European governments are advising car manufacturers to start looking for non-British car components suppliers. This is to ensure, after Brexit, exports are compliant with “country of origin” requirements in international trade deals. Although not a new development, the issue only broke into the news cycle in the UK in recent days and is being dubbed by some industry experts as “Carmageddon.”
Carmageddon: a bomb under the UK auto industry
Like the Irish border crisis, the challenges Brexit is creating for the British car industry are complex, intractable, and have been ignored by procrastinating UK officials for nearly two years. The extreme jeopardy faced by the industry has only emerged into the national discussion in recent days, however. Yesterday the reality of the coming “Carmageddon” became undeniable.
As revealed by Sky News, The Dutch government has started advising its car-makers to consider switching from UK-made components to avoid problems with exports. A Dutch-language version of a document entitled “Uw Brexit Impact Scan” made terrifying reading for anyone concerned about British industry.
“Brexit will have consequences for exports outside the EU,” the document said. “After Brexit, parts made in the UK no longer count towards this minimum production in the European Union.”
Typical free trade deals for cars, such as the one between the EU and South Korea, require cars to include at least 55% EU-made parts. According to the Dutch government, post-Brexit the UK will count as a third country, and therefore UK-made parts will not count towards the 55% quota. Using a high percentage of UK-made parts could mean exported cars face unwanted tariffs.
This creates an enormous crisis for the UK car components industry. Being a third party means British component makers are competing with the rest of the world to supply the remaining 45% of EU cars up for grabs, including against many much lower-cost producers.
After over 40 years of economic integration, the UK car industry will struggle to separate itself from its EU supply chain. Currently over 1,100 trucks bound for British plants cross into the UK from the EU every day, delivering approximately £35 million worth of components. British manufacturers then use these parts to build around 6,600 cars and 9,800 engines. Over half of these sent back to the EU.
Although the famous British car names of years past have mostly disappeared or been bought by companies from other countries, the country’s car industry is still massive. It currently makes up 10% of GDP, and employs over a million people.
Government and opposition inaction
Yesterday on the BBC’s World At One programme on Radio 4, economics reporter Simon Jack laid bare yet another huge “Carmageddon” facing the UK car industry. Post-Brexit, free-trade deals will likely require UK car-makers to meet similar “country of origin” thresholds.
“If you look at cars made in the UK,” Jack explained, “and if you take those cars apart and look at them component by component they are about 20-25% UK-supplied. Outside the EU if we want to replicate the trade deal has with South Korea, we are way short of the 55% ‘UK-ishness’ that our cars would need to qualify.”
Treasury minister Mel Stride, MP, also appeared on the programme, but was unable to offer anything more than vague assurances that the matter would be looked into.
“This is one of a number of issues that will clearly be subject of the negotiation that we’re engaged in with the EU 27,” he told host Sarah Montague before waffling further. “It is an extremely high priority. It’s one that I, the Chancellor, the Prime Minister, and others are very much engaged with and we are confident that as part of our negotiated settlement with the EU, given that this is an extremely high priority…we will get there on this matter.”
Unconvinced, Montague asked for examples of concrete steps being taken. Stride replied with only, “Talks have started at official levels across a whole range of issues…These are matters that are very high on our agenda.”
Although critical of government policy on the issue, Labour’s position is no clearer. Both parties continue to argue internally about their preferred Brexit strategy two years after the referendum result and just months before a final deal is supposed to be agreed with the EU.
As the two major British parties continue to dither, the EU is instructing its industries to start considering the UK a “third country” from March 29th, 2019. Not only is there no clear solution for Carmageddon, but apparently no member of the British government or opposition is even willing to face up to the crisis.