British car sector will continue to suffer, despite trade agreement
Last year, the British car market collapsed: 1,63 million car sales (-29,4%) is the lowest figure since 1992, and the regress is the strongest (in one year) since… 1943. Moreover, the Society of Motor Manufacturers and Traders (SMMT) is not convinced that Brexit will solve things, despite the last-minute trade agreement.
SMMT estimates the loss in turnover for the British car sector at £20 billion. The reasons are the pandemic, uncertainties about Brexit, and the loss of cars’ popularity with a gasoline or diesel engine.
“2020 will be considered a lost year for the car sector,” says Mike Hawes, CEO at SMMT. “The pandemic forced us to close factories and dealers for long periods of time, and there was much uncertainty about the future of the market.”
Hawes is referring to the governmental decision to ban ICE car sales from 2030 onward. Currently, gasoline and diesel cars’ sales still represent more than 80% of the sales total, but they are falling.
Electrified cars are booming, especially because of company sales, but SMMT wants more incentives and better charging infrastructure to promote these new propulsion offers. Nevertheless, the sigh of relief was prominent when a late free trade agreement was signed between the UK and the EU.
The British car industry is dependent on its trade with the EU and other countries. Seven out of ten cars sold in the UK are imported from the EU, and a serious bunch of international car manufacturers produces cars in the UK to export them for more than 90% to other countries.
SMMT hopes that a vaccine against Covid-19 and a clear-up concerning the EU’s relations will solve some things, but worries remain. SMMT warns of an extra cost because of the coming bureaucracy, despite the agreement.
The last-minute trade agreement stipulates that there are no additional taxes linked to the import or export of cars and that the trade is not limited. There is one important condition: there has to be a minimum of parts that originated in the region.
But the bureaucratic cost can be huge. For all vehicles that aren’t destined for the UK market (the gross majority), much paperwork will have to be done. For conventional cars, the limit of ‘local content’ (parts out of the EU included) is 55%.
For electric cars, the threshold is at 40%. The problem is that almost all batteries are coming from the Far East, and the local content percentage won’t be reached here. Like the EU, the UK will have to invest a lot in the coming years in the production of a local battery production industry.
Europe has already reacted to this by launching its ‘Airbus of Batteries‘ action plan, but the UK still has to really start its own strategic plan for local battery production. According to SMMT, this is one of the greatest challenges ever the UK is facing. The competition from Asia and (later) the EU will be extremely fierce.