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Could Brexit put the brakes on UK's car industry?

2017-01-26 08:30

BREXIT CONTINUES: Britain's exit from the EU will have far-reaching effects on the motoring industry. Image: iStock

London - Britain's car industry reached its highest production level of the 21st century in 2016r, but with Brexit talks imminent manufacturers are facing uncertain times ahead of the country's EU exit.

More than 1.7 million cars were produced in Britain in 2016, an increase of 8.5% on 2015 and the highest output since 1999, the Society of Motor Manufacturers and Traders (SMMT) announced.

The figures show the industry has been in "good shape", according to Mike Hawes, SMMT chief executive.

Hawes told AFP: "2016 was a tremendously successful year for the UK automotive car industry. In terms of new car sales, that was an all time record, with 2.6 million vehicles," referring to a figure which included cars imported to Britain and then sold.

8/10 British cars exported

The vast majority of cars made in the UK - eight out of 10 - are exported, with European Union countries accounting for 56% of exports from Britain. Germany, Italy and France are the biggest buyers, between them accounting for 47.2% of cars bought within the bloc.

Car production has driven through economic downturns in the UK and taken off in recent years, with this decade set to be the best the sector has seen since the 1970s.

READ: 'SA's car market will feel Brexit's effects'

British brands have been snapped up by foreign buyers, among them Mini and Rolls-Royce which are owned by Germany's BMW.

There has been a wave of investment in the country from foreign car makers, notably Japanese firms Nissan, Toyota and Honda, which between them produce half the cars made in Britain.

Image: iStock

Brexit uncertainty

After receiving private guarantees from the British government, Nissan CEO Carlos Ghosn in October 2016 gave the green light to new investments at its plant in Sunderland, northeast England.

Toyota said it would fight to continue operating its British factory after the country leaves the EU.

But globally, investment in the sector, which reached £2.5-billion ($3.1-billion, 2.9-billion euros) annually in recent years, fell to just under £1.7-billion last year.

Hawes said the change could be partially down to a wait-and-see attitude in the face of greater uncertainty in 2017.

He said: "We don't know what our future trade relationship will be with Europe and ultimately with other export markets. We also see a potential increase in inflation and pricing which could affect the market."

READ: Here's how Brexit vote could affect automakers

Prime Minister Theresa May confirmed Brexit would see Britain leave the European single market, creating a stumbling block for the car industry which relies on trading vehicles and loose parts without paying duties.

Thomas Sampson, a professor at the London School of Economics, said British car makers could suffer further disruption beyond tariffs.

He told AFP: "Inside the customs union cross-border supply networks can flourish, but if trade in car parts faces tariffs, rules-of-origin restrictions and other border barriers, then producers will need to reorganise their supply chain, potentially causing substantial disruption to trade in the car industry," he told AFP.

With an industry which employs 800 000 people, directly or otherwise, automakers are keeping a close eye on divorce proceedings between London and Brussels.

If Britain fails to reach an agreement and leaves the EU without a deal, the sector risks falling back on World Trade Organisation rules which would see tariffs jump from zero to 10%.

Beyond continental Europe, British automakers could look to their second top buyer - the United States - which accounts for less than 15% of car imports from the UK.

But with the protectionist promises of President Donald Trump, coupled with far fewer British car buyers in other countries, UK carmakers are a long way from replacing their bumper European market.

Read more on:    nissan  |  carlos ghosn  |  england  |  brexit  |  auto industry

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