PA’s new report on Brexit and the impact on the automotive supply chain, is featured in a news article in The Guardian.
The article opens with a key finding from PA’s report that 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.
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 (WTO) 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 article goes on to explain that 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 says would “easily” cover the cost of building a new plant in the EU.
Tim Lawrence, PA’s global head of manufacturing, said there could be “upsides and downsides” for the UK if it leaves the single market and customs union.
He goes on to say: “The key point that has come out of 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. It all depends on the outcome of trade negotiations that will start in the next week or two.”
Brexit: The impact on the automotive supply chain
The news article goes on to explain that PA’s report identifies three possible scenarios for carmakers and car parts makers if trade restrictions are enforced. The report 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.
Tim explains: “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 article states that 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. PA’s report found that this would depend on “import volumes and costs of supply”. Tim said: “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.”
Tim 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.”