In this comment from GlobalData business MarketLine, analyst Chris Bertenshaw explores the figures that indicate how a hard Brexit may affect the UK car manufacturing industry.
Falling domestic car sales and the prospect of hard Brexit looks ominous for the UK automotive manufacturing industry.
According to the Society of Motor Manufacturers and Traders (SMMT), the demand for domestically built cars fell by almost 50% in June 2018. In Europe, the UK is the fastest shrinking car market in Europe based on the sales figures seen so far in 2018 according to JATO. UK car sales for the first half of 2018 have fallen by 6.3% compared to the same period in 2017.
MarketLine data also shows Brexit’s impact on UK automotive manufacturing- 2017 saw the industry shrink by 5.8% in terms of value, and declined by 10.6% in terms of volume. It seems that a wide range of industry issues, not least the panic over a potential no deal Brexit scenario, are causing major headaches for UK based manufacturers. BMW, Jaguar Land Rover, Vauxhall and Nissan have all expressed concern regarding the future of their manufacturing sites should an adequate Brexit agreement not be reached.
UK production is holding up despite decreasing UK sales, causing even more Brexit apprehension
While UK domestic consumption has tempered, production is sustained by external demand. According to the SMMT approximately 80% of UK-built vehicles are exported, and the EU accounts for 53% of those exports. Political inertia has made the prospect of exiting the EU in March 2019 on World Trade Organization (WTO) terms more likely, which would see tariffs imposed on imports to the EU. UK car manufacturing cannot rely on a strong domestic market to prop it up should any tariffs on exports materialize.
Domestic demand hampered by new taxes and regulatory standards
Many manufacturing sites were established in the UK as a means to access the European market. If the UK is no longer a member, the domestic market will be nowhere near enough to accommodate the excess capacity, particularly as a number of regulatory changes impact consumers.
New tax rules combining vehicle cost taxes with new emissions taxes are also making the situation complex for the consumer. Effectively, new and less polluting vehicles are taxed more heavily, producing a poor deal for the consumer.
A wide range of factors appear to have caused this drop in UK-built vehicle sales. Consumer uncertainty over diesel powertrains is one of the most potent. Jaguar Land Rover in particular, has been struck hard by this problem, as its most popular models are currently still heavily reliant on diesel technology.
The industry is also set to switch to a new and stricter emissions testing system the Worldwide Harmonized Light Vehicle Test Procedure (WLTP), which arrives the first of September 2018. Many manufacturers are struggling to hit this deadline and complete tests on their fleets, meaning many new models have been delayed as this is completed.