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No Brexit tariff-free trade deal to add £1,500 to price of new cars, warns SMMT

No Brexit tariff-free trade deal to add £1,500 to price of new cars, warns SMMT

A failure by the government to secure a tariff-free trade deal as it negotiates the UK’s exit from the European Union will add “some £1,500” to the cost of every new car sold in the country, the Society of Motor Manufacturers and Traders (SMMT) has warned.  

No deal at the end of the two-year Brexit negotiations would mean the adoption of World Trade Organisation (WTO) rules, in what the SMMT called “the worst foreseeable outcome” for the UK automotive industry.  

The SMMT’s warning of the risks of failing to secure a tariff-free deal came as the UK government officially invoked Article 50 to begin the formal exit process.  

Meanwhile, just two weeks ago a new report by the PA Consulting Group suggested that new car prices could increase by an average £2,372 per vehicle under a ‘hard’ Brexit (Newsfeed: week commencing: 22 March, 2017).
 

Current WTO tariffs are 10% for cars and 2.5%-4.5% for parts. The SMMT has calculated that a 10% tariff would add £1.8 billion to the cost of fully assembled cars exported from the UK and £2.7 billion to those imported from the European Union - which, it says, would  add some £1,500 to the cost of every one sold in the UK.  

Such tariffs, as well as other non-tariff barriers and customs restrictions would put the motor industry at “an immediate competitive disadvantage, inevitably hitting consumers in the pocket with price increases and reduced choice”, said the SMMT.  

It added that attracting investment whilst “carrying these additional costs” would be a major challenge, a challenge already visible with the current uncertainty resulting in reduced investment, down from £2.5 billion in 2015 to £1.66 billion last year.

The SMMT identified what it called the “priorities for UK automotive in the negotiations” as:
Equivalent single market benefits - zero tariffs and no trade barriers with the European Union
Customs - maintaining the arrangements and benefits the UK enjoyed as part of the Customs Union, with common customs procedures
Talent - guaranteed access to talent across Europe         
Regulation - continuity in rule making through regulatory harmonisation
Trade - securing the UK’s position in current and future trading relationships 

The SMMT went on to claim that as a “highly-integrated sector that has maximised the benefits of the European single market”, the triggering of Article 50 was “perhaps the most significant threat to the competitiveness of the UK automotive sector in a generation”.  

The UK automotive industry employs more than 800,000 people across the country, including manufacturers, suppliers, retailers and the aftermarket, contributing £18.9 billion to the economy. The industry, said the SMMT, was on a roll, with 2016 the best year ever for new car registrations, car production at a 17 year high with record exports and the European Union’s highest productivity levels. 

Much of that success, it said, was due to the UK’s global competitiveness, a competiveness drawn from economic and political stability, investment, a highly skilled workforce and beneficial trading conditions with the European Union, the industry’s biggest market worth more than £42 billion - nearly seven times the value of the UK’s next biggest trade partner, the United States.  

The SMMT said the UK government and the European Union needed to reach a deal which “protects this frictionless, ‘just in time’ movement but one which also avoids tariffs, harmonises regulation and ensures the European and UK automotive industries remain the engine for growth, innovation and jobs”.  

The SMMT continued: “We need a trade policy aligned to a strong industrial strategy that supports the specific needs of the sector for all the investment, reshoring and export opportunities. We need an outcome that maintains growth, innovation, consumer choice and the long-term future of the industry.”  

Mike Hawes, SMMT chief executive, said: “Triggering Article 50 has started a race against time to secure a deal that safeguards the future of the UK automotive industry. Government has committed to creating and supporting the right conditions for our industry to be successful. That means certainty in our relationship with our biggest market, tariff-free and open borders so products, parts and investment can flow freely, and continued influence over the regulation that governs the vehicles we build and drive. We will continue to work with government and our European counterparts but no deal is not an option. Now is the time for government to deliver.”
 

Sue Robinson, director of the National Franchised Dealers Association (NFDA) which represents franchised car and commercial vehicle dealers across the UK, agreed that a free trade agreement was critical and added that it was also vital that finance deals remained “easily accessible” with 1.05 million new vehicles bought by consumers and 505,000 purchased by businesses through finance.

  Ms Robinson said: “It is positive that the Prime Minister has confirmed the government’s commitment to strike the freest possible trade agreement and provide as much clarity as possible to businesses during the negotiations.”