How Badly Should Britain’s Car Industry Fear A No-Deal Brexit?

Even though a no-deal Brexit scenario would have multiple political and economic repercussions, we’re here to focus specifically on its impact in regards to the UK’s automotive industry.

As The Economist points out, just by leaving the European Union, Britain is opening itself up to facing potentially damaging consequences financially, with a no-deal Brexit being the most worrying prospect of all.

It all starts with uncertainty, an effect that has already claimed Honda’s Swindon plant, which the Japanese automaker will shut down come 2021.

Brexit is also why Nissan decided against building its latest X-Trail crossover in Sunderland, and why Jaguar Land Rover had to let some of its workforce go. A no-deal scenario would surely mean further restructuring for all automakers. Ford, who only makes engines in Britain nowadays, said that such an outcome would be “catastrophic”, while suggesting that it would almost certainly move production abroad if the worst comes to pass.

Overall, figures from the UK’s Society of Motor Manufacturers and Traders, also point to a steep decline in investments, from £2.5 billion ($3.8 billion) in 2015 to as little as £589 million ($769 million) in the first half of 2018.

What’s going to happen?

If no deal will be in place by the time Britain departs from the EU, then one concern for the car industry is the imposition of tariffs under WTO rules – an average of 10% on cars and 4.5% on parts, raising the cost of imports/exports and impacting demand. Potential chaos at the ports could also ensue, with traffic jams forming because of long lines of semi trucks undergoing customs checks.

Then there’s production itself, where if for example one truck fails to arrive at a factory on time and a car cannot be completed, the production line grinds to a halt as there is no space inside the factories for half-assembled cars. Also, think of all the parts that are brought into factories each day – we’re talking millions of parts, most of which are driven across the English Channel.

In the end, if no-deal Brexit comes to fruition, there is a scenario where in the long term, Britain’s car industry could actually fail, unless suppliers can be persuaded to set up operations in the UK (unlikely), tariffs can be managed and costs can be kept in check.