Now that the Brexit referendum, British withdrawal from the European Union, has passed, manufacturers of all types are left to wonder about its ramifications. Considering the significance of trade with Europe and trade agreements negotiated through the EU, there are many implications for the supply chain, such as the application of tariffs. However, the larger issue is that thousands of jobs are potentially at risk in the UK after some of the world’s largest companies warned they may be forced to relocate their British-based operations.
In Britain itself, executives in the aerospace and pharmaceutical industries are concerned about possibilities ranging from declining demand to new regulatory hurdles. However, the automotive industry is poised to be the industry most hard hit, as executives wonder not only about exports and tariffs, but also the future ability to recruit talent internationally and influence new standards. Indeed, Britain’s automotive industry said today that its growth depends on the country keeping “unrestricted access” to the European single market.
“UK automotive has gone from strength to strength, and is now delivering record turnover, record productivity and more jobs,” Mike Hawes, chief executive of industry body SMMT (Society of Motor Manufacturers & Traders), said at an annual conference in London for automotive leaders from across Europe, Agence France-Presse reports. “This success has been due to unrestricted access to the single market, input to EU legislation to safeguard the interests of UK automotive, and the ability to recruit talent from abroad. Our growth depends on certainty and continued open and reciprocal access to the 100-plus markets with which the UK automotive industry so successfully trades.”
It’s worth pointing out the size of the UK’s automotive industry. USA Today reports that roughly 80 percent of the 1.5 million vehicles assembled in Britain last year were exported. About 58 percent of them were exported to other European countries.
What’s more, as the UK exits the European Union, countries on the continent could impose tariffs of as much as 10 percent on those vehicles. Exported auto parts could face tariffs of about 2.7 percent, but the details will depend on negotiations with the EU.
Before the vote even took place, automotive companies were making their preferences known. “The UK is the fourth-largest global market for GM and the largest European market,” General Motors said in a statement. “We employ over 4,500 people directly and 11,000 indirectly in our retailer network and supply chain there. Not to be part of the EU would be undesirable for our business and the sector as a whole.”
Since the vote, other companies have made statements about their position. Ford, which has 14,000 employees in Britain, said in a statement that “While Ford will take whatever action is needed to ensure that our European business remains competitive and keeps to the path toward sustainable profitability, we have made no changes to our current investment plans and will not do so unless there is clear evidence that action is needed.”
Concerns continue to grow among Japanese automakers as well, since Nissan, Toyota and Honda Motor produce about half of all vehicles made in the UK each year. Executives of top Japanese automakers have already met with government officials at the industry ministry in Tokyo to discuss “Brexit” scenarios, an article in the Wall Street Journal reports.
“We will carefully analyze various aspects of the matter, given that there are still many uncertain factors,” said Shigeru Hayakawa, a Toyota senior managing officer, after the meeting.
The biggest danger for the Japanese automakers—as it is with other companies that manufacture in Britain for export—is the possibility that Brexit would lead the EU to raise tariffs on British goods. Higher tariffs could force British auto plants to pay more to procure auto parts, said Daisuke Yamaguchi, a director at Japan External Trade Organization’s business research department overseeing Europe, the WSJ article continues. Furthermore, depending on the terms of Britain’s departure from the EU, Japanese automakers might have to seek visas for immigrant workers from other EU nations who can currently travel freely to Britain.
Obviously, a great deal needs to be worked out, and much depends on decisions from the European Union. However, no matter what happens, or doesn’t, the nature of the automotive supply chain in Europe is bound to change dramatically.