Hard Brexit may drive up costs for UK automakers

8 years ago - Published in Finance, Fundamental Analysis

The cost of making a car in the UK could increase by £2,370 ($2,930) in the event of a hard Brexit, according to research published by PA Consulting Group. The tariffs would apply to both imported and exported cars with the report stating carmakers would be likely to pass any price increases to buyers. 

The report explained that the increased cost of manufacturing could be the case if the UK falls back on World Trade Organisation (WTO) rules post Brexit. It warned that the 10% WTO tariffs on exporting and importing with the European Union (EU), could force some manufacturers in the UK to relocate outside the country.

The research, by PA Consulting, said that almost six in ten cars driven on British roads were imported directly from EU member states, with manufacturers likely to pass on any tax rise directly to customers.

According to the report, the cost of exporting British-built cars to the EU, estimated at £460 million for each carmaker, would render plants unaffordable and force most companies to consider relocating factories to the European mainland.

The report underlinerd a hard Brexit would be the “worst-case scenario” for the British automotive sector, estimated at £72 billion and supporting around 800,000 jobs.

Tim Lawrence, global head of manufacturing at PA Consulting Group, said: “Both the EU and the UK would benefit from keeping free trade and supply chains unaffected because any tariffs would be damaging for both sides based on today’s complex supply chain arrangements.

“Car makers will have to review their manufacturing and supply chain network and investment decisions and plan for scenarios based on extra tariffs and charges/incentives on corporation tax. Some may consider investment options into the UK, but equally some may consider investing into the EU.”

Last year, the EU exported more than £30 billion-worth of cars to the UK, accounting for 57.5% of all those sold in Britain.

UK Prime Minister Theresa May's government will trigger Article 50 and start Brexit talks with the EU on 29 march, setting the country on a course to exit the European Single Market.