June 20, 2017 / 9:40 AM / a year ago

UPDATE 2-UK car industry says no Brexit deal would cause permanent damage

(Adds quotes, details, background)

By Costas Pitas

LONDON, June 20 (Reuters) - Britain’s thriving car industry could be permanently damaged and its supply chains crippled if the country falls out of the European Union without an interim deal, senior executives warned on Tuesday.

On course for record output by 2020, Britain’s automotive industry has been one of the country’s great success stories in recent years, employing over 800,000 people in the sector to produce for the likes of Jaguar Land Rover, Nissan and Mini.

“The greatest threat to that progress is Brexit,” said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT) on Tuesday.

“To leave in 2019 without a deal would put the industry in peril, defaulting to WTO tariffs and customs barriers would damage our industry permanently,” he said, referring to the two-year talks which are under way between London and Brussels.

The sector has consistently warned that the imposition of tariffs and a loss of access to its biggest export market following Britain’s departure from its EU could hurt investment and threaten the viability of the huge car plants.

British Prime Minister Theresa May had proposed a clean break from the EU: leaving its single market, which enshrines free movement of people, goods, services and capital, and giving up full access to the customs union in favour of a bespoke deal.

But her failure to win an outright majority in a snap election on June 8 has weakened her authority and reignited debate within the cabinet and her party over what kind of deal Britain should pursue as it leaves the bloc.


For the car industry, which has refined the management of its supply chains so that parts arrive on site just hours before they are used, any delay at the border would be hugely damaging.

On Tuesday, Honda, which builds around 8 percent of Britain’s 1.7 million cars at it southern English plant, said it had discovered more complexity and cost the further it delved into the details of what an exit from the customs union would mean.

“Put very simply the supply chain will start to seize up with obvious impacts on our ability to manufacture vehicles efficiently,” Honda Europe Senior Vice President Ian Howells said.

Howells told Reuters it remained to be seen whether politicians were listening to the needs of business, in a sign of the pressure politicians are facing from a range of sectors.

Top of the list for the industry is a desire to see a longer transitional deal agreed with the EU, to give the industry time to prepare for the historic move out of the EU.

The SMMT said it also wants Britain to still be able to approve vehicles for the European market, maintain passporting rights for automotive finance firms and have access to EU trade deals with nations such as Japan.

Only 44 pct of parts in UK made car come from Britain, compared to common global rules for more than half in many free trade agreements. That level is even lower when taking into account cross-border work before final installation. (Writing by Costas Pitas and Kate Holton, editing by Louise Heavens)

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