No-Deal Brexit Is Seen Bringing $7 Billion in Car Tariffs

(Bloomberg) -- If the U.K. leaves the European Union without a trade deal, the car industry and consumers could end up paying at least 5.7 billion euros ($6.7 billion) a year in vehicle tariffs, according to a report by a British industry group.

The Society of Motor Manufacturers and Traders said Wednesday the estimate is based on levies of 10 percent on car exports and imports, and that the industry could also suffer production halts due to the political split.

“Brexit is the major challenge that we have,” Mike Hawes, head of the lobby told reporters in Brussels. “What we need to insure is that come November there is a withdrawal agreement because we cannot afford no-deal Brexit, that is the worst of the imaginable options for this industry.”

The warning on Brexit from the car sector is one of a host of recent pleas from European businesses for politicians to break a deadlock on finalizing the terms of the U.K.’s divorce from the EU. While both sides have signaled their readiness to work on getting a deal, the report published Wednesday by the U.K. automotive lobby suggests anxiety is running high that a so-called no-deal Brexit would create havoc for the industry.

Price Hikes

If passed directly on to consumers, import tariffs would push up the cost of U.K.-built cars sold in the EU by an average 3,000 euros, the SMMT said in its report. U.K. buyers of a car from the EU would be faced with a 1,700 euro price increase if manufacturers and their dealer networks were unable to absorb additional costs.

The report also shows the tight links between the industries. Some seven out of every ten cars registered by U.K. drivers come from factories in Europe, whereas U.K. car plants send more than 40 percent of their output to the continent. More than 1,100 trucks cross into the U.K. every day to deliver parts to U.K. plants making vehicles and engines which are then exported back to the EU.

Storing components in warehouses is not an option, Hawes said.

Trucks deliver parts to plants on specific schedules so any disruptions have “a potential to stop production,” he said. “You’ve got some products that will come every four hours to a plant, so pretty quickly if you are looking at warehousing, it is a bloody big warehouse.”

Hawes said that although U.K. Prime Minister Theresa May’s so-called Chequers deal is a step in the right direction, it doesn’t address some of the issues like “access to talent.” About 10 percent of the workforce in the U.K. auto industry comes from outside the country, he said, adding that industry would like to secure a deal with frictionless trade, the same regulatory framework on both sides of the English Channel and no tariffs.

©2018 Bloomberg L.P.