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UK carmakers fear trade barriers

The number of cars sold in the UK dropped by 5.7 per cent in 2017, according to industry body the Society of Motor Manufacturers & Traders. 2018 isn’t any different – ratings agency, Moody’s, predicts a further 5.5 per cent drop this year. 

“Brexit has derailed the industry,” says Sarwant Singh t0 BBC News, senior partner and global head of automotive and transportation at consultants Frost & Sullivan.

“The uncertainty causes people not to buy cars.”

Each year, about 80 per cent of the vehicles built in the UK are exported, so continued international trade relations are vital for the automotive sector’s continued prosperity.

Industry executives’ main fear is that Brexit will result in heightened barriers to trade, not only with the European Union, but with the rest of the world too, once the transition period ends on 31 December 2020.

Trading relations with China are also complicated, and may well be subject to even greater complexity in future.

“A UK-China free trade agreement will be neither easy nor clearly advantageous for the UK,” says Bruegel, a European firm that specialises in economics.

Once the UK leaves the Union, the UK will be smaller and therefore in a weaker position during trade talks, so there are no guarantees China will be prepared to offer better terms.

Furthermore, UK’s automotive trade with China, and other growing markets, could suffer, depending on the terms of a post-Brexit trade deal with the EU.

At present, EU customers buy about NZ$25 billion worth of British-made cars per year, accounting for around 53 per cent of the UK’s vehicle exports, according to the European Automobile Manufacturers Association (ACEA).

On the other hand, EU manufacturers deliver 81 per cent of the cars imported by the UK, to the tune of about NZ$75 billion, a trade imbalance that will give the UK leverage during trade talks.

At the same time, about 80 per cent of the parts and components used to build cars in the UK are also imported from the EU, while 70 per cent of the parts and components made in the UK are exported to EU countries.

“Any changes to the deep economic and regulatory integration between the EU and the UK will have an adverse impact on automobile manufacturers with operations in the EU and/or the UK, as well as on the European economy in general,” the ACEA said to the BBC.

It is therefore unsurprising that both the UK and the European car industries want to see a final UK-EU deal that retains smooth trade in the long-term.

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UK market struggles

The Society of Motor Manufacturers and Traders (SMMT) states that the market is falling for the fourth month in a row for new car registrations in the United Kingdom.

According to the SMMT, registrations fell in July from the same time last year, by 9.3 per cent with about 162,000 vehicles sold last month. So far this year, 1.56 million cars have been sold, down 2.2 per cent from a year earlier.

“The fall in consumer and business confidence is having a knock on effect on demand in the new car market and government must act quickly to provide concrete plans regarding Brexit,” Mike Hawes, SMMT chief executive says

The government said last month it was to ban all new petrol and diesel cars and vans from 2040 amid fears that rising levels of nitrogen oxide threaten public health.

“While it’s encouraging to see record achievements for alternatively fuelled vehicles, consumers considering other fuel types will have undoubtedly been affected by the uncertainty surrounding the government’s clean air plans,” Hawes says.

Meanwhile, sales of electric and hybrid cars are growing with a market share of 5.5 per cent. This is up from a year ago when they only held three per cent of the market share.

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Brexit could cripple UK auto industry

Nissan’s manufacturing plant in the UK

Senior executives have warned that the British automotive industry could be permanently damaged if an interim deal isn’t met when Britain withdraws from the EU.

The industry, which employs over 800,000 people in the sector, is set to reach a record output in 2020 in its production of vehicles such as Jaguar Land Rover, Nissan and MINI.

“The greatest threat to that progress is Brexit,” Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT) told Reuters.

“To leave in 2019 without a deal would put the industry in peril, defaulting to WTO tariffs and customs barriers would damage our industry permanently.”

The automotive sector has repeatedly warned lawmakers that tariffs and constrained access to its biggest export market following Britain’s withdrawal from the EU could threaten the future of huge car factories in the country.

British prime minister Theresa May has proposed a clean break from the single market of the EU, which maintains free trade across all member states, in favour of a special deal.

However, any delay at the border would be hugely damaging for manufacturing operations in England. Only 44 per cent of vehicle parts in the UK come from Britain.

“Put very simply the supply chain will start to seize up with obvious impacts on our ability to manufacture vehicles efficiently,” Honda Europe senior vice president Ian Howells told Reuters. Honda manufactures eight per cent of the 1.7 million cars produced in Britain last year.

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