Daily Management Review

'No-Deal' Brexit Would Be 'Catastrophic', Said 23 European Car Makers


'No-Deal' Brexit Would Be 'Catastrophic', Said 23 European Car Makers
There would be "catastrophic consequences" is there was no deal to protect trade while the United Kingdom left the European Union, warned the car making industry of Europe. It also warned of millions of jobs being pushed at risk and billions being forced on companies in additional costs.
It has been a more than two years that businesses have been appealing to the UK government to present some clarity on Brexit.  But this combined warning issued by in a combined manner by 23 industry associations across Europe is somewhat unprecedented which is also reflective of what they describe to be something that would potentially cause "seismic" disruption for the car making industry and its suppliers.
"A 'no deal' Brexit would have an immediate and devastating impact on the industry, undermining competitiveness and causing irreversible and severe damage," Mike Hawes, CEO of the UK Society of Motor Manufacturers and Traders, said in a statement. "UK and EU negotiators have a responsibility to work together to agree a deal or risk destroying this vital pillar of our economies," he added.
Whether the UK would be able to avoid the worst situation is not clear. His pledge of taking the UK out of the EU on October 31 has been reiterated several time by the new UK Prime Minister Boris Johnson, irrespective of a deal being achieved or not. No breakthrough has yet been achieved in the Brexit negotiations between the UK government and the EU even as time is running out for an acceptable deal. Talks will continue at the United Nations General Assembly in New York Monday.
About 57 per cent of the cars in the UK are made in Europe with which the UK has a tariff free trade agreement under the EU rules and if there is no deal Brexit, it will bring an end to that regimen. In such a situation, the supply chains of the car industry which is an integral part of it, would be upended, production would be disrupted and the already low profit margins would be eroded because of new taxes at WTO rates.  
There would be a "direct" impact on tariff rates, customs procedures and logistics in the case of a hard Brexit, said Luc Chatel, president of French industry association PFA. "There will also be an indirect impact, as for all economic sectors, because of the foreseeable downturn in the European growth," he added.
About 6 per cent of employment in the EU or about 14 million jobs is provided by the combined auto industry of the EU. 
Uncertainty over when and how the country will leave the European Union is already plaguing the manufacturers with operations in Britain. Weak demand in key markets and temporary factory closures because of anticipation of Brexit has resulted in a decline of vehicle production in the UK for 14 consecutive months. 
Companies are already being affected by Brexit uncertainty. For example, Japanese auto giant Honda is reportedly mulling closing down of a major factory in the UK that would result in about 3,500 job losses. On the other hand, continuation of the manufacturing in the UK of Vauxhall and Opel Astra models would be dependent on the trade terms in the country after Brexit, said French carmaker PSA. Andin June, U Scar maker Ford announced the closure of its engine plant in Wales by 2020.