13 Brexit myths BUSTED by the motor industry

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Author: | Updated: 12 Mar 2019 10:47

The automotive industry is a vital part of the UK economy, accounting for £82 billion turnover and over 100,000 employed. This is due to more than 30 manufacturers building some 70 vehicles in the UK, supported by 2,500 component providers, accounting for 12.8% of total UK export of goods.

Alas, in the nearly three years since the UK public voted to leave the EU, confusion has been the name of the game and that has put these statistics under threat.

Vauxhall Union Jack

With Nissan reneging on its post-Brexit promise to build the new X-Trail in the UK and Honda announcing plans to close its Swindon factory (both due to the government’s demonisation of diesel massively affecting sales rather than Brexit according to spokesmen) as well as BMW and Jaguar Land Rover planning to temporarily close factories in the wake of the withdrawal, things don’t exactly look rosy.

With all these points in mind, many commentators and politicians continually cite the automotive industry in Brexit discussions, so the Society of Motor Manufacturers and Traders (SMMT) has published a clear rebuttal of the many arguments that have been used about the sector in recent years:

MYTH 1: The auto industry shouldn’t worry about leaving the EU with no deal
TRUTH: Leaving without a deal would trigger the most seismic shift in trading conditions UK automotive has ever experienced. It would mean an immediate end to free and frictionless trade with its biggest market, an end to preferential trade with a further 70 countries worldwide, the imposition of billions of pounds of tariffs, severe disruption to supply chains and production, and significant damage to the UK’s reputation as an attractive and stable investment destination.

MYTH 2: This is just the automotive industry scaremongering
TRUTH: This is a cyclical sector and other issues are undermining global growth. The past two years have seen a significant drop in investment, car sales and manufacturing meaning the industry will struggle to meet its production target of two million cars by 2020.

MYTH 3: Industry is blaming Brexit but the real problem is falling diesel sales and the slowdown in global markets, including China
TRUTH: These are all issues challenging the global automotive industry yet Brexit is consistently cited by business as a cause of job cuts and reduced investment before we have even left. This undermines future competitiveness and uncertainty is causing investors to look elsewhere.

MYTH 4: The EU market is in decline and growth markets are in the emerging economies. A ‘no deal’ Brexit will let us focus on those countries for export
TRUTH: EU car demand is slowing, but the Chinese market is also in decline with the exporting of UK-built cars down by a quarter. We already export to some 160 markets worldwide including the emerging economies. The EU, which accounts for more than half of this trade, is a 15 million-strong car market on our doorstep.

MYTH 5: A fall in the pound makes exporting cheaper so UK carmakers will benefit
TRUTH: Sterling devaluation may make exporting cheaper, but it makes automotive manufacturing more expensive and will not offset the cost of tariffs. UK automotive manufacturing is integrated into the European supply chain network, with the majority of parts used to build cars here imported. This negates any cost advantage.

Nissan Juke on the production line

MYTH 6: A ‘no deal’ Brexit will help reduce car prices and increase choice
TRUTH: Unless the UK reaches an agreement with the EU, tariffs will increase. Consumer choice depends on profitability; UK car imports already have to be engineered for right-hand drive, which is a significant added cost, while currency devaluation since 2016 has slashed margins. If prices rise, the market will contract and cause consumer choice to shrink.

MYTH 7: EU rules stifle innovation – the industry will be better off without them
TRUTH: The EU and the UK produce arguably the most technically advanced cars in the world, especially in safety and efficiency. The EU automotive rules are often the basis for global regulations, and if the UK wants to sell cars to the EU and other global markets it must comply with these rules. We currently have a say in their creation but won’t once we leave.

MYTH 8: Leaving with no deal will mean more automotive jobs for British people
TRUTH: ‘No deal’ will cost jobs, not create them. Thousands of cuts have already been announced, with one in eight companies reducing headcount as part of contingency planning.

MYTH 9: We can readily strike trade deals with big global automotive markets
TRUTH: Free trade agreements such as those between the EU and Canada and Japan take many years to negotiate and agree, and negotiating strength depends on size. The UK is large and relatively affluent but small compared with the EU, China, US, Japan and other countries.

MYTH 10: Tariffs would give UK auto manufacturers a competitive advantage at home
TRUTH: Only 12% of cars sold here in the UK are built here. We export more than 80% of the cars we produce, with two-thirds of these sold in the EU and markets such as Canada, Japan, South Korea and Turkey with which the EU has preferential trade agreements. Tariffs would disadvantage UK car manufacturers in all of these markets.

smmt1100

MYTH 11:  The UK could use import tariffs to support the automotive industry
TRUTH: Using tariffs to support the domestic industry is strictly regulated under World Trade Organisation rules. Some financial support is allowed but other countries could retaliate by taxing imports of the subsidised vehicle to protect their own industries. This would undermine the automotive industry’s principle of free and fair trade.

MYTH 12: The German car industry sells 750,000 cars in the UK – it will demand a deal to protect its own interests
TRUTH: The German and EU car industries have been clear: the single market matters more to them than a deal with the UK. The UK is an important car market but it only accounts for around 10% of EU production volumes, while we ship more than 40% of everything we make to customers in the EU.

MYTH 13: The economy could cope with the demise of UK automotive manufacturing
TRUTH: Automotive manufacturing is one of the UK’s most important economic pillars, producing high-value goods, creating skilled jobs and driving exports. It delivers an annual £82 billion direct to the Treasury, directly employs 186,000 people and supports local economies, and is responsible for 13% of the UK’s export in goods. However, the true scale of its contribution is significantly larger, at around £202 billion once the impact on adjacent sectors is taken into account.

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