Could a hard Brexit put the German car industry at risk?
Like having a new German car on your British driveway? So do German car manufacturers, and a new report has revealed that a hard Brexit could be devastating for the European powerhouse’s manufacturing industry.
If the UK leaves the EU without a trade deal and reverts to World Trade Organisation (WTO) tariffs, the likes of Mercedes-Benz, BMW and Audi could lose billions a year in revenue, placing thousands of jobs at risk, consultancy firm Deloitte has indicated.
On the one-year anniversary of the EU referendum, could these findings cause Angela Merkel to rethink her strategy when it comes to Brexit negotiations?
If a specific EU-UK trade deal is not struck and World Trade Organisation (WTO) tariffs are introduced (a 10% tariff on vehicles and a 4.5% tariff on car parts), Deloitte has found that German manufacturers could lose out on EUR6.7bn a year.
German car exports would fall by over 30% and the resulting sales and revenue fall could place approximately 18,000 industry jobs at direct risk.
German marques such as BMW, Mercedes-Benz and Volkswagen would lose out most, with a fifth of all their products currently heading for UK shores; in 2016 alone German models accounted for 950,000 registrations in the UK.
Purchasing power would drop due to a weakened British pound too which, combined with extra tariffs, would see German car exports alone fall by 255,000.
Furthermore, the report found that if car manufacturers were to pass on any cost to customers, the average price of a car could increase by £3,260, while that could increase to £5,000 for a car manufactured in Germany. So, no trade deal is not the ideal scenario for anybody.
Deloitte has compared Brexit’s impact with the 2008/09 financial crisis, with Europe’s car industry potentially facing a “cliff-edge” scenario in 2019 if no trade deal is agreed.
Obviously, a hard Brexit would affect British-based car makers too and, with Vauxhall now owned by French conglomerate Peugeot-Citroen, it’s reported production facilities could move across the the channel if tariffs make the plants uneconomical.
Deloitte – the agency responsible for the report – said: “The sector needs to come up with countermeasures like intelligent and flexible pricing strategies. Some carmakers are considering a move of production facilities elsewhere, as well as improving their supply chains.”
The report comes just days after the Society for Motor Manufacturers and Traders (SMMT) urged the government to keep the UK in the single market and secure an early bespoke trade deal for the automotive sector.
However, Brexit minister David Davis reiterated this week that Britain could only regain sovereign power if it pulls out. With a hung parliament and calls from leading industries to prioritise the economy, we’ll have to wait and see if his opinion changes.