While his is good news, the UK carmakers know that Brexit with the possibility of tariffs and complex customs arrangements may threaten their competitiveness and “just-in-time” supplies. Although the final position is unknown, what is without question is that the automotive industry must assess the impact, generate options and be prepared.
PA Consulting Group’s new research, ‘Brexit: The impact on the automotive supply chain’, identifies three possible scenarios emerging even if partial trade restrictions exist:
- Manufacturing companies or suppliers with substantial operations in the UK and with a good UK market exposure: these manufacturing companies are likely to encourage suppliers to locate and expand their offerings 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.
- Manufacturing companies or suppliers with substantial operations in the EU or overseas and with satellite operations in the UK focusing on exports to the EU: these manufacturing companies and suppliers may look to relocate their manufacturing back to the EU. The increased cost of exporting 200,000 cars per year could be £460m which in two years would easily pay for the cost of a new plant in the EU area.
- EU manufacturing companies or suppliers who export finished vehicles and components into the UK: for these manufacturing companies it could be beneficial to move some manufacturing to the UK, but this will be dependent on import volumes and costs of supply. 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.
The cost of moving to a World Trade Organisation (WTO) regime (10% tariff on finished vehicles and 4.5% tariff on component parts) for UK car makers will be especially challenging given their typically low margins. PA Consulting’s analysis calculates that the potential cost increase under WTO arrangements could be as much as £2,372 per car. Equally, European based manufacturing companies would face similar costs for exporting to the UK from mainland Europe. Increased time delays at borders could also impact “just-in-time” supply chains that are currently standard for the industry.
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.”
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