Europe’s auto manufacturers and suppliers have come together to issue a stark warning on the potentially far-reaching impacts of a no-deal scenario on their sector, which would threaten their very business model.
Over 1,10 Trucks a Day
Automobile production plants – be they in the EU27 or the UK – receive and fit millions of parts into vehicles every day. All manufacturers rely on ‘just-in-time’ and ‘just-in-sequence’ delivery and production, without any delays or obstacles. These parts are in constant transit in trucks, arriving as and when they are needed.
Every day 1,100 EU trucks cross the Channel to deliver to vehicle and engine plants in the United Kingdom alone, for example. After Brexit, even short hold-ups at customs will cause massive logistical problems, disrupting the production process and generating significant costs.
“Our members are already making contingency plans and are looking for warehouse spaces to stockpile parts,” stated Erik Jonnaert, Secretary General of the European Automobile Manufacturers’ Association (ACEA), which represents the 15 major Europe-based car, van, truck and bus manufacturers. “However, the space required to stockpile for more than a short time would be absolutely huge – and expensive.”
“Some of our members are also planning a temporary post-Brexit production shutdown. But the harsh fact is that no amount of contingency planning can realistically cover all the gaps left by the UK’s withdrawal from the EU on WTO terms.”
Under WTO rules, a 10% tariff would be applied to all cars traded between the EU and the UK. Jonnaert: “We cannot forget that profit margins in our industry are significantly lower than 10%. At the end of the day, these extra costs will either be passed on to the consumer or will have to be absorbed by the manufacturers.”
“The clock is ticking, but it is not yet too late. That is why we are urging the negotiating teams on both sides to redouble their efforts to successfully conclude a withdrawal deal,” Jonnaert underlined.
Sigrid de Vries, Secretary General, European Association of Automotive Suppliers (CLEPA): “Everything possible must be done to secure a future exchange of goods, services and people that is frictionless. Automotive components often cross borders several times before the final product reaches the customer, and that includes Channel crossings. Any change in the level of integration of the value chain will have an adverse effect on the competitiveness of individual companies and the sector as a whole.”
Small Business May Suffer
“Smaller companies in particular, that constitute important building blocks of the supply chain, do not have the internal systems, IT platforms or staff in place to deal with customs declarations, tariff classification, customs valuation, or calculations based on content origin. SMEs will be forced to deal with at least some of these issues if they want to continue to trade and serve their customers, facing additional financial and logistical risks.”
De Vries: “CLEPA recently surveyed its membership and the most important feedback to policy makers was: remove uncertainty. It remains crucially important to provide clarity on the future relation with the UK as quickly as possible, starting with a withdrawal agreement so that a cliff-edge scenario can be avoided.”
The Retail Motor Industry Federation agrees with ACEA, “It is vital that the government and the EU come together and agree that frictionless, tariff-free terms of trade are in the interests of the whole sector, in order for the retail motor industry to progress and thrive in a stable environment”, said RMI Chairman Peter Johnson.
The Long Haul
Since the referendum in June 2016, businesses in the UK have been waiting for clarity on our future terms of trade with the EU, and for clarity on who we are going to be able to recruit to work in our businesses.
Peter Johnson added, “Whilst we have been part of the EU, we have become accustomed to frictionless and tariff-free trade between the UK and the other countries of the EU. It has meant that automotive parts can be delivered quickly from wherever they are made or held in stock and vehicles can be ordered and transported across borders in minimal time.
“Considering the automotive sector provides direct employment for over 800,000 people, it is essential that the government makes a commitment to outline a clear and beneficial deal in order to ensure our industry has what it needs to secure its future success.”
SMMT – On Campaign Trail
No fan of Brexit, the SMMT has been campaigning hard, fearful of the pan-European consequences for the automotive industry of a ‘no-deal’ Brexit, should the worst happen.
Mike Hawes, SMMT Chief Executive said, “Much of the headlines have focused on the ‘Chequers’ White Paper and whether it will be acceptable to either side. Chequers isn’t perfect. But it is a step in the right direction, seeking to replicate many of the benefits of the single market and customs union as we leave the EU – evidence that government recognises the importance of the automotive sector and the need to safeguard our competitiveness.”
He continues, “The discussion over the coming weeks, however, will be about the withdrawal itself. We need a status quo transition so that the fine print of tariffs, trade, customs and regulation can then be worked out. Whatever the future arrangements, for our Sector no other arrangement will be better than that which we currently enjoy.”
Free Trade is Vital
Hawes continues, “Whether or not the Chequers proposal is accepted by the European Union or Westminster MPs, it’s important that the principle of free and fair trade between the UK and EU is taken forward regardless. Our future trade with our closest and largest partner must be completely without friction, tariffs or disruption to supply chains and just-in-time manufacturing.”
Make no mistake, ‘no-deal’ would be a disaster for the automotive industry. This isn’t a political point, it’s about the business case – teasing apart a single industry built across borders, that leads the world on technology and innovation is not an overnight job. Without a withdrawal agreement, at the very minimum there will be severe disruption across the whole of Europe. Tariffs alone should be enough to focus minds but hundreds of thousands of jobs and tens of billions of pounds in crucial business must be safeguarded.”
