March 7, 2018 / 2:18 PM / 4 months ago

Preparing for the worst, UK carmakers warn of Brexit trade barrier costs

GENEVA (Reuters) - Britain’s biggest carmakers such as Jaguar Land Rover cautioned Prime Minister Theresa May that their plants would become more expensive and complicated to run if Brexit creates barriers to trade.

FILE PHOTO: The logo of British manufacturer Jaguar is seen on a Jaguar F-Pace SUV car in Zurich, Switzerland, August 10, 2017. REUTERS/Arnd Wiegmann/File Photo

Ahead of Britain’s exit, the world’s biggest car companies are grappling with how they will import millions of components from around the world and then export cars made at British factories to European clients after a Brexit transition ends.

Carmakers already have plans on how to handle multiple scenarios including delays at ports which would hit a global business model reliant on the swift movement of components, engines and finished models across borders, executives said.

“It costs us two-digit million number of pounds which is absolutely wasted if the one or the other condition is going to happen but at the end of the day we cannot risk the company,” Jaguar Land Rover (JLR) Chief Executive Ralf Speth told Reuters at the Geneva Motor Show.

“We are talking about minutes at the borders and if we are out of the minutes, we have huge disadvantages in terms of inventory, logistics and therefore we have to do all this kind of contingency planning now,” said Speth, who heads Britain’s biggest car company.

He warned that any divergence in vehicle standards between Britain and the European Union, which are currently the same, would be a “fallback to the Middle Ages.”

While London and Brussels hope to agree a transition deal at an EU summit this month that will maintain the status quo until the end of 2020, companies are already trying to plan for an uncertain long-term future in Britain.

At stake is the future of one of Britain’s few manufacturing success stories since the 1980s: a car industry employing over 800,000 people and generating turnover of 77.5 billion pounds ($110 billion).

BMW and other companies will meet May and her finance minister, Philip Hammond, on Thursday to discuss Brexit, as the government seeks to assure them it will protect frictionless trade despite being outside the EU’s tariff-free customs union.

The meeting comes as U.S. President Donald Trump’s threat to raise tariffs on foreign cars would hit British firms which import all their models sold to U.S. buyers, raising questions about May’s aim to strike a trade deal with the United States.

On Brexit, Honda and Peugeot are also among those considering extra warehousing to hold larger stocks of components to protect their “just-in-time” production from any customs checks which could introduce delays after Brexit.

Honda’s European Government affairs manager, who told lawmakers last year the Japanese carmaker would need to trigger its contingency plans this month, told Reuters the firm was awaiting further detail.

“We are monitoring the situation as the negotiations unfold and look forward to receiving additional clarity at the March council,” said Patrick Keating.

BMW’s Mini said the complications of preparing for a loss of unfettered trade were huge.

“We don’t know if each truck gets held up. We can build up bigger stocks so that we are more flexible in production. It is a nightmare right now,” said board member Peter Schwarzenbauer.

The EU offered Britain on Wednesday a post-Brexit free-trade agreement that is modest compared with what London has called for. The 27 remaining EU members said the agreement would aim to cover trade in all goods sectors “which should be subject to zero tariffs and no quantitative restrictions.”

FUTURE INVESTMENT AT RISK?

Boosting supplies and dealing with any new customs checks would allow British plants to keep operating, but such measures could make them less competitive against European rivals, making it harder to attract new models in future.

And while Nissan, Toyota and BMW have all announced new investment in Britain since the Brexit referendum in June 2016, Ford, Jaguar Land Rover and Peugeot warned at the Geneva Motor Show that they needed certainty to make upcoming choices.

“The sooner we have the clarity, the easier the decisions become to make, positive or negative,” Ford’s Europe boss Steven Armstrong told Reuters on Monday.

Britain’s car industry has been one of the most vocal in pushing to maintain the current access it enjoys with its biggest export market with investment slumping a third to 1.1 billion pounds ($1.55 billion) last year as many await clarity.

Peugeot could decide as soon as this year whether to keep its Vauxhall Ellesmere Port plant open whilst JLR is considering whether to build electric cars in its home market. [nL5N1QO2TL]

Although many executives believe a transitional deal will be agreed, there are still question marks over the future of some aspects such as whether licences granted by Britain’s Vehicle Certification Agency (VCA) will remain valid across the EU.

Aston Martin’s boss Andy Palmer said the quintessentially British firm, famed for being James Bond’s car of choice, had ditched the VCA in favour of Spain’s vehicle body for the time being, including for its next car, the next-generation Vanquish.

“When they tell us that they have no confidence that they’ll be able to test against European emissions, then as businesses you can wait and wait or you can delay and you can delay or eventually you have to decide,” Palmer told Reuters.

Additional reporting by Edward Taylor, editing by Guy Faulconbridge and Adrian Croft

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