The cost of assembling a car in Britain could increase by £2,370 in the event of a “hard Brexit”, forcing some manufacturers to look at moving production out of the country, a report has found.
The increase in costs – equivalent to more than 10% per vehicle – would hit the average UK-built car if Britain falls back on World Trade Organisation rules after leaving the European Union. Even if the UK agrees a tariff of 5% with the EU on importing and exporting cars and 2.5% on components then £1,202 will be added to the cost of production.
The costs have been calculated by PA Consulting Group as part of research into the impact of Brexit on the automotive industry.
The report warns that it would make economic sense for some manufacturers to abandon British factories if 10% WTO tariffs are introduced. The cost of exporting 200,000 cars a year from the UK would be £920m after two years, which PA Consulting said would “easily” cover the cost of building a new plant in the EU.
However, in contrast, car manufacturers with no British operations at present could look to move some production to the country to avoid the costs of tariffs.
Tim Lawrence, global head of manufacturing at PA Consulting, said there could be “upsides and downsides” for the UK if it leaves the single market and customs union.
“The key point that has come out of it [the report] for me is the potential impact if we don’t come up with a trade deal and we don’t come up with a solution,” he said. “It all depends on the outcome of trade negotiations that will start in the next week or two.”
Toyota last week announced it was investing £240m into upgrading its car plant in Derbyshire while Nissan has committed to expanding its Sunderland factory, the biggest in the UK.
However, the European boss of Toyota warned tariff-free access to Europe was vital to the future success of the Burnaston plant and concerns are growing about other factories. There are fears that General Motors’ Vauxhall plants at Ellesmere Port, Merseyside, and Luton, Bedfordshire, could be downsized or even closed after the business was bought by Peugeot. BMW has also warned it could make the new electric Mini in Germany rather than its factory in Oxford.
Bosses in the automotive industry have consistently warned the government that leaving the single market and the customs union could have a damaging impact on UK plants because of the number of cars that are exported and the high proportion of car parts that are imported.
On average just 41% of the parts in a car assembled in the UK are made in the country, while some factories, including Toyota’s, export as many 80% of their vehicles to the EU. Each car is made up of thousands of components. Some of these components cross the English Channel three, four or even five times during production.
The PA Consulting report identifies three possible scenarios for carmakers and car parts makers if trade restrictions, even partial ones, are enforced. It says that manufacturers with substantial operations in the UK and with good market exposure in Britain – such as Jaguar Land Rover – are likely to encourage suppliers to open new sites or expand in the UK.
“This would involve increased investment in UK parts procurement, production and supply chains to offset increased import costs, aiming to reduce the impact of tariffs imposed on component parts moving between the UK and EU,” the report said.
However, companies with substantial operations in Europe or overseas which use their UK factories as a satellite factory that focuses on exports to the EU could relocate.
The final scenario is that EU-based manufacturers who export vehicles or components to the UK – such as Ford – could move some manufacturing to the UK. This would depend on “import volumes and costs of supply”, PA Consulting found, adding: “It is likely that in this scenario, the price of imported cars will increase for UK customers, with increased prices covering the costs of any tariffs.”
Lawrence added: “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.
“Carmakers 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.”
