The British automotive industry currently employs 860,000 people, down from 1,140,000 at the beginning of 2016. This includes 180,000 people directly employed in manufacturing cars, down from 210,000 in 2016. The impact on the economy and the balance between import and export is clear from the balance between 79 billion pound in annual turnover adding only 15 billion pound in GDP value. A whopping 64 billion pound is imported in parts, services, equipment, and licenses, mainly from the EU and Japan.
And this is where the current deal stings hard. 8 out of 10 cars produced or assembled in the United Kingdom are exported. With a total volume of 1,000,000 cars produced in 2019, 850,000 were exported and although there are more than 160 countries importing cars from the UK, almost 450,000 were exported to the European Union. The current BREXIT deal allows free trade for domestic products and the rule for domestic products requires a maximum of 40% of added value to be non-domestic.
Most cars produced or assembled in the United Kingdom exceed by far this minimum of 40% non-domestic value, especially for the European and Japanese brands which is also the vast majority of the brands producing in the UK. An important detail for the determination of non-domestic is the country of origin. A growing number of European and Japanese car brands have parts manufactured in Turkey and these are shipped to the United Kingdom through their European channels. Even when there is for example a French brand name on those parts, they are manufactured outside the European Union and the United Kingdom, and therefor count as non-domestic in both directions. In other words, there is no tariff exempt for these parts, and they count in full for the non-domestic ratio.
All this has been on the minds of automotive executives since the 2016 referendum that set the United Kingdom on a course to leave the European Union. After two decades of investing in British manufacturing and assembly capacity to benefit from tariff free access to the European Market and the low corporate taxes in combination with high investment incentives, suddenly the United Kingdom lost its benefits to keep increasing volumes.
Since then, 280,000 people no longer have a job in the British automotive industry, a 24.6% reduction in just 4 years. The total production volume came down from 1.7 million in 2016 to 1 million in 2019, while to local market demand remained stable, meaning that the whopping 41% volume cut is mainly felt in exports. And there are more volume cuts in store caused by the pandemic and its global economic impact.
All markets, except for China, have seen a significant reduction in car sales volumes and that can be directly translated in car production volumes. As a direct result, the previously fully loaded manufacturing and assembly facilities in Europe and Asia are now below capacity and that will not change until a full economic recovery happens. Manufacturing for the European Market within the European Market is significantly cheaper as of January 1st, 2021 and there is plenty capacity within the European Union to fulfill demand for the next 2–3 years.
By then, the full impact of Brexit will have reduced the British automotive industry to somewhere around 500,000 units per year, not even a third of what it was before the Brexit referendum. Less than 90,000 people will be directly employed in car manufacturing, and the entire industry which includes for example service and used car sales, will employ 500,000 people at best, less than half of what it was in 2016. As an Automotive Executive described these expectations after analyzing the draft of the Brexit Deal “Half of what it used to be reflects the forecast for the British economy without the European Union: Half of what it used to be!”.