Newly manufactured Nissan cars in the company’s factory in Sunderland, UK
Photographer: Ian Forsyth / Bloomberg
Photographer: Ian Forsyth / Bloomberg
The car industry escaped disaster when the United Kingdom and the European Union sealed a trade agreement after Brexit, but not before carmakers announced factory closures and canceled plans to manufacture several new vehicles in the country.
More damage can still be done even with last week’s agreement. Car manufacturers including Nissan Motor Co. will possibly struggle to qualify a model compiled in the UK for duty-free exports to the EU as they evaluate whether they are getting enough local components. The costs involved in providing the supplier and the burdens of customs declarations, certifications and audits can still convince car companies that it is better to invest elsewhere.
“It’s still a low agreement with huge consequences and costs for motor vehicles,” he said. David Bailey, a professor of business economics at Birmingham Business School in England. “A lot depends on the degree of permeability and the degree of phasing.”
Industry threatened
Number of cars manufactured annually
Source: SMMT 2019 data
The interests for the British economy are huge. The country’s car industry employs more than 860,000 people, of which more than a fifth have staff at vehicle and spare parts factories. The sector shipped $ 57.4 billion worth of cars and components last year, 13% of the country’s total exports. The Brexit agreement eliminates the risk of a wide-ranging exit, but it could still create a shortage for carmakers with too little room to incur more spending.
Those to watch
Nissan and its Japanese counterparts are the companies to keep an eye on the deal. The outlook was bleak before the Brexit agreement was concluded.
The company recently decided to make an electric model at the North English factory and almost two years ago plans scrapped to build another sports utility vehicle on the same site. Honda Motor Co. is closes its only UK car plant next year.
Nissan en Toyota’s hybrid and electric models built in England are a bit sluggish in the Brexit trade agreement, with the permission for a larger share of the vehicle content to come from outside the UK or the EU. The initial so-called rules of origin still require 10 percentage points more local content than the UK sought.
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It’s unclear whether Nissan’s all-electric Leaf hatchbacks built in Sunderland have enough local content to avoid charges. While Nissan welcomes the trade agreement, it will now “assess the detailed implications for our operations and products,” Azusa Momose, a spokeswoman for the company in Yokohama, said in an email.
Toyota’s Corolla hybrid compact cars built in Burnaston, as well as the non-electrified vehicles mounted on the premises, qualify for duty-free exports to the EU, said Tokyo company spokesperson Sonomi Aikawa. The company benefits from its engine plant in Wales, she said.
The Nissan Leaf electric vehicle.
Photographer: Ian Forsyth / Bloomberg
The car manufacturer’s tariff requirements going forward could be influenced by their plans to bring more of their battery chains to the region. Electric vehicles will have another six years to bring their foreign content below 45%, and the threshold for petrol and diesel engines will be maintained immediately.
“The timing underscores the urgent need for the government to create the conditions that will attract large-scale battery manufacturing to the UK and transform our supply chains,” said Mike Hawes, chief executive of the Automobile Manufacturers ‘and Dealers’ Association, UK. . trade group. “Improving UK competitiveness is essential to reducing the extra costs and burdens that our new trade relationship entails.”
‘Green light’
Other carmakers have postponed investments in UK factories pending the outcome of trade talks.
BMW AG has delayed work on the next generation Mini-platform due to uncertainty over the UK’s trade relations with the EU. Nicolas Peter, chief financial officer, said this month, BMW will consider making Mini-cars in Germany or China if tariffs undermine its manufacture in the UK
PSA Group CEO Carlos Tavares said in March, the Vauxhall carmaker would determine if there is a case for its factory in Ellesmere Port, and that the company could ask the UK government to compensate for any trade barriers that may arise.
BMW and PSA welcome the trade agreement, while warning that they should thoroughly examine the agreement to evaluate the implications for their operations.
“It is hoped that the agreement will now give the green light to major investments in the UK that have stalled amid Brexit uncertainty,” said Bailey, a professor at Birmingham Business School. “There are extra costs to the industry in terms of non-tariff barriers, but things could have been much worse.”
– With help from Stefan Nicola, Christoph Rauwald, William Wilkes, Shiho Takezawa and Tsuyoshi Inajima