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‘Hard’ Brexit could increase cost of new car in the UK by almost £2,400

‘Hard’ Brexit could increase cost of new car in the UK by almost £2,400

New car prices could increase by an average £2,372 per vehicle under a ‘hard’ Brexit, according to a new report by the PA Consulting Group.  

Called ‘Brexit: The Impact on the Automotive Supply Chain’, calculates the increase as a result of the cost of moving to a World Trade Organisation (WTO) regime - 10% tariff on finished vehicles and 4.5% tariff on component parts - for UK car makers making it “especially challenging given their typically low margins”. Such a price rise would be effective if manufacturers chose to pass all the additional costs on to buyers.  

Equally, European-based manufacturing companies would face similar costs for exporting to the UK from mainland Europe.  

Increased time delays at borders could also impact “just-in-time” supply chains that were currently standard for the industry, according to the report.  

The report also identifies three possible scenarios emerging even if partial trade restrictions exist:

Manufacturing companies or suppliers with substantial operations in the UK and with a good UK market exposure: those manufacturing companies were likely to encourage suppliers to locate and expand their offerings in the UK. That would involve increased investment in UK parts procurement, production and supply chains to offset increased import costs, aiming to reduce the impact of tariffs imposed on component parts moving between the UK and the European Union.
Manufacturing companies or suppliers with substantial operations in the European Union or overseas and with satellite operations in the UK focusing on exports to the European Union: those manufacturing companies and suppliers may look to relocate their manufacturing back to the European Union. The increased cost of exporting 200,000 cars per year could be £460 million which in two years would easily pay for the cost of a new plant in the EU area.          

European Union manufacturing companies or suppliers who export finished vehicles and components into the UK: for those manufacturing companies it could be beneficial to move some manufacturing to the UK, but that will be dependent on import volumes and costs of supply. It is likely that in that scenario, the price of imported cars will increase for UK customers, with increased prices covering the costs of any tariffs. 

The report warns that it would make economic sense for some manufacturers to abandon British factories if 10% WTO tariffs were introduced. The cost of exporting 200,000 cars a year from the UK would be £920 million after two years, which PA said would “easily” cover the cost of building a new plant in the European Union.  

Tim Lawrence, global head of manufacturing at PA Consulting Group, said: “Both the European Union and the UK would benefit from keeping free trade and supply chains unaffected because any tariffs would be damaging for both sides based on today’s complex supply chain arrangements.
 

“Car makers will have to review their manufacturing and supply chain network and investment decisions and plan for scenarios based on extra tariffs and charges/incentives on corporation tax. Some may consider investment options into the UK, but equally some may consider investing into the European Union.”