The UK automotive Industry one of the largest business sector in the UK, and is responsible for 11% percent total of the UK export and employing 770,000 people; it is one of the staunch supporters that believe that remaining in the European Union (EU) would be best for business. With over 77% of the Society of Motor Manufacturers and Traders (SMMT) members saying that exiting the EU would have a negative impact on the industry, their cause of concern grew bigger as Britain concluded the historic referendum on June 23 with leave vote winning 51.9% versus a 42.8% vote to stay.
Brexit’s Effect on the Car Industry
Return of the 10% Export Tariff as Imposed by the World Trade Organization (WTO)
One of the main agreements of the EU is free trade. This means that’s goods and services can travel within the EU member states as if they are one country, and this free trade has served to increase the import and export market within the member states.
With the EU UK exporting 77.7% of its cars, of which 57.7% of this being exported to the European Union market, there are concerns that if the UK ceases to part of the European Union, there will be a return to the old days where there is a 10% tariff imposed on exports by the World Trade Organization.
This means that if there are no concessions made about trade when the UK invokes Article 50 to start the negotiations for the exit of Britain from the EU, (Article 50 is part of the Lisbon treaty Law signed in 2009 by the members of the European State, and Article 50 is part of this agreement. Basically it’s a simple five- point plan for any state that wishes to leave the EU)
the cars and parts made in the United Kingdom are going to be more expensive compared to the one made by countries that are in the European Union.
The pound reacted negatively to the news of a Brexit by dropping to a 1985 low( £1 =$1.05) , and while in the days the followed the referendum, the pound was slowly trying to gain its value back, experts are saying that it will take some time for it to regain its pre- Brexit value. The devaluation of the pound affects a lot of things, and unfortunately, oil is one of the first that feel and react to this change . For the motorists, this means less gas in your tank for your sterling.
Depending on the agreements reached on the negotiations, the prices of new vehicles can possibly go up because of the restrictions of trade with the remaining EU members, pushing the cost up for the raw materials imported for use in the British motor manufacturing. The used car industry however is expected to remain unaffected.
Insurance and Car Breakdown Service
Car breakdown services are sourced locally, so they are largely going to be unaffected. However car insurance might be affected as non-UK insurers might find it more difficult to operate in Europe. If the UK decides to change the minimum level of car insurance cover which is required across Europe, additional protection may be needed when travelling aboard which can push premiums up.
New Governance and The Automotive Industry
Prime Minister David Cameron has stepped down, and right now, is leaving it to this successor to negotiate the terms for the UK’s exit from the Europe. And while the automotive industry has largely remained calm amidst the uncertainty, the automotive industry thru the SMMT, the largest and most influential trade association representing the automotive industry has outlined a five-point plan that they wanted the new government to implement to protect the UK car industry if and when they start negotiations.
- Cross-party commitment to long-term industrial strategy: To maintain mechanism to support the delivery of industrial strategy, such as the Automotive Council.
- Creating the right condition for investment: Policies that create an internationally competitive business environment for the automotive industry, making the UK a leading location for investment.
- Positioning the UK as a global leader on innovation: Enhancing support measures for R&D that bolster the UK’s manufacturing base and promote investment in new technologies.
- Supporting the ULEV’s and a strong, sustainable vehicle market: Guaranteeing funding and support for ultra-low emission vehicles and committing to a long-term, consistent and coordinated approach on vehicle taxation.
- Maintaining a strong UK voice in Europe: UK membership of the EU is fundamental to automotive. A new government should ensure that the UK maintains a strong voice in Europe.
With all the speculations going left and right about the Brexit, one thing’s is certain – it’s a game changer for all industries across the UK, the automotive industry included. And while at at this point, the UK still remains part of the European union until it invokes Article 50 to begin the negotiations for its exit and negotiations are expected to reach up to two years, it’s an uncertain waiting game for everyone.