The one thing that the business community hates more than any other is uncertainty. Markets and business investment was calm before the referendum on EU membership in 2016 because nobody seriously imagined that the UK would vote to leave the world’s largest and most successful trading bloc, but it did. What the UK government has always wanted is “Europe a la carte” with (near) frictionless trade for goods, special arrangements for services and a pick-n-mix approach to European institutions. This will never be agreed to by the EU, so the exact “face of Brexit” is still unknown just nine months before it happens. True, both the EU and the UK have agreed a 21-month transitional period following Brexit, but unless certain thorny issues can be resolved first, it remains uncertain that the transitional period will be agreed.
Against this backdrop, it is perhaps unsurprising that investment in the UK car industry has halved according to The Society of Motor Manufacturers and Traders (SMMT). To the end of June 2017, investment in new models and factory upgrades was £647.4 million; in the same period for 2018, the figure is £347.3 million. According to SMMT, this level of investment is the weakest seen since the Global Financial Crisis.
SMMT complained that governmental “red lines” and conflicting messages over Brexit were working "directly against the interests of the UK automotive sector". SMMT chief executive, Mike Hawes told the BBC that the automotive industry needed clarity and to stay within the customs union, in an interview. He said that the “no deal” scenario represented "the worse option imaginable" for the industry.
The automotive industry is highly interconnected across the EU and reliant on “just in time” component supply which is not compatible with a Brexit that sees the UK out of the single market and customs unions – currently the plan.
In his BBC interview, Mr Hawes said that of “no deal outcome”: "It won't be an overnight closure but it could be a death by a thousand cuts. Gradually the competitiveness of the UK is eroded, making it that much harder to attract the investment, and it's the investment that makes it so competitive. We still need to see significant additional progress . We still don't know what our future trading relationship is going to be, not just with Europe, but with some of the other countries with which the EU has free trade agreements which are important to this industry as well. There's undoubtedly frustration in boardrooms at the slow pace of negotiations. The way the industry works - with investments over four or five years - you will see over the next couple of years, particular plants will reach that decision point. What we have seen over the last six months is that investment has been declining. Investment in the automotive industry is always a bit lumpy, but if you match what is happening in terms of total investment with what we hear, we are seeing companies sitting on their hands for as long as possible. But it reaches the point you have to make that decision, that's when you need the clarity. There is no credible 'plan B' for frictionless customs arrangements, nor is it realistic to expect that new trade deals can be agreed with the rest of the world that will replicate the immense value of trade with the EU. The government must rethink its position on the customs union. There is no Brexit dividend for our industry, particularly in what is an increasingly hostile and protectionist global trading environment. Our message to government is that until it can demonstrate exactly how a new model for customs and trade with the EU can replicate the benefits we currently enjoy, don't change it."
The government responded with its usual platitudes about securing a good deal for the UK which would provide near frictionless trading and be in the interests of business. Naturally, no details were provided about how this might be achieved within the constraints that the government has stipulated.