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  1. And how will they affect you? So, you’re thinking about buying or leasing a new car in the next few months? You know that it’s going to take some time for the car to be assembled how you want, but it’s still only going to be a few weeks, right? What happens if you don’t need your car until May? Is Brexit going to make that much of a difference? In all likelihood, you will have read something about how Brexit is going to affect some areas of your life. Newspapers are full of articles warning of the potential negative effects that our withdrawal from the EU will have on people’s lives. There has been mention of the possibility that you might need a visa to take your summer holiday in Spain – something that would spell the end of a last-minute European city break. There has also been speculation that the recent removal of roaming charges when using your mobile phone abroad will be reinstated. More recently, mention has been made that you’ll be unable to use your UK Netflix or Spotify account when travelling. Of course, all the headlines are just speculation. At the moment, no one knows exactly what is going to happen, and this lack of knowledge means that businesses feel they have no choice but to prepare for what could be seen as a worst-case scenario. Brexit has dominated the news for over two years and with the deadline fast approaching plans still have to be made and a deal needs to be struck. One thing that has become apparent is that no matter what decisions are made and what the deal eventually negotiated actually looks like. Theresa May has warned that it’s incredibly likely the UK will leave the single market and customs union as a part of Brexit and all this will mean that the free movement of goods across European borders could end. As not all cars are built on UK shores this may also have an effect on how long it takes for your new car to travel from the factory to your driveway. Another thing that will affect the length of time it takes for goods, like your new car, to arrive in the country is the necessity for businesses to learn a new way of working. The introduction of new customs processes will impact on every industry that relies on import and export, especially the motor industry, which relies on thousands of deliveries per day to get your car assembled and off the production line. So how will Brexit affect me buying a new car? When Europe’s carmakers gathered in Paris at the beginning of October this year there was clear disquiet. The fact that Brexit is an unpopular subject and something that the industry is dreading is no secret. Companies like Nissan, Toyota and Honda have acknowledged they are nervous about the lack of progress being made in reaching a deal. Manufacturers warned of potentially detrimental effects on the future of the car industry in the UK following a ‘no deal’ Brexit. Car companies and other industries that rely on transport of products through Europe are understandably concerned about the implications of leaving Europe without a deal in hand. They are requesting that the government make sure the topic of free trade is part of the negotiations. Why this might affect you even if your car is assembled in the UK Even if your car is assembled in the UK it is likely that some of its parts will have been transported across the channel at some point during the manufacturing process. The graphic below shows you the journey that a single bumper used in the construction of the Bentley Bentayga takes before it’s added to the luxury vehicle in Crewe. Components such as engines, transmissions and even windscreen wipers require a great deal of warehouse space, and in order to reduce this, many car manufacturers operate a ‘just in time’ or ‘JIT’ delivery system. This system relies greatly on components being delivered to factories just before they’re needed. Every day over 1,100 trucks cross the Channel with deliveries intended for car and engine plants based in the UK. Just a few hours’ extra getting through Customs will be enough to cause damaging delays in the production line. If the UK government are unable to negotiate an acceptable deal for both sides before March 29th next year, then it’s likely anything being transported from the EU would, by World Trade Organization rules, incur a 10% tariff, which could see the price of that brand new car increasing by more than £1,000. The WTO tariff wouldn’t only affect car manufacturers; pharmaceutical companies and oil producers are among the other UK-based industries concerned with the additional costs they will potentially incur following our EU divorce. It’s important to note, however, that cars and car components are the UK’s second largest export to EU and non-EU countries (such as America, Canada and China), adding up to over £41 billion in value per year. They are also the third largest import after electrical and mechanical machinery, with a value of over £54 billion in 2017. The National Audit Office recently released a report warning that despite progress having been made in preparing for a no deal exit from the EU, businesses that rely upon borders running efficiently to conduct their business will experience issues for the first time after March 29th. Sir Aymas Morse, head of the NAO said, “The government has openly accepted the border will be sub-optimal if there is no deal with the EU on 29 March 2019. […] But what is clear is that businesses and individuals who are reliant on the border running smoothly will pay the price.” There would also be additional delays for the goods travelling into the country. This is what is giving car manufacturers who rely on a smooth