‘No Brexit’ deal will have a devastating impact on the car industry

British and EU’s carmakers will feel the effect of a cliff hanger Brexit.

With Brexit’s March 29 deadline fast approaching and faced with growing fears of a cliffhanger exit , Britain’s carmakers have triggered some of their Brexit contingency plans, including certifying models in the EU.

Simultaneously, they are also working on redrawing their production schedules and stockpiling parts as defensive measures in case Britain losses its unfettered access to EU’s single market bloc.

These moves will ensure that their plants which work on the just-in-time delivery model, can continue producing after March 29 albeit with added costs and increased bureaucracy which on the long run would decrease their viability.

Brussels and London hope to agree on a deal by the end of 2018 in order to avoid tariffs and trade barriers; however faced with growing criticism by both Brexit camps, British Prime Minister Theresa May’s proposals are facing strong headwinds.

EU Certification

On its part, McLaren Automotive is looking at having its cars certified by both an EU and British agency to smoothen sales. It is also planning to stockpile critical components and change shipments into the EU around Brexit if there is disruption.

“I will sell a little more in January and February and plan to pick the volume up in May and give us a leaner period through the change point,” said Mike Flewitt, McLaren Automotive’s CEO.

Last week, BMW said, it would reschedule the annual summer-time shutdown of its British Mini plant to April 2019 and is scouting for lorry parking areas and warehousing on both sides of the channel; it is also looking to sign contracts to lease certain locations.

If tariffs and customs are imposed, it would need tens of thousands of new documents, so it is also investing in IT systems to handle any new red tape.

For Honda, which makes 10% of all cars made in Britain, it will not spend “huge amounts of warehousing space”, said its European boss Ian Howells.

“It’s been a very precise calculation or estimation of what components need to be brought in,” said Howells while adding that Honda could also alter its output to sell cars in the EU at the start of 2019.

European carmakers are also likely to face significant disruption in their supply chains as well as potential loss of competitiveness if imported cars were to face significant tariffs.

As per a source familiar with the matter at hand, UK negotiators have cited the car industry as an example of where the EU would have to lose if there are new trade barriers given that the high number of German cars sold in the country.

Significantly, more than 85% of all cars sold in Britain are imported, with the Volkswagen group leading the list, followed by Ford.

Ford builds engines in Britain but not cars. Ford

While a transitional deal is scheduled to come into force after Brexit, thus minimizing changes until the end of 2020, however, it will not kick in if talks were to break down. This will naturally leave carmakers and other firms exposed, without a contingency plan.

Jaguar Land Rover, Britain’s biggest carmaker, has warned of uncertainty saying, it does not know whether it will keep its plant operational in the next 6 months. It is weighing its options whether it will follow Mini in moving its factory or shut it down just after Brexit.

“We are planning for different scenarios whilst keeping our options open,” said JLR’s spokeswoman. “No final decisions have been taken at this stage.”

Prime Minister Theresa May has repeatedly said she will secure a good deal for the sector.

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