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No-deal Brexit: UK car industry faces 12% production drop and over £3bn in tariff costs

·Senior Economics Correspondent at Yahoo Finance UK
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The UK car manufacturing industry is set to lose another 12% of its production and faces more than £3bn in new annual tariffs in the event of a calamitous no-deal Brexit, according to fresh warnings published on Monday in a book by industry experts.

The new book — “Keeping the Wheels on the Road: UK Auto after Brexit” — argues that annual production would be cut by a further 175,000 vehicles following a no-deal Brexit, according to a chapter written by Ian Henry, the owner of the research firm AutoAnalysis.

British auto manufacturers built just over 1.5 million cars last year, the majority of which were exported to the European Union, US, and other global markets.

The cut of 175,000 cars would be on top of the wipeout of all Honda (HMC) production in the UK, according to Henry.

The Japanese manufacturer announced this month that it would close its sole British factory in Swindon in 2021. The factory, which directly employs 3,500 workers, builds about 160,000 cars each year, or about one in 10 of all UK-made cars.

In the past few months, manufacturers including British giant Jaguar Land Rover, along with Ford (F) and Michelin (ML.PA), announced job cuts that could lead to roughly 13,500 UK jobs being lost.

The British car industry directly employs about 186,000 people in the UK, with a total of 856,000 jobs dependent on the sector, according to recent data from the Society of Motor Manufacturers and Traders (SMMT).

“There’s a sense that the industry is at a tipping point, squeezed by diesel’s demise, falling sales in China, and Brexit uncertainty hampering growth — plus the need to invest in new technology,” said Aston University professor David Bailey, one of the book’s editors.

Ford and other high-profile automakers have warned they’ll slash UK jobs in the coming years. Photo: Carl Court/Getty Images
Ford and other high-profile automakers have warned they’ll slash UK jobs in the coming years. Photo: Carl Court/Getty Images

The new book also warned that the UK car industry could face more than £3bn in new annual tariff costs if the UK and European Union are unable to secure a Brexit deal and transition agreement by the 29 March deadline.

The European Union currently imposes a 10% tariff on car imports, which helps shield the auto industry from outside competitors. In the event of a no-deal Brexit, British manufacturers would suddenly be faced with a 10% tariff to export their cars to the European Union as they find themselves shut out from the EU’s customs union. They would also face an extra 10% tariff to import cars and parts from the EU.

This £3bn figure does not take into account the risk of costly factory shutdowns, non-tariff barriers, and a slow-down in trade.

The SMMT revealed in January that fresh inward investment in the British car sector plummeted by nearly 50% in 2018 compared to the previous year. Just under £589m was invested in the industry last year, “amid fears over the UK’s future trading prospects with the EU and other key global markets after 29 March,” the SMMT said.

Carmakers across Europe are also struggling with sliding diesel sales in the wake of Volkswagen’s (VOW3.DE) Dieselgate scandal, along with a need to scale up investments in electric and autonomous driving technologies.

Plus, new European emission testing standards introduced in late 2018 slammed the sector and nearly tipped Germany’s economy into a recession. These are just some of the trends outside of Brexit that are pinching car manufacturers and forcing job cuts in Europe.

“The stakes … from on­going Brexit uncertainty are very high indeed, just at a time when the industry is starting to transform itself towards an electric future. The UK risks losing a wave of investment, and with it, a raft of new technologies,” Bailey, the Aston University professor, said in a written statement.

READ MORE: The big electric car launches to expect in 2019

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