Before reading this blog post, why not read the introduction to the series, “The UK Automotive Industry in the EU – Part One”.
The EU accounts for a significant portion of the UK’s export market – however it is not necessarily the most valuable. There are a number of emerging markets, such as China, the value of which has grown significantly. Premium and luxury car brands are reaping the rewards here by targeting affluent customers with a desire for the very best, no matter the cost. For manufacturers such as BMW and Jaguar Land Rover, roughly 60% of their vehicles are sold outside of the EU.
The same is not true however for the large volume manufacturers such as Honda, Nissan, Toyota and Vauxhall, for whom the majority of exports go to the EU. Often these manufacturers are well serviced in terms of factories in non-EU markets, using the UK as a base because of its position and influence within the EU.
What is clear is that there are a number of influencing factors when a manufacturer comes to choose a factory in which to build and design new cars. British factories can boast high quality engineering and design, as well as crucial links to the rest of Europe and a base from which to export to the Americas. For corporations in the UK, tax is soon to be set at a flat rate of 20% – very favourable for larger manufacturers who are often hit more heavily elsewhere in the UK, or indeed the world. However, if free trade and free labour movement to the EU is restricted, then the UK stands to lose a major part of its bargaining power when bidding for new automotive contracts. As one UK tier 1 supplier noted, “The UK is not seen as a standalone business – it is part of our European footprint.”
In order to secure new manufacturing contracts factories have to present a business case to the manufacturers, competing with alternatives based elsewhere in the EU and around the world. The final allocation decision is usually based on economic grounds, which compares total delivered vehicle cost to the market. This takes into account manufacturing cost, labour cost as well as any export taxes.
In a member survey conducted by the SMMT this year (2014) 78% of respondents said the UK leaving the EU would have a negative or very negative impact on ability to access EU automotive markets to sell and source products and services.
Continue reading the series by clicking on the link – Part Three – The Power of the Scale of the EU in Trade Negotiations