How would ‘Brexit’ affect the UK car industry?

Image of Alisdair Suttie
Author: | Updated: 10 Feb 2016 15:55

There has been a lot of good news surrounding the UK’s automotive industry of late. Despite the lingering effects of a recession, new car registrations were up significantly in 2015, the number of cars built here rose in the same period, and the business as a whole has been on the up.

However, a dark cloud looms in the form of the ‘Brexit’ debate.

Should the UK leave the European Union (EU)? Could we? Will we? That’s between you and the ballot box whenever the referendum is held, but there are some key points to bear in mind that will have an impact on car manufacturing in the UK and how much we pay to lease a car.

Astras in UK Union Jack flag (3)

Remain

The great majority of car makers based in the UK have come out in favour of the UK remaining within the EU. At its most basic, the EU is still essentially a trading bloc and being within it makes sense for financial and regulatory reasons.

Our preference is that the UK stays within Europe; a position of stability is more positive than a collection of unknowns. Carlos Ghosn - Chairman and CEO of Nissan

As far as finances go, the EU states are the largest export market for cars built in the UK. There may be a lot of talk about emerging markets such as China and Russia, and they do hold much appeal in the longer term, but they account for only a small proportion of cars exported from these shores.

In total, the UK exported 77.3% of its car production in 2015, which is 1.23 million vehicles, and the vast majority were sold to other EU member states.

If the UK were to leave the EU following the referendum, scheduled for Thursday 23 June, it seems certain that the price of British-made cars over the other side of the Channel would increase.

This would partly be down to the UK forfeiting the free trade agreements we enjoy as a member of the EU and also as EU countries would then be at liberty to charge different import tariffs on UK goods.

Land Rover Halewood

Climbing costs

Another factor in rising car costs for those vehicles made in the UK would be the price we pay to import components from our departed EU friends. Many of the essential components used in UK-built cars come from France, Germany, Spain and several others that you would not necessarily associate with car production, such as Slovakia and Turkey.

If UK car makers have to pay more to make their cars due to the loss of free trade and the protection from higher prices the EU affords, that cost will be passed on to the consumer. This means a higher list price and, almost inevitably, a steeper lease cost.

That’s not scaremongering, this is the bald truth of a situation where the UK decides to leave the EU.

Another effect of this could be cars from makers based outside of the UK becoming more expensive inside our borders. Domestic car makers may seek beneficial terms from the UK government to protect them from increased production costs and this could include a protectionist attitude to make non-UK car makes less appealing to UK consumers.

BMW 3 Series 2016 Silver Front Dynamic

What if Britain’s car industry isn’t all it’s cracked up to be?

What about UK car factories?

Car production in the UK would not plummet or come to a halt. Toyota has already stated it will continue to make cars in the UK regardless of whether Brexit happens or not.

Those campaigning to keep the UK inside the EU may well interpret this as a blow to their campaign, but it’s more to do with Toyota being a pragmatic company.

Many in the UK car industry want the vote out of the way as soon as possible so they can get on with running their businesses.

That pragmatism comes from car makers having to plan five or even 10 years down the line.

While Toyota may regard a Brexit as less worrying than some, the referendum and potential vote to leave the EU still presents plenty of those inside the British automotive industry with a headache. After all, how can you plan that far ahead when you don’t how level or slanted the playing field will be?

Many of the larger car dealer groups in the UK, who are responsible for a significant number of the lease deals we fund our cars with, are nervous. When these people are nervous, it sends out ripples across the wider industry.

Several people at dealer groups we spoke to said it is the uncertainty as much as the outcome that is causing them sleepless nights.

At least when the result of the referendum is known, they can plan, and as one individual told us: “Our dealers need stability to operate successfully and we also need to know what a vehicle costs so we can offer the best deal to our customers whether they are retail, leasing or business users.

“At the moment, we have the worst situation of uncertainty over the outcome of this debate and even when this question will be settled.”

Top five ‘built in Britain’ cars you can lease right now

Nissan Juke Production in Sunderland

Nissan in the ‘Remain’ camp

Britain’s car manufacturing sector is worth £69.5 billion per year to the economy, so anything that might knock it off-course is considered at great length.

Toyota may have said it will carry on building cars in the UK, but comments from Nissan boss Carlos Ghosn leave big question marks over whether its Sunderland plant, which builds the Leaf, Qashqai, and Pulsar, would remain viable in the wake of a Brexit.

“Our preference, as a business, is that the UK stays within Europe,” he wrote in a statement.

“It makes the most sense for jobs, trade and costs. For us, a position of stability is more positive than a collection of unknowns.”

He acknowledged that it would be up to the British people to decide, and wouldn’t be drawn explicitly on what would happen if the UK did leave the EU.

Appeal and influence

A positive here is the UK is a great place to build cars. Even when the Pound is strong against the Euro and other currencies, the appeal of British-made cars is sufficient to keep sales buoyant.

However, there is also the regulatory element to consider. At present, as a member of the EU, the UK has a say in the standards cars must be tested to, from safety to emissions to reliability.

If the UK leaves the EU, we lose that significant voice in regulation and law making. While it’s unlikely a car made by a UK manufacturer outside of the EU would fail those standards, it could also be those standards are not set high enough. The UK has been a strong leader in moving the bar higher for safety, quality and environmental standards.

Many in the UK car industry want the vote out of the way as soon as possible so they can get on with running their businesses, whether that is with a future inside or outside of the European Union.

Britain’s car factories

Aston Martin – Gaydon
Bentley – Crewe
BMW Mini – Oxford and Swindon
Caterham – Dartford
Honda – Swindon
Jaguar Land Rover – Castle Bromwich, Solihull and Halewood
Lotus – Norwich
LTC – Coventry
McLaren – Woking
Morgan – Malvern
Nissan – Sunderland
Rolls-Royce – Goodwood
Toyota – Burnaston and Deeside
Vauxhall – Ellesmere Port and Luton

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