spokeswoman Azusa Momose.
Toyota’s Corolla hybrid and combustionengine 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 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 per cent, the threshold petrol and diesel cars will be held to immediately.
‘‘The timings underscore the urgent need for government to create the conditions that will attract large-scale battery manufacturing to the UK and transform our supply chains,’’ said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, the UK car industry’s trade group. – Bloomberg