Automotive Industry and Markets

The effects of Brexit on the automotive industry

In 2016, the British voted to leave the European Union. Brexit duly occurred on January 1, 2020, followed by transition period running until the end of this year, during which trade relations between Britain and the EU will be renegotiated. Until now, cooperation between the automotive industry in the UK and in other EU states has been very close, based on the single market. The expectations placed on the new trade policy guidelines are accordingly high.

At present, there are numerous questions that will have to be resolved under severe time pressure by the end of the year. At the beginning of the transition period, manufacturers and suppliers are occupied by issues such as the extent to which trade agreements between the EU and third-party states will continue to apply to goods from the United Kingdom in the eyes of the contracting countries. This question is hugely important for the value chains in the automotive industry. Economists are currently of the opinion that, initially, the existing regulations will continue to apply to goods from the UK. However, as there is no precedent for the departure of a Member State from the EU, at the beginning there will be no specific regulations, according to Ralf Diemer, Head of the VDA’s Department of Economic, Trade and Climate Protection Policy, Co-ordination of European Affairs.

Insecurity influences business investments

Since the Brexit referendum, insecurity has been observed that is affecting not only the automotive industry but the entire British economy. For some years now, a clear downward trend has been visible – albeit from a high level. It has so far been absorbed without needing to reduce capacities. The uncertainty has resulted in investment decisions either not being taken or being postponed indefinitely. This situation calls for rapid, clear decisions in trade policy so that the downturn can at least be alleviated, says Ralf Diemer. However, there is not much time left to shape the new relationship between the United Kingdom and the EU: the new regulatory conditions have to be negotiated before the transition period ends at the end of 2020.

As Prime Minister Boris Johnson has clearly ruled out an extension of the transition period, it is possible that at the end of the year once again the prospect of a hard Brexit without an agreement will arise. Observers see it as at least doubtful that agreement on an extensive trade deal could be reached within the year. Experience indicates that an agreement of this kind requires more extensive negotiation to create order in the extremely complex situation, elaborate regulations and translate all of this into a formal document. That is shown by the CETA trade agreement between Canada and the EU, for example, which was negotiated over a period of seven years and still has not entered into force in full. It is therefore now necessary for all the stakeholders to work toward the most liberal, comprehensive agreement possible. In particular, zero import duty must be agreed and customs clearance simplified for all goods originating in the EU – vehicles and vehicle parts. This would at least keep any import tariffs incurred by the companies as additional costs to a minimum.

VDA supports interaction and exchange within the industry

The United Kingdom is traditionally an important market for the automotive industry. Germany supplies more than 650,000 passenger cars to the UK every year. At the same time, the plants in the United Kingdom export over 80 percent of their production, which means that the British automotive industry is heavily dependent on accessible markets. In the worst case, a hard Brexit could cause interruptions in the supply chains and production flows – but even with a trade agreement there may be difficulties in adapting to the new situation.

Immediately after the British vote in favor of Brexit, the VDA set up a taskforce to address the concerns of all members – manufacturers and suppliers alike. It tackles very practical questions of preparing for the new relationship, such as how to shape internal processes, and mutual support under cartel law. The VDA is simultaneously working toward a policy framework that will provide as much support as possible for the automotive industry. One thing is clear: a reasonable and close relationship between Britain and the EU is of major importance to the automotive industry. For this reason, the VDA will continue to follow the negotiations closely and represent the wishes of its members relating to the form that future trade relations will take.

Ralf Diemer
Ralf Diemer Leitung Abteilung Wirtschafs-, andels- und Klimaschutzpolitik, Europapolitische Koordinierung
Koordinierung europapolitischer VDA-Themen, Kontakt zu den Europäischen Institutionen, VDA-Mitgliedsunternehmen und dem BDI
Tel: +4930897842-350  
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