The Potential Impacts of Brexit on Automakers
Brexit will give a hard time to the automakers. Once Brexit is triggered, multiple scenarios could unfold. At the moment, there are no assurances about the types of deals that the U.K. would receive from the EU. Investments in the country have continued to dwindle following the 2017 referendum. Renowned figures in the industry have spoken ill about the country’s decision on Brexit. To move ahead with ease, automotive companies should prepare themselves for the possible impacts and formulate relevant strategies.
According to the European Automobile Manufacturers Association, in 2018:
· 85% of the passenger vehicle was imported in the UK from EU-27.
· 32% of the total passenger vehicles assembled were exported from EU-27 to the U.K.
· 51% of the total passenger cars assembled in the U.K. were exported to EU-27.
· U.K. manufacturers imported 80% of parts and components from EU-27.
· 60% of the parts built in the U.K. are exported to EU-27.
The above-mentioned percentages are expected to decline once Brexit goes through. The outcomes of the impact would depend on the types of deals the EU and UK agree upon. The next few months are crucial.
If there is no deal, the U.K. would bear the brunt as a number of cars assembled in the U.K. and exported to the EU will be imposed with a 10% tariff. This will have a negative impact on the U.K. automakers’ production and supply chain network, as the maximum number of passenger cars are exported to the EU. This will further trigger the sharpest decline in the history of the U.K. automotive industry.
It would also trigger the passenger car sales lower than that experienced during the 2007—2009 recession. This further suggests that the local manufacturer will not be able to achieve the total registration mark in the domestic market. The domestic production will fall as the demand from the EU market goes down. The production will decline and finally result in job loss.
The aftermarket will witness the shock, the price for parts will go up, and so will the vehicle maintenance chargers. The automakers in the U.K. market need to target new countries to sell their products to diminish the effect of no deal.
In the meantime, the UK manufacturers are expected to stockpile the parts and components required for vehicle assembly. In addition, the U.K. automakers might hold on to their inventory so that the EU can face an increase in tariff impact. But this will not be the right way to deal with the issues. The EU automakers will have to identify new sources for parts and components, and if this works out, the UK automakers will face huge losses and will also face a factory shutdown.
Automakers from both the parties need to work together to brace themselves for the long-term impact. Strategies should be formulated for the long term and not for the short term. The automakers should clear out all the excessive stock before the deals are worked out. This will further allow both the parties, especially UK automakers to sustain the impact and be operational.