border crossing of cars and components into and out of the UK on a daily basis a great deal of concern. A sudden change like this will have serious implications for British industry as a whole. One concern, post-Brexit, for companies that only trade with countries in the EU is the introduction of customs declaration forms. This new requirement will not only increase the amount of preparatory work a business needs to carry out prior to sending a shipment overseas, but it will also increase the volume of paperwork that HMRC has to process, potentially up to 260 million declarations in a year (a rise of over 200 million). This will further complicate and delay deliveries until an efficient system is in place, both at HMRC and the individual businesses. Even if you’ve placed an order before Brexit, if it hasn’t arrived in the country before March 29th there will be delays when crossing the border and there may even be an increase in costs for you as the customer. What are carmakers’ feelings about Brexit? At this year’s Paris Motor Show a number of carmakers were not shy in sharing their concerns on the state of Brexit negotiations. They also took the opportunity the motor show presented to announce any plans they have already made to prepare their UK-based factories for multiple possible exit scenarios. In some cases companies are looking to pre-empt potential delays with deliveries from the EU by either closing their UK factories temporarily or, where they have warehouse space available, stocking up on necessary car parts in order to ensure they aren’t 100% reliant on deliveries coming into the country that could be delayed at the border. Some UK manufacturers are also trying to encourage major suppliers of components to open plants in the country to minimise future risk to their supply chain. The UK is BMW’s fourth-largest market and annually they sell over 250,000 cars to British motorists, so the company is rightfully concerned about how they currently see the negotiations for Brexit progressing. The business acknowledges that they will need to carefully examine the impact of any changes introduced once a deal has been finalised and look at how the new rules and regulations will affect how they run their factories across the country. BMW aren’t the only carmaker finding the lack of information surrounding a potential Brexit deal to be unsettling. Japanese carmaker Nissan, who employ almost 7,000 workers at their Sunderland plant, are warning of serious implications to the car industry should Britain prove unable to forge a trade deal with the EU prior to March 29th. They are apprehensive, feeling that leaving the EU will see a loss of seamless trade. Their concern is valid, at the present time they only store enough components in Sunderland for half a day of work on the production line. The Honda plant based in Swindon use the JIT system to reduce the amount of warehouse space needed to store components for their cars. As the plant only maintains a stock of parts to hand that would keep their production line running for an hour they rely on the prompt arrival of 350 trucks a day from Europe to provide them with everything they need to assemble cars on site. They, like many other carmakers who operate the JIT method for their production line, know that a 2-minute problem at the border can cause hours of delays due to traffic build-up on both sides of the border. Toyota, who export over 90% of the cars made at their Derbyshire plant to Europe, joined their fellow carmakers in warning of uncertainty in the light of the current status of Brexit negotiations. Vauxhall: Change and Investment in the UK While Toyota, BMW and Nissan are talking about what they are planning for a post-Brexit car industry, PSA Group, who purchased Vauxhall-Opel in 2017, pre-empted any Brexit issues and axed 650 jobs at the Ellesmere-based plant at the beginning of the year. At the Geneva Motor Show in March this year, Carlos Tavares, the CEO of PSA Group acknowledged that the loss of freedom of movement would have an impact on production and affect the sustainability of their two manufacturing plants in the UK, in Luton and Ellesmere Port. He also said that PSA Group could not “invest in a world of uncertainty”. A month later, in April, Tavares visited their Luton plant where he announced PSA Group’s plans to increase output to 100,000 vehicles per year at their Luton plant, this announcement also included plans for the new Vivaro van to be built in the UK from 2019. Despite the positive announcement about investment in the UK from Tavares in April this year, at the Paris Motor Show, Maxime Picat, the European Operational Director of PSA Group said that there were limits to what they are able to do post-Brexit, fear over the additional cost implications that switching to the World Trade Organisation terms is a huge concern, “If we suddenly have to start manufacturing for the UK in the UK, and Europe in Europe, there will necessarily be an impact on production”. Carmakers like Toyota, Nissan and BMW that trade regularly with the EU and UK need free trade to stay in place. The introduction of the WTO 10% levy on goods would be devastating to some businesses and cause others to seriously consider their position within the UK. While, for the most part, the focus remains on issues that the UK will experience once we leave the EU, car manufacturers acknowledge that both sides of the negotiations will experience complications when shipping goods if the UK loses free trade. What plans are car manufacturers making for a post-Brexit market? In addition to voicing their concern about the lack of progress with the Brexit deal, BMW announced a change