Britain's Auto Industry Foresees Doom Without EU Deal Before Hard Brexit

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), Britain’s main industry group, claims automakers were becoming increasingly concerned with the nation’s departure from the European Union. Prime Minister Theresa May wants a solution that would allow Britain to maintain strong trade ties with the EU while allowing her country to maintain autonomy, but hasn’t found much success.

U.S. President Donald Trump claims a deal with the United Kingdom is absolutely possible, saying the relationship between the two countries is “the highest level of special” late last month. But he also noted that the EU would complicated matters if Britain adhered to its trade laws after Brexit, which is just eight months away.

The European Union doesn’t seem to want to let Britain go, and is nudging the country to stick to its rules by not venturing out to make its own trade arrangements. Critics say this effectively makes the island nation a “vassal state” to the EU, completely defeating the point of Brexit. However, many are fearful that leaving the union and ignoring its mandates could have negative repercussions in the long term — especially in regard to finance and trade.

Hawes said the earlier meeting between Trump and European Commission President Jean-Claude Juncker on trade was more encouraging, even though they didn’t expand upon the elimination of automotive tariffs (which Trump previously suggested for European car imports). However, there is no reason to think the U.S. would be adverse to making special exceptions for Britain if it could leave the EU in earnest and cut deals of its own.

“What we would say is that any increase in tariffs would be significant and would be damaging both to the U.S. and in Europe, and I include [Britain] in Europe when it comes to exports,” Hawes said.

Despite the United States being a sizable market, the home front is the bigger issue. Automotive production accounts for almost a tenth of British manufacturing output and a significant portion of those vehicles stay within the EU. If no deal is reached, those autos would be subject to the union’s import tariffs of 10 percent.

“No deal … is just not an option. It would be seriously damaging to the industry not just in the UK but in Europe as well,” Hawes said during SMMT’s mid-year update on British car production.

According to Reuters, British car output in the first six months of 2018 fell by an annual 3.3 percent with disappointing domestic demand canceling out stronger export volume. In June, overall production fell 5.5 percent compared with June 2017, while export markets rose by 6.0 percent.

Hawes said the domestic slump was attributable largely to changes in model cycles and manufacturers getting ready for the stringent new emission standards. He estimates production will recover in the coming months.