How Will Brexit Affect the UK Auto Industry?

 

How Will Brexit Affect the UK Auto Industry?

Brexit has and will continue to be a highly controversial issue. Politics aside, Brexit has very real ramifications on international trade and business dealings, and, as the topic of this article suggests, the UK auto industry.

While it’s still too early to tell if it’ll benefit the United Kingdom or end up being a detriment, these are some of the ways in which the UK auto industry will be potentially affected by Brexit:

Decrease in Investments in the UK Auto Industry

This has actually already started to take place. In 2015, there was £2.5 billion invested in the UK auto industry, while in 2016, this number decreased by 30% to £1.66 billion. So far, 2017 isn’t faring any better. In fact, it’s actually doing far worse, with only £322 million being invested through the first six months of 2017.

 

 

The main reason for this decrease in investments is that there’s a great deal of uncertainty as to what Brexit will mean to the UK auto industry in terms of trade agreements. There’s almost a “wait and see” type of approach being taken.

Vehicle Production Has Decreased

In spite of the auto industry in the UK experiencing a resurgence during the past several years, it has now shifted the other way. According to the Society of Motor Manufacturers & Traders (SMMT), there has been a 10% decrease in May 2017 compared to May 2016 in the UK’s car output. April 2017 also decreased in comparison to April 2016.  See https://www.smmt.co.uk/ for more information.


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What’s worse is that the UK is in danger of having major auto manufacturers produce their cars in other countries in the EU. BMW has already stated that they’re considering manufacturing their electric MINI outside of the UK as a result of uncertainty. According to BMW, ““Uncertainty is not helpful when it comes to making long-term business decisions (see this source).”

The Price of Cars May Increase

Exacerbating the negative sentiment is that imported cars in the UK might increase in sale price by an average of £1,500 based on various projections. Since the UK’s car exports make up 12% of their total goods exports, there’s also concern that there will be a 10% levy placed on cars.

 

 

This means that the car prices that the rest of the EU imports from the UK might also see an increase in their sale price. The SMMT claims that there’s a good possibility that the UK auto sector will eventually see a £4.5 billion increase in costs. This will be due to:

  • A £1.8 billion increase in the cost of fully-assembled vehicles in the UK;
  • A £2.7 billion increase in the cost of those same vehicles that are exported to the EU.

What the Future Holds

Investments in the UK auto industry have already decreased significantly and will most likely continue to do so. Negotiations are still ongoing, however, as the UK works out the details of their exit from the EU. The hope, especially by auto industry leaders, is that an arrangement is made that pretty much continues the tariff-free trade and maintains the ability to access top workers and materials from the EU and vice-versa.

Brexit has and will continue to remain controversial.

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