to their summer maintenance shutdown. Every summer the BMW MINI factory in Oxford, like many others around the world, is closed for several weeks to allow for essential maintenance to be carried out. Any closure has an effect on the availability of newly manufactured cars and BMW usually prepares well in advance for their annual shutdown. With the date for Brexit fast approaching, BMW decided that they will bring the 2019 maintenance closure forward and plan to shut down for at least a month immediately following March 29th in order to give themselves time to prepare for any new processes introduced in a post-Brexit UK. BMW also warned that they might also consider moving all manufacture of the quintessentially British MINI from the UK to The Netherlands if no deal is made, something they currently believe has a 50-50 chance of happening. The CEO of Toyota Europe, Johan Van Zyl, told attendees at the Paris Motor Show that their plant in Derbyshire will have to close temporarily following March 29th, and the future for the estimated 2,600 employees who work there is uncertain. Van Zyl’s concern is that the impact additional cost would have on their competitiveness: “In the longer term, if we were to change the logistics it would add more cost and impact on our competitiveness, and of course the future of our operation.” The possibility of being unable to sell their vehicles duty-free in the EU market would harm future plans for their UK sites. Why will this affect my new car? In 2017, over 2.5million cars were purchased in the UK, out of these, an estimated 360,000 (1 in 7) were also built here. As mentioned earlier in the article, many components of a car are transported here from somewhere in the EU, US or Asia. Even a car that is 100% British can contain small parts that were driven across the border in a lorry. Some cars arrive at the docks ready to be driven off the lot, having travelled thousands of miles by land and sea before reaching your driveway. The video below will give you an idea of the sort of journey many cars after they’ve been assembled. What’s being done to help car manufacturers prepare for Brexit? The UK government is still in negotiations with the EU to come to a deal which will benefit everyone involved. While it’s not an ideal situation to be in with the deadline for the UK’s exit moving ever closer, there is little which can be done, except for trying to pre-empt the decision yet to be made and prepare for every possible scenario. Carmakers are currently preparing for a hard Brexit (no deal), with temporary shutdowns and stock-piling components a large portion of their planning. But all the time no final deal has been made there is hope that Theresa May and her government will be able to arrange an exit package that includes free trade. In an effort to minimise any issues that a so-called hard Brexit would have on the large number of SMEs (small or medium enterprises) that form the backbone of the automotive industry in the UK, the Society of Motor Manufacturers and Traders (SMMT) have launched a Brexit Readiness Programme. This programme aims to help prepare the SMEs for possible changes in trade conditions between the UK and EU countries following our withdrawal from the European Union. What can I do to prepare for Brexit? With the path ahead still unclear, and deals still to be made, the recommendation is to order your car in enough time that it will be parked in your driveway, or at the dealership, before March 29th. Some carmakers have already announced they are preparing for a hard Brexit and they have already confirmed temporary shutdowns of their UK factories, which means production will come to a halt. Changes in border requirements are the most likely scenario, which means that delays in goods, including cars, arriving in the UK is inevitable. Original Author: Rachel Richardson Published on 1st November 2018
  2. The prospect of ‘border drag’ is worrying car makers The way Brexit plays outs will be pivotal for car manufacturing in the UK. We gauge the current feeling within the industry The entire automotive industry talks nervously of disruption. Autonomy, China, electric vehicles… these days it’s a case of pick your threat. In the UK, however, disruption is coming much faster and from a much more traditional source: politics. Brexit and, to a lesser extent, the decline of diesel are probably the two biggest forces acting on our industry right now, and the fate of both, by and large, lies in the hands of the Government and its opposition. Brexit: Bentley could shift production to Europe in ‘worst case scenario’ No matter where you stand politically, you’d probably agree that’s not where you’d want to place the future of an £82 billion industry that, in terms of export value to the country, accounts for a whopping 13% overall. The chief executive of automotive supplier Unipart has warned that Brexit has the potential to wreak even worse devastation on the industry than what occurred in the 1970s. “I fear hard-line Brexiteers are in danger of achieving what that rabble of militant trade unions failed to do: destroying the British car industry,” John Neill wrote in the Daily Mail in May. If there was ever a company that tracked the recent downs and ups of our car industry, it’s Unipart, which was once a division of the state-owned dinosaur British Leyland but is now a thriving independent parts and logistics firm. Neill’s worries are those of the wider industry. Tariffs would be bad, but worse would be the delays resulting from car parts held up at what’s increasingly looking like being a hard border between the UK and the Continent. That threatens to destroy the finely timed