Jaguar F Type

‘Brexit’ threatens to write-off the booming UK car industry

By: David Bailey @dgbailey
Published: Tuesday, March 24, 2015 - 10:45 GMT Jump to Comments

Helping to set the EU regulatory framework, benefiting from EU funded R&D and the free movement of skilled engineers within the EU are all essential for the UK car industry.

The government likes to boast – rightly so – that the UK’s auto industry is undergoing something of a revival, in assembly terms at least.

As I’ve noted here at The Info Daily before, the UK’s auto sector is experiencing investment on an unprecedented scale, on the back of a major upturn in auto assembly in the UK – up by over 50% from a low point of around a million cars in 2009 - combined with changes in economic fundamentals which are encouraging firms to build more cars here and to source more components locally.

Remarkably, over £7.5bn has been invested by major auto assemblers over the last 3 years, with more to come in the supply chain. And the industry body the SMMT thinks that the UK auto industry could be making more cars than ever by 2017.

Last week, David Cameron visited BMW’s Rolls-Royce Goodwood plant, noting that “we now make more cars in Britain than they make in France. We’ve overtaken Italy some time ago, we’ve now got Spain and Germany in our sights.”

He’s right in the sense that the UK assembled 1.53 million cars last year, with the UK third in terms of crude output in the EU behind Germany and Spain. It’s hoped that the industry will - in a few years’ time – overtake its historical peak level of output of 1.92 million cars (a record set way back in 1972).

At the same time, though, the Prime Minister is pledging to hold an ‘In-Out’ EU referendum if he gains power at the forthcoming General Election. That’s despite the overwhelming view in the industry itself that the UK should remain in the EU, given the benefits arising from EU Membership.

The impact of membership on the UK’s auto industry was explored last year in a detailed report by the Society of Motor Manufacturers and Traders (SMMT) and KPMG, entitled The UK Automotive Industry and the EU. The study found some big benefits for the UK’s auto industry from staying in the EU, particularly in relation to investment, growth and job creation (all the things that the UK’s auto industry has been enjoying of late).

The report stressed that EU membership boosts both the attractiveness of the UK as a place to invest, and the competitiveness of the domestic automotive industry. Not surprisingly, it notes that access to the Single Market is fundamental to UK auto manufacturing, thereby supporting sales and facilitating supply chain growth.

It also adds that EU bargaining power in trade negotiations is critical to improving access to international growth markets, thus helping major exporters such as Jaguar Land Rover.

A second argument centres on regulations and standards. The report highlights that the UK needs a powerful voice at the EU level to make sure that the specific needs of the UK’s auto industry are considered.

This is a key argument that those in favour of British exit (‘Brexit’) fail to take on board. Some 45% of UK auto export goes to the EU, so even if (a big if) the UK were to leave and have some sort of access to the Single Market, producers in the UK would still have to meet European regulations so as to sell into Europe.

That would mean having to anyway follow European regulations rather than helping to shape them, which might mean German of French firms shaping them for their own benefit.

At the moment, UK-based niche firms like Bentley, Aston Martin and Jaguar Land Rover can benefit from the British government having a seat at the table when regulations are thrashed out that impact on the industry. They would lose that voice if the UK was no longer a member.

On that, the UK’s auto industry has actually benefited from the government managing to soften tough EU carbon emission regulations for its smaller niche manufacturers.

As Mike Hawes, Chief Executive of the SMMT stated recently, “being able to shape regulation so that you can protect and enhance the prospects of the UK automotive sector will only happen if you’re at the table.”

Other arguments for remaining in the EU include ensuring access to EU funding that has boosted R&D and innovation at businesses and universities in the UK, and the free movement of labour which enables UK-based firms to combine domestic and international talent (which is especially important giving skills shortages in the UK industry).

Of course, that doesn’t mean that the EU can’t be improved, such as through the simplification of regulations and reducing complexities for firms operating in the EU.

But it does suggest – as Mike Hawes at the SMMT has noted – that when it comes to auto then “being part of a strong Europe is critical for future success”. He added that “if we are to maintain this position and increase access to growing global markets, the UK must play a key role in shaping EU policies, budgets and regulations”.

Leading industry expert John Leech at KPMG has also noted that “research and development, which is vital to the UK’s ability to be at the forefront of innovation in car manufacturing, is both heavily funded by the EU and requires access to the expertise and free movement of skilled engineers within the EU”.

In the run up to the General Election, the future of the UK in the European Union remains something of a political hot potato.  But when it comes to the auto industry at least, it seems that there are some strong arguments for the UK staying in and helping to shape the future of the industry.

Professor David Bailey works at the Aston Business School in Birmingham.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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