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The auto industry dodged disaster when the UK and the EU sealed a post-Brexit trade deal, but not before manufacturers announced factory closures and canceled plans to make several new vehicles in the country.
More damage can be done even with last week’s deal.
Automakers, including Nissan Motor, could find it difficult to qualify some UK-assembled models for duty-free export to the EU while assessing whether they source enough components locally.
The costs associated with having to switch suppliers and the burden of customs declarations, certifications, and audits could still leave auto companies convinced that it is better to invest elsewhere.
“This is still a weak deal with significant implications and costs for the automotive industry,” said David Bailey, professor of business economics at Birmingham Business School.
“Much will depend on the degree of flexibility allowed and the degree of phasing in,” he said.
The Brexit deal removes the risk of a widespread exodus, but it could still fall short for automakers with very little room for maneuver to bear more spending.
Any additional consequences could have big implications for the UK economy.
Its auto industry employs more than 860,000 people, more than a fifth of whom are on the staff of vehicle and parts factories. Automakers shipped £ 42.4 billion (€ 46.8 billion) worth of cars and components overseas last year, 13% of Britain’s total exports.
The domestic market is unlikely to make up for lost sales abroad.
Records already fell for three consecutive years before being decimated by the pandemic, dropping 31% through November.
Nissan and its Japanese peers are the companies to look out for after the deal.
The outlook was already bleak before the Brexit deal closed.
The company recently decided not to build an electric model at its factory in northern England and almost two years ago scrapped plans to build another sport utility vehicle on the same site.
Honda Motor will close its only car plant in the UK next year.
Nissan and Toyota’s hybrid and electric models made in England are scaled down a bit in the Brexit trade deal, with the deal allowing a greater proportion of vehicle content to come from outside the UK or EU.
Still, the so-called initial rules of origin require 10 percentage points more local content than the British were looking for.
It’s unclear if Nissan’s Sunderland-built all-electric Leaf hatchbacks have enough local content to avoid tax. While Nissan welcomes the trade agreement, it will now “assess the detailed implications for our operations and products,” said Azusa Momose, a spokesperson in Yokohama.
Toyota’s Corolla hybrid combustion engine compact cars built in Burnaston will qualify for duty-free export to the EU, said Sonomi Aikawa, a spokeswoman in Tokyo.
The company benefits from its engine plant in Wales, he said.
Automakers’ rate requirements may be affected by their plans to bring more battery supply chains to the region.
Electric vehicles will be given another six years to reduce their amount of foreign content below 45%, the threshold at which gasoline and diesel cars will immediately hold.
“The schedules underscore the urgent need for the government to create the conditions that will attract large-scale battery manufacturing to the UK and transform our supply chains,” said Mike Hawes, CEO of the Society of Engine Manufacturers and Traders, the UK auto industry. trade group.
Other automakers have postponed investments in UK plants pending the outcome of trade talks.
BMW delayed work on a next-generation Mini platform due to uncertainties over Britain’s trade relations with the EU.
Chief Financial Officer Nicolas Peter said this month that BMW would consider making Mini cars in Germany or China if the tariffs undermine the business case for producing them in Britain.
Peugeot maker PSA chief executive Carlos Tavares said in March that the manufacturer, which also makes Vauxhall cars, would determine whether there was a business case for its factory in Ellesmere Port and that the company could ask the British government to compensate any. trade barrier that could arise.
BMW and PSA welcomed the trade deal and warned they would need to closely examine the deal to assess the ramifications for their business.
“The deal is now expected to give the green light to major investments in the UK that have stalled amid Brexit uncertainty,” said Professor Bailey from the Birmingham Business School.
“There will be additional costs for the industry in terms of non-tariff barriers, but things could have been much worse,” he said.
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