Major European automotive trade groups along with 17 national auto associations including the European Automobile Manufacturers’ Association and the European Association of Automotive Suppliers have released a joint statement on the concerns of a no-deal Brexit that they believe would cause ‘irreversible damage’ to the auto industry across both economies.
“The U.K.’s departure from the EU without a deal would trigger a seismic shift in trading conditions, with billions of euros of tariffs threatening to impact consumer choice and affordability on both sides of the channel,” said the statement. “The end of barrier-free trade could bring harmful disruption to the industry’s just-in-time operating model, with the cost of just one minute of production stoppage in the U.K. alone amounting to €54,700 ($60,000).”
The impact of the long, drawn-out Brexit predicament is already visible across Germany, the largest auto market in the European Union. The German auto sector provides 800,000 jobs, and with auto consumption growth falling over the last few quarters, automotive production fell 12% over the first half of 2019 in the country.
The Purchasing Managers Index (PMI) – a measure of the activity level of purchasing managers in the manufacturing sector – has seen a consistent decline year-on-year across the Eurozone. The September 2018 PMI Index had a reading of 54.6, and that has slid down to 47.0 this September. PMI values indicate the direction of the manufacturing economy, with a value above 50 considered to be an expansion and a value below 50 expected to cause economic contraction.
For the EU, the divorce of the U.K. is debilitating, as the U.K. had been a major partner with the bloc – both as a manufacturer and consumer. A no-deal Brexit and the prevailing U.S.-China trade tensions will push the EU’s auto economy into chaos as a large chunk of its exports currently land in China, the U.K., and the U.S.
“Brexit is not just a British problem. We are all concerned in the European automotive industry, and even further,” said Christian Peugeot, the president of the Committee of French Automobile Manufacturers. “Be it as exporters to the U.K. market or producers locally, which we are both, we will inevitably be negatively affected.”
If in the likelihood of a no-deal Brexit, the U.K. will lose its trading partner rights with the EU and slip into the World Trade Organization (WTO) trading regulations, which would add a tax burden of €5.7 billion to the EU-Britain auto trade. The WTO car tariffs rate stands at 10%. Original equipment manufacturers (OEMs) will not scoop up the taxes, which will inevitably flow to the consumers’ pockets and make vehicles a lot more expensive on both ends of the spectrum.
“A no-deal Brexit would have an immediate and devastating impact on the industry, undermining competitiveness and causing irreversible and severe damage,” said Mike Hawes, the head of the British Society of Motor Manufacturers and Traders (SMMT). Investment in the British auto sector has witnessed a crippling fall this year, with SMMT pointing out a 70% decrease to €98 million in the first half of 2019.
Apart from the added tax tariffs with the onset of a no-deal Brexit, the U.K. will also have to contend with the logistical nightmare expected to unfold at its customs’ gates. Several reports have suggested that overwhelmed ports would cause mile-long queues and holdup shipments by several days even if accounting for very minimal delays.