movement from supplier to manufacturer that has evolved over years of membership of the EU. The loss of easy access to our biggest market and parts suppliers could put the brakes on a strong period of growth for British car manufacturing, argues David Bailey, professor of industry at Aston University. From a record 1.92 million vehicles made in 1972, UK car production has slumped, peaked and slumped again, but this decade it came roaring back to 1.7m vehicles (and 2.7m engines) last year, thanks in part to a resurgent Nissan and Jaguar Land Rover, our two biggest manufacturers by far. Brexit could reverse that. BMW UK boss: We will not close UK factories post-Brexit “There’s a real danger we’ll have another decline,” Professor Bailey said. “Production is not guaranteed to be here; it can be shifted around, and we’re in danger of a self-inflicted wound that seriously damages the automotive industry.” Manufacturing jobs have already been lost – at Vauxhall in Ellesmere Port, at Jaguar Land Rover in Solihull and at Nissan in Sunderland. To what extent they were lost due to Brexit, the slump in diesel sales or simply cyclical market upheavals is a point that has been much debated, but the timing looks ominous. Brexit so worries Jaguar Land Rover that its normally reticent boss, Ralf Speth, warned last month that a bad Brexit deal would cost the company more than £1.2 billion a year in lost profits and inflict serious job losses. “We want to stay in the UK… but if we don’t have the right deal, we'll have to close plants and it will be very, very sad,” he told the Financial Times. Jaguar Land Rover is also reeling from the diesel crisis, as are many other firms. “It’s been a huge issue for the market,” said Bailey. “Government has been all over the place on this.” In the first six months of this year, diesel demand tumbled by 30% to the point where the fuel type accounts for just a third of sales, down from more than half at its peak from 2011 to 2014. Jaguar Land Rover sales are more than 90% diesel in the UK and the company has seen demand fall by 9% in the first six months of 2018, despite fresh product. The body that represents car makers in the UK, the Society of Motor Manufacturers and Traders (SMMT), has called on the Government to throw its support behind the latest cleaner diesels and help change public opinion that ‘diesel equals dirty’. Are there any upsides for the car companies? A hard Brexit would put barriers up and force businesses to look inward, which could boost the UK parts industry. Currently an average car built in the UK uses 44% of UK parts in terms of value. Post-Brexit, car makers might want to increase that to hit ‘rules of origin’ requirements (see below). The lack of tariffs and border hassle could make a UK part that much more competitive compared with an EU part. For example, Aston Martin and McLaren both use Italian-made Graziano gearboxes. In the event of a hard Brexit, McLaren Automotive CEO Mike Flewitt said he would try to persuade Graziano to build a UK plant. “If the duties were there and it was harming our competitive position, absolutely we would,” he said. McLaren currently sources 50% of its parts from the EU (outside the UK), a figure that will go down to 40% once it starts making its carbonfibre tubs in Yorkshire in 2020. That decision to shift production from Austria was made prior to Brexit, but we could see more of this. McLaren and Aston Martin have both said they’ve benefited from the fall in the pound’s value since the 2016 vote. What do UK auto makers want from Brexit? “We want free trade, zero tariffs, frictionless trade across borders,” Flewitt said. It’s a common refrain. Essentially, they want what we’ve got now: a customs union, free trade, common rules (and a say in how they’re made) and the freedom to hire staff from across Europe. “We need unrestricted access to the single market of Europe, our largest trading partner,” the SMMT said. Last year, 54% of UK-built cars were shipped to customers in the EU. The SMMT reckons a no-deal shift to World Trade Organization (WTO) tariffs would add £1.8bn to the cost of exports, forcing price increases. Meanwhile, an extra £2.7bn would be paid collectively for new cars coming from the Continent. Ford puts the blame squarely on Brexit for its loss-making second quarter in Europe this year. “The biggest issue we face is the UK,” Jim Farley, president of global markets, told investors last week. “Brexit and the continued weak sterling has been a fundamental headwind for our European business.” So what will happen? The latest white paper from prime minister Theresa May proposes that we stay in a version of a customs union and single market while maintaining the EU’s rules on goods such as cars. So no tariffs, no border checks and no real change, apart from making it more difficult to hire people from outside the UK. The SMMT called it a “welcome step” that shows the Government is listening, but the hard Brexit wing of the Tory party hates it for proposing we take EU rules without having a say in how they’re made, and have forced amendments to the White Paper. There’s little evidence to suggest the EU would accept either version. “There’s a sense of relief among auto makers that there’s a desire to stay in the single market, but they don’t know what they’ll end up with,” said Professor Bailey. “That is deterring investment in a very big way." What is ROO? Rules of origin (ROO) are an essential part of a free-trade agreement made with another country to make sure a third country isn’t piggybacking the deal. If you allow a car in tariff-free from country A but 80% of parts in the car come from country C, then you’ve given away