What about Our Customers?
The Freight Transport Association has reacted with frustration to the lack of progress in Brexit negotiations.
Pauline Bastidon, FTA’s Head of European Policy, gives the FTA view on the progress so far.
With March 2019 fast approaching, it’s frustrating negotiators on both sides have still not reached an agreement and seem content to once again kick the can down the road. We are now being told that decisions could be postponed to the December EU summit. While the logistics industry understands negotiations are complex, politically-sensitive and time-consuming, there are massive decisions which need to be made urgently by companies and cannot be left to the last minute. Given the scale of adaptions required in the event of a No Deal exit, an outcome which cannot be excluded at this stage, we are quickly reaching the point of no return and industry decisions cannot be delayed any longer.
Months ago, FTA listed a number of key elements on which we needed answers to and clear decisions on as part of our ‘Keep Britain Trading’ agenda. With less than six months left until Brexit, we are forced to recognise that progress on these items is extremely limited. Even the transition period is not a certainty at this stage. The current state of uncertainty leaves the logistics sector in limbo, as our members are forced to plan for an uncertain future. They face two choices: invest in and implement contingency plans that might not be needed if an agreement is reached, or take no action and risk being unprepared in the event of a No Deal exit. FTA advises all companies to begin preparing for the worst-case scenario and calls upon the Government to give clear directions to industry, building on the no deal notices and focusing on the points of greater concerns to the industry, from detailed information required to prepare for possible customs formalities to post-Brexit immigration rules. Contradictory signals are unhelpful and risk giving industry a false sense of security.
Given the increased likelihood of No Deal, FTA urges the European Commission and UK Government to better coordinate Brexit preparedness efforts. We’re seeing too many uncoordinated actions by member states in isolation – plans based on assumptions rather than proper dialogue or a clear strategy. Authorities need to be allowed to exchange information on the expected location of controls, traffic management and other measures taken to mitigate the impact of border delays in order to minimise disruptions on the flow of goods.
The European Commission should take the lead in identifying areas where coordinated ‘emergency’ agreements will be a must if the two sides fail to reach a deal. This is especially salient in transport – the logistics industry needs the legal certainty that trucks, planes and trains will be able to circulate without market access restrictions after Brexit, even in the event of a No Deal exit. Unilateral measures – such as those being contemplated in France – are not good enough and fail to reassure our members. Simply saying that alternative forms of transport should be used stems from a fundamental lack of understanding of supply chains and production constraints and does not reflect the fact that massive shifts require huge investment in extra ferry capacity, space and new infrastructure at ports, which are all measures requiring ample time.
The UK’s logistics sector is the beating heart of the economy, and one on which most businesses – including manufacturing plants, hospitals and shops – have come to rely. The industry is ready to take action, but it needs clear directions and a supportive environment; above all, it needs time and freedom to adapt to the final outcome.
The RHA are concerned about the National Audit Office’s (NAO) findings about the readiness of the UK borders in a post-Brexit world.
The NAO believes “that businesses do not have enough time to make the changes needed” for a no-deal Brexit in March 2019 and warns “that the most complex issues relating to the movement of goods at the border still needs to be resolved.”
Commenting, RHA chief executive Richard Burnett said: “With only days until the Brexit deadline becomes reality, we are still in the dark regarding the essential details. To maintain the supply chain between the UK, across the Irish border and mainland Europe, it is imperative that businesses can plan. This has not happened.”
“The border is not ready and plans to make Kent motorways into, what are in effect glorified lorry parks are simply not enough. And Government’s claim that any increase in the number of checks will be kept to a minimum, fills us with no confidence at all.
“We need clarity and we need it now. Time has run out.”
The Devil is in the Detail
The Road Haulage Association is warning plans in the Government’s latest technical notice on commercial freight in the EU are too little, too late.
The RHA is astounded by the suggestion that hauliers should consider alternative modes of transport to move goods between the UK and the EU in the event of a ‘no-deal’ Brexit.
RHA chief executive, Richard Burnett said: “Goods are moved by road because of speed and efficiency – the UK relies on it’s incredibly efficient supply chain for consumers and businesses to get the things they need.
“This would very quickly put the manufacturing sector under severe pressure and the hauliers they rely on out of business.”
The Government has not said if it will require EU hauliers to apply for ECMT permits to enter the UK if UK operators are forced to obtain ECMT permits to enter the EU. The RHA says it’s unacceptable if permit requirements are not reciprocal.
We’re very concerned that there’s no mention of plans for freight movements between the UK and the Irish Republic.
Richard Burnett continued: “It’s essential that if there’s a “no deal” it is accompanied with the already agreed implementation period to give businesses a chance to avoid chaos in the supply chain.”
He called on the EU to recognise that striking a deal on Brexit is in the best interests of everyone – whether in the UK or EU.