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Despite only a few weeks left until the British government concludes a free trade agreement with the European Union, Boris Johnson is playing a risky game to improve his negotiating position, which increasingly threatens the nightmare of falling without a deal.
It is worth remembering that negotiations on the terms of the future relationship between the United Kingdom and the European Union were also unsuccessful last week. Johnson, of course, blamed EU decision makers for the situation and said it was time for everyone to prepare for Brexit without a deal.
In this extremely tense situation, the European Union has received a constructive statement indicating its readiness to intensify negotiations with London on all issues, on the basis of legally binding draft texts. As a result, the parties resumed their negotiating table and discussions on the disputed issues are scheduled to continue for three weeks. However, experts warn that there are very important differences of view, so the agreement is still uncertain. If no agreement is reached, Britain will withdraw from the European Union in 10 weeks.
All of this, of course, is terribly bad news for the auto industry on both sides, as the realization of a scenario that has long been considered unthinkable has come within reach.
Brexit without a deal could have a devastating effect
Mike Hawes, head of the British Association of Automobile Manufacturers and Dealers (SMMT), could not leave the news of recent days
Make no mistake, the auto industry won’t benefit from Brexit without a deal. This would have a devastating effect on industry, the economy and employment in all regions of the UK.
– written by. He also added that companies must address the challenges posed by the coronavirus and the hugely costly switch to new technologies at the same time, while trying to better prepare for the dramatic change that could take place in the business framework after the end of the year.
To avoid lasting damage, Hawes called on the parties to continue negotiations and work with renewed vigor on an agreement that would support the automotive industry, a sector that accounts for a significant part of UK exports and is of utmost importance to the UK. island nation. and for the economy of the European Union.
It is also worth noting here that the UK car market is extremely important, as is car production for the European Union and vice versa. About 2.2 million of the new vehicles sold came from the European Union, representing 81% of total UK car imports in 2019. And the British produced almost 807,000 vehicles found in the European Union, 18 per cent of EU vehicle imports, according to an analysis by the European Automobile Manufacturers Association (ACEA). The figure below shows the UK’s most important partners in the auto and auto parts trade. Germany, of course, leads by towers, followed by Belgium, Spain and France. Only these four players exported cars and parts worth € 39.3 billion to the island nation, while goods worth € 11.1 billion came from there.
It is no coincidence, then, that the biggest headache for automakers and their advocacy organizations has been and continues to be caused by unconventional Brexit. The worst-case scenario would be a real disaster for the automotive industry, for two compelling reasons:
EXIT WITHOUT THE AGREEMENT WILL AFFECT THE SUPPLY CHAINS CONTRIBUTION AND THE SIGNIFICANT INCREASE IN MANUFACTURING COSTS ON THE BRITISH PRICE AUTHORIZATION.
Tariffs on European Union vehicles would also lead to significant price increases, as several automakers have previously stated that they will pass the resulting cost increase on to customers. And for the nightmare to be complete, it would also imply greater administrative burdens for those involved.
News leaks, automakers warn in a row
Of course, these developments are also of great concern to car manufacturers, especially those who have made significant capital investments in the past to have substantial production capacity in the UK. Such is the case of Toyota and Nissan, which have previously pressured the current British government to sign an agreement with the European Union to avoid the reintroduction of tariffs.
However, leaked news in recent weeks has already indicated that Japanese automakers have signaled to the Johnson government that
If the UK exits the European Union without an agreement, compensation will be claimed.
By the way, Nissan had already warned in June that if the worst case scenario occurred, the operation of its Sunderland plant would become unsustainable. The UK’s largest car factory makes models like the purely electric Qashqai, Juke or Leaf.
It is worth noting here that the performance of Nissan and Toyota has a large impact on the performance of the UK auto industry, as both manufacturers are members of a group of five players that accounted for almost 93 per cent of total production. of automobiles in the island country last year. Together these five players produced more than 1.21 million cars in 2019.
It is also important to emphasize that it is not only car manufacturers who run a car or motor factory in the UK would be in a difficult position. A few days ago, Daimler CEO Ola Källenius spoke of a Bloomberg report that a neglected Brexit would cost them hundreds of millions of euros simply because introducing a 10 percent tax would make their cars more expensive, which is expected. resulting in a significant drop in demand.
Many models may disappear from the UK car market
It is also important to mention that rising prices due to tariffs and adverse exchange rate effects could not only push back demand, but also wipe out many models and model variations from the UK car market. This is because manufacturers make a rational decision if they only keep models that they can earn money from in the UK.
The leader of the Renault Group, Luca de Meo, has already indicated that in order for them to operate profitably, more models could disappear from their offering if the United Kingdom does not reach an agreement with the European Union. However, according to an Auto Express article, the Renault boss also stressed that they had no intention of withdrawing from the UK auto market.
Moody’s also warns
Moody’s has taken action too, with an international credit rating warning everyone that unconventional Brexit poses a bigger threat to UK carmakers than the coronavirus epidemic. Moody’s emphasized that while this is not the baseline scenario they anticipate, the events of the past few days and the British Prime Minister’s statements have increased the chances of this possibility occurring.
They pointed out that if the British left the European Union without an agreement, the general rules of the WTO would come into effect on January 1, 2021, which would involve not only the reintroduction and permanent reintroduction of tariffs but also the reestablishment of trade barriers. additional. Industry players also have to deal with the adverse effects of currencies.
ALL THESE WORKS WILL HAVE A PAINFUL EFFECT ON THE PROFITABLE OPERATION OF THE BUSINESSES.
Moody’s also noted that of European automakers, BMW may be more vulnerable to British exit without a deal.
The stakes are huge: a political battle could cause a $ 110 billion defection
The European Automobile Manufacturers Association (ACEA), the Confederation of European Automobile Suppliers (CLEPA) and 21 other automotive organizations have recently issued a statement quantifying how much they expect to lose if opposing parties ultimately fail to reach an agreement. According to this, if the British leave the European Union without an agreement and the aforementioned general WTO rules come into effect as of January 1, 2021, an increase in prices, a fall in demand, will result in
3 MILLION VEHICLES COULD BE LESS MADE IN THE NEXT 5 YEARS.
All this is calculated by defense organizations
110 BILLION EUROS (COURSE 40 150 BILLION HUF) WILL CAUSE A DECREASE IN TRAFFIC BETWEEN THE UNITED KINGDOM AND THE EUROPEAN UNION.
Looking at all of this, it is understandable why industry players are desperately trying to take advantage of all existing tools and warn decision-makers with renewed vigor about the damage they can cause through their irresponsible behavior.
Cover Image Source: Owen Humphreys / PA Images via Getty Images
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