Automotive warns of the high price of ‘no deal’
The automotive sector – perhaps more than any other industry – is desperate to see the outcome of the negotiations between the UK and the European Union for a new trade agreement to come into force at the end of the post-Brexit transition period on 31 December.
With the chances of no deal seemingly now high, Mike Hawes, the CEO of the Society of Motor Manufacturers and Traders has warned of the dangers of such an outcome.
“The automotive industry will not prosper from ‘no deal’,” Hawes said. “It would have a devastating impact on the sector, on the economy and on jobs in every region of Britain. To avoid permanent damage, we urge both sides to keep talking, to remain calm but to work with renewed vigour on a deal that supports automotive, a sector that is Britain’s biggest exporter of goods and one of the UK and Europe’s most valuable economic assets.”
The SMMT has previously estimated that no deal would lead to combined UK-EU trade losses worth up to €110bn over the years to 2025 – ahead of the €100bn thought to have been lost during this year’s Covid-19 pandemic. Without an agreement in place for 1 January 2021, both sides would have to trade under World Trade Organisation non-preferential rules, which specify a 10% tariff on sales of cars and a 22% tariff on vans and trucks.
Such tariffs – well beyond the thin margins of most manufacturers – would almost certainly be passed on to consumers, raising prices, reducing choice and damaging demand. Suppliers to automotive manufacturers would also face tariffs on their products; this would either add further cost to production or lead to increased imports of components from more competitive markets.
Manufacturing sector news
The 2020 Santander Trade Barometer, published on 8 October, is the latest instalment of our regular landmark survey of business sentiment and their views about international trade. This edition of the report suggests many businesses remain surprisingly optimistic about future growth, with 59% confident they will grow over the next three years, down only marginally from the 62% who said the same thing in the spring survey. Among manufacturers, however, this figure falls to 54%.
The report also charts a deterioration in performance, with just 32% of all businesses reporting an in improvement in performance (compared to 46% in the spring), falling to 22% among manufacturers. And worryingly for the sector, where productivity improvements are badly needed in this challenging environment, business investment remains depressed; just 39% of businesses intend to invest in product development over the next 12 months, while only 36% expect to take on new staff.
It isn’t only the Covid-19 pandemic that presents difficulties for businesses, with the ongoing uncertainties of Brexit also representing a challenge. However, the Trade Barometer suggests businesses do not intend to back away from exports – 26% say international markets are now more important to them in the wake of Covid-19, against only 5% who say less.
This will require businesses to address obstacles to international growth, with the Trade Barometer highlighting areas including regulatory change post-Brexit, bureaucracy and the difficulty of finding trustworthy partners and connections. Then there are pandemic-related problems. Some 48% of manufacturers cite supply chain disruption from Covid-19, 44% point to falling demand, and 40% are concerned about the loss of opportunities for face-to-face meetings in overseas markets, or to attend events such as exhibitions and conferences.
To discuss how Santander can help your business during the Covid-19 pandemic, please contact ccbsectorinsights@santander.co.uk