21 September 2018

'No-deal' Brexit heralds huge car and van price increases due to trade tariffs

Trade tariffs introduced in the event of a 'no-deal' Brexit would add around £1,500 to the price of a new car and £1,700 to the price of a new van sold in the UK and imported from the European Union

The trade body has called for a 'no-deal' Brexit to be ruled out now to avoid the introduction of trade tariffs that would add £5 billion to the collective European Union-UK automotive trade bill.

The £5 billion impact of trade tariffs is based on the application of a 10% standard tariff on cars exported to and imported from the European Union. Additionally, commercial vehicle prices could rise by up to 22% (an average 13.5% for light vans); and the cost of vehicle components by up to 4.5% if trade tariffs were imposed.

Furthermore, the SMMT says that if the impact of trade tariffs were passed directly on to vehicle buyers, import tariffs would push up the cost of UK-built cars sold in the European Union by an average £2,700, and that of light commercial vehicles by £2,000 - affecting demand, profitability and jobs in the UK.

The price increases - trade tariffs are effectively another tax - would be automatic under World Trade Organisation rules if agreements could not be reached and would apply unless manufacturers and their dealer networks were able to absorb the additional costs.

This week the SMMT met with European Union representatives in Brussels to highlight the economic importance of the integrated European automotive industry and set out the repercussions for businesses, economies and jobs if a Brexit deal could not be struck.

Time was running out, and negotiators on both sides of the Channel must prioritise the agreement of terms for a managed withdrawal and 'status quo' transition as soon as possible, said the SMMT as the negotiations around the UK's exit from the European Union on 29 March, 2019 continued. 'No-deal', it said, would undermine the industry's ability to operate and could not be an option.

Some seven out of every 10 cars registered by UK motorists came from factories in Europe, meanwhile UK car plants sent more than 40% of their output to the Continent. In addition, the tens of thousands of parts making up a vehicle cross European Union borders multiple times before final assembly, with the majority of components going into UK-built cars coming from European Union suppliers, supporting supply chain jobs across the region.

SMMT chief executive Mike Hawes said: "Tariffs alone should be enough to focus minds on sealing a withdrawal agreement between the European Union and UK but the potential impact of 'no-deal' means the stakes for the automotive sector are far higher.

"Without a deal, there can be no transition period and the complex issues surrounding tariffs and trade, customs, regulation and access to talent will remain unresolved. Our industry is deeply integrated across both sides of the Channel so we look to negotiators to recognise the needs of the whole European automotive industry and act swiftly to avoid disruption and damage to one of our most valuable shared economic assets.

"In addition to the 2.7 million cars and vans that cross the Channel both ways each year, the UK exports some £3.4 billion worth of components to help build these vehicles in Europe, and sources almost three times that sum from European Union-based suppliers. More than 1,100 trucks cross into the UK from the Continent every day - the vast majority without a customs check - to deliver some £34 million worth of parts to UK plants for vehicles and engines, which are then exported back to the European Union.

"Without a withdrawal agreement, on 30 March, 2019 this trade will, as a minimum, be severely disrupted - potentially halting production, undermining competitiveness and negatively impacting the industry in the UK and Europe."