Brexit Trade Deal Offers Hope For Auto Industry

< Back to blog

A timely Brexit trade deal has been made between the EU and UK, allowing for tariff-free trade that will benefit manufacturing industries, including the automotive sector.

A ‘no deal’ Brexit threatened to bring with it 10% tariffs on future imports and exports into the UK. However, the UK-EU Trade and Cooperation Agreement (TCA) will prevent this after Parliament approved the Post-Brexit Trade Deal.

Ready to find your perfect new car? Get car lease deals now

What does this mean for UK car manufacturing?

Brexit trade deal - car manufacturing
  • Hope for major investment into the UK from manufacturers – for example, from Nissan to start production of the 2021 Qashqai at its Sunderland plant
  • Avoids tariffs for most finished cars, parts and components
  • ‘Non-tariff’ barrier costs still apply – i.e. through customs declarations, certification costs, EU customers choosing other suppliers and border delays etc.

Mike Hawes, SMMT Chief Executive said that the TCA provides a base with which the automotive industry can push on from what has been a difficult 2020. Car sales were down by -30.7% year-to-date, but the news of a trade deal being agreed offers hope of a revival in 2021.

“For automotive, Brexit has always been about damage limitation, and the draft Trade Cooperation Agreement, while no substitute for the completely free and frictionless trade with Europe we formerly enjoyed, will address immediate concerns. The TCA provides the opportunity for tariff and quota-free trade, foundations on which the industry can build. Even with immediate ratification, however, there will be just hours to adjust to new trading rules, so a phase-in period is critical to help businesses adapt. All efforts should now be made to ensure its seamless implementation, with tariff-free trade fully accessible and effective for all from day one.”

Mike Hawes, SMMT Chief Executive

Hawes added: “Further ahead, we must pursue the wider trade opportunities that Brexit is supposed to deliver while accelerating the UK’s transition to electrified vehicle manufacturing.

“With the deal in place, the government must double down on its commitment to a green industrial revolution, create an investment climate that delivers battery gigafactory capacity in the UK, supports supply chain transition and maintains free-flowing trade – all essential to the UK Automotive sector’s future success.”

Rules of origin for electric cars

Brexit trade deal - electric car

This Brexit trade deal slightly changes the requirements on the UK’s part when it comes to the country’s electric car content.

Known as ‘rules of origin’, there’s now a six-year phase-in whereby UK’s electric cars will be required to have a maximum 45% content from outside of Europe. Originally the UK asked for this to be 70%, which is a slight compromise.

For UK car manufacturing, this could be a costly exercise when trying to obtain expensive electric/hybrid systems from countries outside the EU. There is a grace period for UK plants to increase their production of local content. But the deal means that by 2027 there needs to be 55% local content, even for full electric models.

As it stands, the UK is struggling to attract significant investment for manufacturing EV batteries. Moving forward, unless this improves, the UK will be increasingly more reliant upon imported components from the EU in order to meet rules of origin rules.

Looking to switch to an EV without it costing an arm and a leg?Compare EV lease deals

Will car prices increase in 2021?

Brexit trade deal - car prices

Many manufacturers stated that the 10% tariffs rumoured to be a consequence of a no-deal Brexit would have cost them hundreds of millions. At the same time, these extra charges would have, in a lot of scenarios, been passed onto customers.

For example, BMW‘s chief financial officer warned last month that any new vehicles it produced (including Mini models, which it owns) would be more expensive – specifically, Mini’s in Europe and BMW’s in the UK.

Since a deal has been approved in Parliament and its implementation is nearing, these tariffs won’t stand and so manufacturers won’t have to increase their prices in order to compensate.

Of course, the cost of non-tariff barriers mentioned earlier could still pose a problem. But it’s yet to be made clear whether car makers will ‘pass the buck’ onto customers. Nevertheless, there’s still positive news for important UK plants that manufacture cars, such as in Ellesmere Port where development of the Vauxhall Astra is expected to continue.

Ready to find your perfect new car for 2021? Find your perfect car