The impact of Brexit on the automotive sector Contents

6Certainty and transition

45.Like other sectors, the automotive industry in the UK has been seeking greater certainty from Government over the nature of the transition period and the intended end state for relations with the EU.132 There are signs now that the continuing uncertainty is affecting investment decisions, which will have a long-term impact on jobs in the sector. There have been mixed signals from recent sales figures. Whilst demand had tapered off in the UK and in Europe since 2016, it is still healthy when compared with the previous decade (see Figure 4).

Figure 4: Car output totals

Source: SMMT News release, 31 January 2018

The drop in demand has contributed to the reduction of work in some plants, such as the Vauxhall plant at Ellesmere Port, and the JLR plant at Halewood, where Brexit uncertainty was cited by the company as a contributory factor.133 Whilst the uncertainty of Brexit cannot have improved consumer confidence, it is in our view likely that sales have been more affected by the move against diesel vehicles on environmental grounds and the uncertainty around the pace of the transition to electric vehicles.134

46.Decisions around where to base the future production of vehicles are of more concern than fluctuating sales and are highly sensitive to the current uncertainty.135 We have referred to Honda seeking to secure type approval for a new model outside the UK. Other manufacturers have not finalised where to base the production of new models, such as the Toyota Auris and Range Rover Sport. Competition between plants in different countries is healthy and is affected by long term assessments of the regulatory environment.136 We heard that decisions were being delayed and that, in some cases, decisions were going with countries that will have guaranteed access to the single market.137 Investment has declined from an average of £2.5bn per annum between 2012 and 2015 to £1.6bn in 2016 and £1.1bn in 2017,138 although the lumpy pattern of investment in the sector should not allow too much to be deduced from these figures. In this context, it is not surprising that Japanese companies have sought reassurances from the Government about its future plans.139

47.In view of the 2–3 year length of planning cycles for production, the industry was initially seeking clarity by the end of 2017; and then by the end of March 2018.140 Companies are now beginning to implement contingency plans, at additional cost.141 The Government’s flexible approach to the transition period of “around two years”142 is welcome, provided that there is no departure from the existing regulatory and trading framework during this period.143 This should include the ability of the VCA to continue to make type approval decisions for the single market, as discussed in chapter four. But, to be useful, it is essential that the automotive sector—like other sectors—knows, as early as possible, what the transition is to: in particular, whether there are going to be tariffs and whether the Government plans to align UK regulations governing vehicle manufacture with those of the EU in order to maximise market access, for the medium term at least.

48.We welcome the Government’s intention to ensure that a transition period will only ensure that businesses face only one change to a new circumstance.144 The Government has indicated that it expects agreement on the transition period to be reached by the end of March 2018, but so far it has given no clear indication on where it will seek to diverge. The Secretary of State for the Department for Exiting the European Union has indicated his intention in negotiations only to secure the right to diverge in future.145 This lack of clarity on divergence is harmful to UK businesses and will drive away investment for as long as it persists. Whatever choice the Government makes regarding the future UK-EU relationship, it should make it quickly. The wait-and-see approach to the future direction of regulation may be a convenient compromise for the short term, but it would not provide the certainty needed by the sector and would undoubtedly lead to a shift in jobs and investment from the UK to the rest of the EU in the period up to exit. We recommend that the Government clarifies its intention at the earliest opportunity to seek continued regulatory alignment with the EU in the automotive sector.

132 Vauxhall Motors (BRA0016), SMMT (BRA0005)

133 The Guardian, Jaguar to cut production at Halewood, 22 January 2018

134 We are conducting a separate inquiry into electric vehicles at present.

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

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

137 Private meetings in London and Brussels. Construction Equipment Association (BRA0007)

138 Q2 [Hawes], Financial Times, online, 31 January 2018

139 BBC News, Nissan to build new model in Sunderland, 27 October 2016

141 SMMT (BRA0005)

142 This period is subject to negotiation, as referenced in the Government’s Draft Text for Discussion: Implementation Period, 21 February 2018

143 Honda Motor Europe (BRA0008)

144 Prime Minister, speech, Florence, 22 September 2017

145 Oral evidence to the DExEU select committee, 24 January 2018, Qs703 & 740

28 February 2018