Carmakers have called on ministers to keep the UK in the EU single market and customs union for at least five years or risk permanent damage to the industry.
The Society of Motor Manufacturers and Traders told the government on Tuesday it was time to be pragmatic and honest about what could be achieved and secure an interim agreement in Brexit negotiations. Otherwise Britain could face a “cliff-edge” in 20 months that would be the “worst foreseeable outcome for the sector” and possibly mean tariffs.
Mike Hawes, the chief executive of the SMMT, said: “We accept that we are leaving the European Union and we share the desire for that departure to be a success. But our biggest fear is that, in two years’ time, we fall off a cliff edge – no deal, outside the single market and customs union and trading on inferior WTO terms.
“This would undermine our competitiveness and our ability to attract the investment that is critical to future growth.”
The UK and EU automotive sectors are highly integrated, and Hawes warned that a bespoke deal – which would need to cover rules on tariff and non-tariff barriers, and regulatory and labour issues – could not be completed within five years.
Almost 60% of the cars made in the UK are sold in Europe, and many components travel back and forth across the Channel to various plants during the manufacturing process. The SMMT estimates that tariffs would drive up the cost of a British car by £1,500.
Hawes said Brexit was the biggest challenge the car industry had faced in a generation, and warned that an untidy exit from the customs union would damage the industry permanently. “We must have the no-tariff, frictionless trade upon which the industry depends,” he said.
Although Hawes did not expect any immediate closure of key plants, he said the risk was “death by a thousand cuts” as uncertainty led to diminishing investment and the dwindling of the supply chain in the UK.
The SMMT announced a record turnover of £77.5bn for 2016, its seventh consecutive year of growth, underlining the importance of the sector.
The group’s intervention came as a study released by the Automotive Council suggested that cars manufactured in Britain were becoming more British, with an uplift in the proportion of parts from domestic suppliers. Nearly half (44%) of all components come from the UK, up from 41% in 2015.
While the council said the figures marked a significant move in the right direction, the proportion could still be problematic for some export agreements.
Hawes added: “The needle is shifting more towards British content, but we are a long way from the 50-60% shelf for most free trade agreements. We need to have arrangements where EU content counts as UK and vice versa – that should also allow us to take advantage of free trade arrangements with the 30-40 other countries that the EU has.”