The top models manufactured in the UK and sold around the world are:
- Nissan Qashqai
- Honda Civic
- Toyota Auris
- Vauxhall Astra
- Nissan Juke
- Range Rover Sport
- Jaguar F Pace
- Range Rover Evoque
- Land Rover Discovery Sport
The threat posed by Brexit is also larger than it appears. Direct exports to the EU already account for over half of all UK exports, but a further 10% of all car exports are delivered to countries under free trade agreements they signed with the EU, with the UK benefiting as a member. These include exports made to South Korea, Canada, and Turkey. In theory, up to 64% of UK exports are at risk from Brexit.
Learn more: how has the UK car market performed in early 2018?
The proportion of UK cars produced being exported rose to its highest ever level last year, and helped offset the declining domestic demand which caused UK car production to fall for the first time in eight years in 2017. With the UK government emitting confusing messages on diesel and a wobble in confidence during lengthy Brexit negotiations, output for the UK market fell 9.8% last year, compared to the 1.1% decline in production for export markets.
On a brighter note, demand for UK parts remains high, particularly for engines. UK engine production reached an all-time high in 2017, rising 6.9% to over 2.7 million. Over half went overseas, mostly to the EU.
Based on 2016 figures from SMMT, Ford produced 56.6% of all engines made in the UK from its two plants in Dagenham and Bridgend, with Nissan close behind at 10.4%. Other major contributors were BMW at 10.1%, Toyota at 9.4%, Jaguar Land Rover at 7.9%, Honda at 5.2%, and Bentley at only 0.5%.
The SMMT has been quite clear that the UK automotive industry wants a Brexit deal that is as close to the existing arrangement between the UK and the EU, and has called for maintaining membership of both the single market and the customs union – which might be better described a wish list.
Read more about London-listed UK car dealerships and what their share price outlook is
Although the impact of Brexit is already being felt, with investment in the UK automotive industry dropping by more than one-third in 2017 to £1.1 billion, the outlook will remain bleak until post-Brexit conditions are truly known. Having said that, it is not all doom and gloom. Most of the UK’s popular brands may have fallen into foreign ownership over time, but there is plenty of evidence that manufacturers are backing the UK post-Brexit.
UK car manufacturers invest in the UK amid Brexit
PSA Group, having bought the loss-making Opel-Vauxhall business from General Motors last year, has become the latest manufacturer to invest in its UK operations amid Brexit to join the likes of Nissan, Toyota and BMW in what has to be seen as a voice of confidence behind the UK market – regardless of what Brexit can throw at it.
PSA has committed to building new Vauxhall and Opel Vivaro vans at its existing plant, partly thanks to an existing paint facility it has there. This will involve an investment of about £100 million and output will rise to 100,000 when new Peugeot and Citroen models are added from about 59,000 vans in 2017. However, PSA has said it needs to begin sourcing more parts from the UK than abroad, and has a long way to go to turn the business round.
Toyota said earlier this year it is to build the next generation of the Auris Hatchback in Derbyshire, after producing cars in the UK over the past quarter-of-a-century, and has in turn called for trade post-Brexit to be as ‘frictionless as possible’.
BMW said it would continue to back the Britishness of the MINI by building its electric version in Oxford, after previously stating it was looking to shift manufacturing outside of the UK.
Nissan, which produces the most in-demand car for overseas markets, was the first big manufacturer to back its UK plants after the referendum vote. The company in 2016 committed to making the next generation Qashqai and X-Trail SUVs at its Sunderland plant.
The UK government’s helping hand to the automotive industry
When Nissan became the first to signal its willingness to invest in the UK despite Brexit, the UK government provided assurances that the Japanese carmaker would not see an impact on trade after the UK left the EU. When Toyota invested around £240 million in its Derby plant last year it was aided by a UK government grant worth over £21 million.
The UK is contributing £9 million as a guarantee PSA’s plant in Luton will remain competitive after Brexit, but the firm’s Ellesmere Port plant is still in jeopardy, and competing with one other plant in the EU to produce the next version of the Vauxhall Astra. The government may well have to get its purse out again.
UK Automotive Sector Deal
In January this year, the UK government confirmed the Automotive Sector Deal which includes:
- A sector deal with £32 million of joint funding to develop ‘industry-led supply chain competiveness programme’
- A £26.4 million government investment in low-carbon vehicle projects with Ford, GKN and Jaguar Land Rover, which will be matched by a further £52.8 million of industry funding
- A £500 million government investment over ten years to 2023 to develop new low carbon automotive technologies, matched by £500 million of industry funding
- Government funding of £225 million from 2023 to 2026 to support research and development in the sector, with industry matching that investment
- Government investment of £246 million to make the UK a ‘world leader’ in design, development and manufacture of batteries for the electrification of vehicles
- A £250 million government investment in connected and autonomous vehicles
The government does have a responsibility to help ailing important industries (those with strategic importance or employing large numbers of staff) get back on their feet when times get tough, but only those that it believes has a future. The UK government offered a plaster to what remains of the steel industry but refused to provide any further treatment because, ultimately, it doesn’t see a future for UK steel beyond a small group of niche producers.
The UK automotive market, however, has bright prospects and the government is not plumping up major sums to rescue a struggling industry, it is more offering guarantees to some of the country’s biggest employers. As far as the UK government is concerned, it will deliver a deal that will satisfy the industry and, if it doesn’t pay off, then it has the purse ready to ease the projected loss of trade that manufacturers would expect.
As the UK government has conceded, the UK automotive industry ‘has benefited from the European market’ and a ‘new relationship that is free from tariffs and without friction to trade’ are ‘factors fundamental to the competiveness of the UK automotive sector’.
What could happen to the UK’s automotive industry without a Brexit deal?
If a no trade deal is agreed between the UK and EU for the automotive industry, then the sector will fall under World Trade Organisation (WTO) rules, which would slap a 10% tariff on all cars imported to the EU from the UK. Over half of all UK-made cars are sent to the EU, and the SMMT has estimated this could add £1.8 billion in costs. With the UK importing 69% of all cars from the EU, that tariff on cars imported to the UK from the EU would add £2.8 billion in costs.
There is also employment concerns as ‘at least’ 10% of the manufacturing workforce in the UK come from elsewhere in the EU, according to the SMMT.
Learn more: what is the potential economic impact of Brexit?