The impact of Brexit on the automotive sector Contents

1Introduction

Background on the automotive sector

1.The automotive sector is one of our key manufacturing industries: it contributes around one per cent of the UK’s output and 9.4 per cent of UK manufacturing output.1 It employs 169,000 people directly, many in the manufacturing hub in the West Midlands, and a further 814,000 in associated supply chains throughout the UK.2 It is also one of our most productive sectors, compared to other manufacturing sectors and to the economy as a whole.3 The sector contributes 13 per cent of all goods exported, the second highest proportion from any one sector.4

2.Successive UK Governments have worked closely with manufacturers and trades unions, notably through the Automotive Council, to make the UK an attractive base for automotive manufacturing. Inward investment from major Japanese companies over the last 40 years has been instrumental in revitalising car manufacturing in the North East and West Midlands. The Government has placed the automotive sector at the heart of its Industrial Strategy, providing a sector deal which continues to support the provision of skills and technologies that helps the industry to thrive in the UK.5

3.The mass production of vehicles is a multi-national activity and operates to a large extent on a continental basis. In Europe, large multinational corporations choose which countries to manufacture vehicles, largely for the European market.6 American companies dominate the US market; Japanese and South Korean companies predominate in Asia. In Europe, the sector is highly competitive and profit margins are small, between 2–4 per cent.7 At present, the UK produces the third highest volume of passenger vehicles in Europe, behind Spain and, by some distance, Germany.8

4.The UK automotive industry is one of the most closely integrated sectors with the EU.9 Complex supply chains stretch throughout Europe: typically parts are transferred through different countries before being assembled into the final product.10 Decisions on where to base volume manufacturing for particular models are taken on a regular basis; large manufacturers can readily switch production between plants in different countries. Decisions depend on a wide range of factors, including availability of skilled labour, infrastructure, tax regimes, support for innovation and ease of exporting. Many of these factors are subject to Government influence. There are several key manufacturing decisions due to be taken during and immediately after the period of Brexit negotiations.11

5.The sector in the UK is also diverse. In addition to the large volume manufacturers making tens of thousands of vehicles each year, there are smaller exclusively UK-based luxury vehicle manufacturers such as Aston Martin, Bentley and Rolls-Royce that produce much lower volumes of vehicles.12 In all, there are over 30 manufacturers making 70 different models, supported by more than 2,500 component providers.13 These include Formula 1 cars, whose teams are largely UK-based, as well as specialist, off-road vehicles. The UK is also the largest manufacturer of construction vehicles in Europe.14 The Government must seek to ensure that it is able to preserve and build upon the success of the UK automotive sector as it enters negotiations on future trading arrangements with the EU.

Our inquiry

6.This is the second in a series of reports we are publishing on the impact of leaving the European Union on specific sectors of the economy.15 In the absence of a fully published impact assessment,16 this report contains our assessment of the consequences for the automotive sector of different outcomes of the negotiations and seeks to establish what type of withdrawal agreement would most benefit the sector and, consequently, the UK’s broader economic interests. We aim to inform public debate and influence the Government’s negotiating approach and priorities.

7.As part of this inquiry we received 18 submissions of written evidence from businesses and other stakeholders. We took evidence in public from some of them and held a series of private meetings with other major car manufacturers and trade union representatives. We visited the Honda factory in Swindon to see at first hand the manufacturing process and held further meetings there. We also heard evidence from the Secretary of State for Business, Energy and Industrial Strategy, the Rt Hon Greg Clark, MP. We have received a certain amount of information from companies in confidence, which we do not publish but has nonetheless helped inform our conclusions. Similarly, we have seen the full, unredacted versions of the automotive sector analysis carried out by the Government and its so far unpublished Cross Whitehall Briefing on exiting the EU. During a visit to Brussels we held private meetings with UKREP17 and with the European Automobile Manufacturers’ Association. We are very grateful to all those who have contributed to our inquiry.


1 House of Commons Library Briefing Paper, The motor industry: statistics and policy, April 2017

2 SMMT (BRA0005)

3 BEIS estimates that UK automotive industry productivity was 40 per cent higher than other manufacturing sectors and 80 per cent higher than the economy as a whole: the Automotive sector report, published on Exiting the European Union Committee website.

4 Behind machinery, including computers. World’s Top Exports website, August 2017

5 HM Government, Automotive sector deal, 10 January 2018

6 EU countries export less than 20 per cent of total production outside the EU. ACEA website

7 Q41 [Hawes]

8 European Automobile Manufacturers Association (ACEA) website, figures for 2016. Germany produced 5.5 million vehicles compared to the UK’s 1.7 million.

9 Institute for Government analysis of the World Input-Output Database for 2014

10 Professor David Bailey and Professor Lisa De Propris (BRA0003)

11 Unite the Union (BRA0004), Professor David Bailey and Professor Lisa De Propris (BRA0003)

12 See Figure 3, para 41

13 SMMT (BRA0005)

14 Construction Equipment Association (BRA0007)

15 The Committee published its Second Report of Session 2017–19, Leaving the EU: implications for the civil nuclear sector, HC 378, on 13 December 2017. Further reports will be published on the aerospace, pharmaceuticals and processed food and drink sectors.

16 The Automotive sector report provided by the Government to the Exiting the European Union select committee was redacted to remove the views of industry.

17 The UK Permanent Representation to the European Union.




28 February 2018