11 months to strike EU-UK trade deal as UK car sales hit 6-year low
Just when Brexit seemed over, the real work begins. At stake is the future trading relationship between the European Union and the UK, which will have a major impact on Europe’s automotive industry. Falling new car sales in the UK present worrying indications that uncertainty over Brexit is already having a negative effect on the country's new car market.
The UK imports just over 32% of cars manufactured by the other 27 EU member states, representing about 1.8 million vehicles in 2018, according to figures from the ACEA. Official statistics from the UK parliament, issued in December, revealed that road vehicles are the UK’s single largest import from the EU, accounting for 17.4% of all goods imports to the UK at a value of €55 billion (£47 billion).
From a UK perspective, more than half (51%) of all cars that it manufactured in 2018 were sold into EU member states. In addition, 1,100 trucks arrive daily from continental Europe with parts for UK car plants without being checked at the border.
The concern for OEMs and their parts suppliers on both sides of the Channel is that the EU and UK will fail to establish a frictionless, tariff-free trade policy before the end of this year. Sales of new cars in the UK fell for the third consecutive year in 2019 , tumbling to their lowest level since 2013, leading Mike Hawes, chief executive officer of the SMMT, the UK car manufacturers’ association, to say: "Political and economic uncertainty, and confusing messages on clean air zones have taken their toll on buyer confidence."
Despite the -2.4% decline to 2,311,140 units, the UK remains Europe's second largest new car market after Germany.
Strengthened by a convincing victory in the UK general election, Prime Minister Boris Johnson has secured a healthy majority in parliament for the Withdrawal Agreement Bill that is likely to see the UK leave the EU at the end of January.
Once the bill becomes law, the current trading relationship will continue for 11 months while the EU and UK enter a transition period to work out what their future relationship should be. If the two sides decide that they need an extension to the transition period, they have until 1 July to agree it. Beyond this date the EU has said there will be no extension, while Prime Minister Johnson is planning to pass a law that will make any extension beyond the end of 2020 illegal.
This leaves a very tight timetable to negotiate a new trade agreement. If the EU and UK fail to reach an agreement then World Trade Organisation tariffs of 10% will apply to vehicle exports heading both ways across the Channel, and customs checks may be necessary on parts supplies heading between UK and EU assembly plants.
Consequences of no deal
The terms of the deal will have profound consequences for vehicle manufacturers, especially those in the UK. Groupe PSA, for example, announced in June 2019 that it would manufacture the new Vauxhall (Opel) Astra at Ellesmere Port in the UK: “conditional on the final terms of the UK’s exit from the European Union and the acceptance of the New Vehicle Agreement, which has been negotiated with the Unite Trade Union.”
Immediately after Prime Minister Johnson’s election win, Hawes called on the new Government to: “Restore business and economic confidence and re-establish the UK’s reputation as a great place to invest.”
He added that the Government must: “maintain our global competitiveness which means delivering a deal with the EU that is ambitious, maintains free and frictionless trade, and drives growth and innovation to meet shared environmental goals.”
During his election campaign, Prime Minister Johnson visited Nissan’s factory in the north east of England and told reporters: “It's absolutely vital we protect supply chains, we protect Nissan Motors, we make sure people continue to want to invest in our country.”
Throughout the Brexit debate, campaigners for the UK to leave the EU argued that the German government would back a free trade deal to support its domestic car makers who sell 750,000 cars in the UK every year. However, European politicians from Germany and elsewhere have made clear that preserving the integrity of the EU single market is more important than any individual industry. Car makers, fleets and private motorists now have 11 months to discover whether this is true.