How Might Brexit Affect the Automotive Industry?
As an innovator and supplier of specialist thermal management and high temperature insulation products, Elmelin supports the automotive industry.
With Brexit now a very real, and imminent, prospect, we feel it is important to look at how it might affect the automotive industry. We’ll look at its potential impact on supply chains and on access to innovative solutions.
Brexit Pressure Points for the Automotive Industry
In 2016, the automotive industry in the UK performed at record levels, according to Civitas. It built 1.7 million cars, exporting 1.3 million of these. In March of 2017, there were 562,337 new cars registered in the UK.
The sector employs some 160,000 people. It also supports around 800,000 jobs in the wider economy.
Following the result of the 2016 referendum, with the UK voting to leave the European Union, the industry has raised concerns. These concerns have only intensified as time has gone on.
Forbes reports that investment in the industry in the three years since the referendum has dropped by 80%. Production volume has declined by 9% and production forecasts are down by 17%.
The risk of a no-deal Brexit is that the UK will lose 35% of its current production volume over the next ten years.
Why is Brexit having such a detrimental impact on the automotive industry, even before it has actually occurred?
Supply Chain Implications
Many supply chains serving the automotive industry run on a just-in-time model. Without the extended capacity for warehouse storage at factories, the current model relies on suppliers of components sending them by road to factories, on a precise system of timings. The factories may hold only a few hours’ worth of stock in terms of production.
As things stand, supply chains for UK vehicle manufacturers are distributed across Europe. Mini’s headlights are made in Spain, for example, and 60% of all of a Mini’s components come from the European mainland.
While the UK has been a member of the EU, we have enjoyed frictionless trade with fast passage through customs. If this changes post-Brexit, then delays are highly likely to disrupt these sensitively-timed supply chains.
Any new border controls are going to have some sort of bedding-in period, where they will be imperfect at best. No car can come off a UK production line if it is waiting for certain key components that are held up somewhere in customs and have not reached the factory in time.
The Society of Motor Manufacturers and Traders (SMMT), points out the following figures for a single day in the UK car industry:
- 11,000 trucks from the EU make deliveries to car and engine plants in the UK
- Components worth £35 million are delivered to UK factories on a just-in-time basis
- 4,500 engines are delivered to UK factories
- The industry manufactures 6,400 cars and 10,500 engines
- It distributes 1,300 cars to UK dealers
- It exports 5,100 cars and 5,700 engines worldwide.
The Threat of Tariffs
The other great potential disruption to the automotive industry in the UK post-Brexit comes from tariffs.
In a typical UK-built car, many of its components will have had to cross the English Channel several times. They can start out as mouldings or castings in one territory, then travel elsewhere for sub-assembly into larger parts. Finally, they will become part of a finished vehicle that rolls off the production line.
Crashing out of the EU with no deal would mean the imposition of World Trade Organisation (WTO) conditions. This means tariffs on goods crossing international borders, including Europe.
This could then mean adding 4%-5% to these components each time they travel back and forth to the UK as part of the production process.
Jaguar Land Rover has estimated that this could add £1.2 billion a year to its operations.
Once the UK leaves the EU, in theory, it is no longer bound by the same regulations governing safety and emissions. For the sake of continuity and to contain costs, it would need to ensure UK-market cars still met these EU regulations. This has been agreed for the foreseeable future.
However, there could still be a whole new layer of certification which would need to be applied to UK plants and factories to ensure compliance. This would cover a wide range of materials and issues, from paints and plastics used in UK-made cars to the writing of safety rules for consumers and workers in UK car plants.
New certification would also affect worldwide exports, since the US, for example, takes UK-made cars because they conform to EU rules.
In the future, if the UK is not in the single market, it will have to prove separately to those countries it exports to that its products contain paints and other materials that are safe.
Skills and the Movement of People
Another issue for the UK automotive industry, and for other industries in the country, is future restrictions on the free movement of people following Brexit.
Currently, Jaguar Land Rover has some 1,000 EU nationals working in Britain and most of them are in critical engineering posts. These are high-value employees in a country which has a skills shortage.
This is, therefore, potentially one more challenge the automotive industry is facing post-Brexit.
What is the Future for the UK Automotive Industry?
The SMMT wants the UK Government to focus on certain key areas concerning our future relationship with the EU:
- Tariffs and free trade
- Customs arrangements
- Recruiting and accessing talent
A big part of the future depends on whether no deal is a realistic prospect or if it is still, in effect a negotiating tactic.
As a UK-based supplier and supporter of the automotive industry, Elmelin will endeavour to adapt to any changes the industry faces. We will continue to provide innovative, high-quality thermal management and industrial insulation solutions.