Industry Insight – Automotive

Brexit… Perhaps the most debated topic since the referendum was held just over three years ago. Whether you are a ‘Leaver’ or ‘Remainer’, a stark reality is approaching with the UK officially due to leave the EU on 31st October 2019, and the risk of a ‘no deal’ Brexit as the outcome is very real. Should this happen, the UK will be leaving the customs union and single market overnight, UK-EU trade terms will have to be set by the World Trade Organization (WTO), which could have rippling economic consequences including border delays and possible price increases to goods. The effects of a ‘no deal’ Brexit could be felt most catastrophically in the Automotive industry. To apply some context, the automotive industry is one of the most deeply integrated across Europe with many carmakers having manufacturing sites in the UK, indicating that the impacts could be “seismic”. Indeed, the UK and EU automotive industries heavily depend on frictionless trade to facilitate their just-in-time supply chains where a single vehicle consists of around 30,000 parts, many of which cross borders multiple times.

The President of Germany’s VDA (German Association of the Automotive Industry) Bernhard Mattes, has stated that the UK is a “fully integrated player in the value chain of the German automotive industry”, locating more than 100 production facilities. Similarly, head of the French Automotive Industry Association (CCFA) Christian Peugeot, has said that “Brexit is not just a British problem, we are all concerned in the European automotive industry, and even further”. In fact, senior representatives from 23 automotive business associations across the EU have issued a joint statement of caution against a ‘no deal’ Brexit. In the UK, over 30 automotive manufacturers build in excess of 70 models of vehicle supported by 2,500 suppliers. And in the EU, automotive manufacturers operate 309 vehicle assembly and production plants across 27 countries. Around 10% of vehicles assembled in the EU are destined for the UK as manufacturers are currently reaping the benefits from the single market.

The aforementioned “seismic” impacts within the automotive industry born of a potential ‘no deal’ Brexit are especially evident through the possibility of WTO tariffs adding €5.7bn to the collective costs for the UK and EU. This in turn could negatively impact consumer choice and affordability on both sides of the channel. To state the obvious, any financial loss will be damaging to a manufacturer, and significant loss may be on the horizon for manufacturers in the automotive industry depending on the outcome to Brexit, but it is also clear just how vital it is for manufacturers to take a proactive stance to loss management in their business. A manufacturer able to identify, quantify, and eliminate loss in its operations will be in a far stronger position to tackle uncontrollable external factors when they arise. Today, political factors are a predominant challenge, next year it may be environmental factors, the year after that could be technological. The point is that when these challenges emerge, and they will, manufacturers must be able to put their ‘best foot forward’.