a benefit to country C for nothing in return. Trouble is, cars made in the UK are so dependent on EU parts that we would struggle to satisfy ROO when we tried to strike post-Brexit trade deals. Key players in an £82bn industry: Honda Honda’s future in the UK was looking gloomy way before Brexit. It mothballed one half of its Swindon plant after sales failed to recover following the 2008 financial crisis, and then decided to produce just the Civic hatchback, dumping the Jazz and CR-V. But the new Civic is now also exported to the US for the first time, and production numbers rose 24% last year. It still makes a diesel in the attached engine plant but has been able to swing production more towards petrol. Swindon’s future probably hinges more on whether US president Donald Trump’s threatened tariffs come to pass. That plus a hard Brexit could sink its UK manufacturing. “We struggle to see a bright future for Honda in Europe,” auto analyst Max Warburton wrote for Bernstein Research earlier this year. Nissan The UK’s single largest car factory, Nissan in Sunderland, is regarded as a bellwether for Brexit because of its size; nearly half a million vehicles were built there last year, of which 80% are exported. In April, Reuters reported Sunderland would shed “hundreds” of jobs after demand slumped. Nissan’s UK sales were down 30% in the first half of this year, but that’s mostly due to ageing product. Expect production numbers to climb again after the Juke and Qashqai are replaced and it gains the X-Trail SUV. No start dates for those cars have been given. Vauxhall Luton and Ellesmere Port looked vulnerable to closure after the brand’s sale to cost-cutting PSA Group coincided with Brexit uncertainty. However, PSA came to Luton’s rescue with news that the factory would make a new range of vans on PSA platforms. PSA boss Carlos Tavares said no decision would be made on Ellesmere Port until 2020, closer to the time when the current Astra is replaced. A third of its workforce was cut at the beginning of this year in an attempt to increase its cost-competitiveness. If that works and we have a deal on Brexit that mirrors current benefits, it could yet survive. Future of Vauxhall's Luton plant secured Ford The union Unite gave an indication of the paranoia among manufacturing workers in the UK over the upheaval surrounding diesel engines when it called for Ford’s two vast engine plants, the petrol-focused Bridgend and diesel-making Dagenham, to switch to making electric powertrains instead. Ford is too pragmatic for that, but its big problem is losing JLR as a client for the V6 petrol and V8 in Bridgend, and the V6 diesel in Dagenham by 2020. The V6 diesel has a new life in the F-150 pick-up in the US, but production at Bridgend will fall by some 150,000 engines. A new range of 1.5-litre engines in both plants will give them a boost, but most head to Ford’s assembly plants in Europe, so any Brexit-derived disruption will hurt. BMW BMW is unlikely to leave Mini’s ancestral home in Cowley (it’s due to add the electric Mini from next year) but has other options in the case of a hard Brexit. The firm ramped up Mini production at its Dutch contract manufacturing plant to 170,000 units in 2017 and has increased the head count there, Reuters reported in June. The company has been vocal on the threats of Brexit, particularly in terms of customs hold-ups, but its engine plant at Hams Hall is well positioned to ride out the diesel slump: it doesn’t make any. Toyota “Let’s be clear, Toyota, Nissan and Honda came here to access the European single market, which is why they’ve got a particular problem with Brexit,” says Aston University’s Professor Bailey. Toyota’s 2500 employees in Derbyshire breathed a sigh of relief when the firm announced the next Auris for the plant starting early next year. It should boost production after a lean couple of years, but the Avensis has now gone and won’t be replaced. Toyota’s engine plant in Deeside in North Wales, meanwhile, has thrived thanks to the interest in Toyota hybrids amid the diesel slump. Jaguar Land Rover Britain’s biggest auto maker made just over half a million cars in the UK last year, but 2018 has brought problems. First it said it was cutting production at Halewood, then in April it announced the loss of up 1000 agency jobs at its biggest plant in Solihull. To make up the shortfall, JLR shifted over 362 full-time staff from Castle Bromwich, where it builds Jaguars suffering some of the biggest sales declines this year. JLR has blamed the diesel slump and model cycles, but its global strategy is also a cause. Production is growing in China and it’s just about to start production of the Discovery in Slovakia. After being saved from closure when Tata took over JLR in 2008, Castle Bromwich now looks vulnerable. The luxury brands Bentley, Rolls-Royce, Aston Martin and McLaren might grumble about Brexit, but they have no real choice but to ride it out; too much of their global brand allure is tied up in the ‘Made in Britain’ promise. To McLaren’s Mike Flewitt, it’s just another challenge to negotiate. “In one market, Singapore, I have a 180% tariff. We’re talking maybe WTO tariffs at 10%,” he said. “I’m not even convinced there will be tariffs.” Tariffs are fourth on the list of Brexit fears for Aston Martin CEO Andy Palmer. “That’s least of my concerns,” he says. Number one for him is border drag, two is rules of origin and three is hiring the right people. “We’re employing people from the likes of Ferrari, and I need to be able to say to them they’re going to be able to stay after Brexit,” he said. Nick Gibbs View the full article
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