Brexit likely to hit UK automotive manufacturers hard

Brexit and its final effects on the UK economy remain hard to divine. The process is likely to be complex, cumbersome and for a range of industries – costly. One estimate by Bain & Company puts the cost of the leaving at up to £3 billion in lost profits, with automotive industry profits particularly hard hit by the decision to leave, losing £2 billion.

In a new report from PA Consulting Group, titled ‘Brexit: the impact on automotive manufacturing in the UK’, the effects of Brexit on the automotive industry are explored In some depth.

Of the around 1.6 million cars produced in the UK each year, around 0.6 million are exported to the European Union and the rest sent over the world. In terms of cars added to UK roads each year, approximately 2.2 million are imported or taken from stock in the UK. Even in the EU imports from the UK were important last year, representing around a fifth of total imports.

The six years prior to the Brexit decision were a period of relatively strong growth for the automotive industry, in 2015 alone, production was up by 5.2%, employment in the sector grew by around 3.1%, and the industry’s revenue increased to £71.6 billion, up by 7.3% on the year previous.

Brexit has the potential to hit UK-based manufacturing hard in the sector, with the additional costs from unfavourable tariffs on exporting 200,000 cars to the EU estimated at £460 million per year, which, after two years, would pay for a manufacturing plant located on the continent itself. Which, given the industry’s relatively low margins, could be devastating.

The effect of Brexit on the factory location investment activities of key automotive industry players, is likely to happen in waves – the decision itself taking place for difference manufacturers over an extended period.

Some decisions, such as those by Land Rover for its Evoque and New Defender lines have already been made; however, additional decisions will take place for investments into 2020, for which the final decisions remain partly dependent on the outcome of negotiations. Jaguar, Nissan, Mini and Vauxhall too have noted more than one factory decision point between 2020 and 2015.