The effects of a ‘hard’ Brexit will be decisive for the innovation capacity and competitiveness of the British automotive industry according to new research by Coface.
After an exceptional peak in production of vehicles recorded in mid-2016 (1.02 million unit sales, up 8.5% for the January-August period compared to the same period in 2015), 2017 saw a drop in production of nearly 2%. The healthy dynamic of exports in this industry, strongly oriented toward the European market (79% of vehicles assembled in the UK are exported, 56% of which to the other countries of the EU), does not compensate the drop in internal demand generated by a loss of consumer confidence.
The dependency of the British automotive industry on the European market does not stop at exports. The sector imports 56% of the parts needed for the assembly of a vehicle, and is well-integrated in the European value chain, enabling it to optimise costs, stocks and production times.
In parallel, since 2016 a steep decline has been observed in the investments of automotive suppliers and manufacturers (a 36% drop compared to the average for the 2011-2015 period), a trend that is becoming more pronounced in 2017, despite 28 new model launches (all vehicle manufacturers combined) tabled in between 2017 and 2024. The prospects linked to the difficulties and the outcome of the Brexit negotiations risk continuing to damage the appeal of the country for foreign investors, including the parent companies (Tata Motors, BMW, Nissan and PSA) of a good number of British car brands.
Khalid Aït Yahia, Coface economist specialised in the automotive and metals sectors said “The European single market is quite clearly vital for the British automotive industry. In the scenario of a hard Brexit, with the implementation of strict goods controls and application of WTO tariffs, the risks would be multiplied.”
Three major consequences would make themselves felt in this case: