COVID-19 and Brexit could cost UK car manufacturers £40bn by 2025, says SMMT

The Society of Motor Manufacturers and Traders (SMMT) expects 32% fewer cars to be produced in UK factories in 2020 after volumes declined by 48.2% in June.

SMMT chief executive, Mike Hawes, said that the latest production report from the sector made for “grim reading” as he once again reflected on the impact of the COVID-19 coronavirus and the impact of Brexit.

The UK car manufacturing output declined by 48.2% in June with 56,594 units produced, rounding off what the SMMT described as the sector’s “weakest six months since 1954”.

Year-to-date factories impacted by COVID-19 lockdown periods produced 381,357 cars – 42.8% (285,000 vehicles) down on 2019.

The SMMT said that with 11,349 jobs had already been cut across manufacturing and retail during the pandemic, with more at stake without dedicated restart support as firms fear double whammy of Brexit tariffs.

New analysis suggests car production losses could total 1.46 million units by 2025 – worth just over £40bn – if no FTA is in place by the end of 2020, forcing the sector to trade on WTO terms with full tariffs applied.

Hawes said: “These figures are yet more grim reading for the industry and its workforce and reveal the difficulties all automotive businesses face as they try to restart while tackling sectoral challenges like no other.

“Recovery is difficult for all companies, but automotive is unique in facing immense technological shifts, business uncertainty and a fundamental change to trading conditions while dealing with coronavirus.

“The critical importance of an EU-UK FTA is self-evident for UK Automotive. Our factories were once set to make two million cars in 2020 but could now produce less than half that number, a result of the devastating effects of the pandemic on top of already challenging market conditions and years of Brexit uncertainty.

“This industry has demonstrated its inherent competitiveness and global excellence over the past decade. Its long-term future now depends on securing a good deal and a long-term strategy that supports an industry on which so many thousands of jobs across the country depend.”

June’s car manufacturing volumes for the domestic market declined by 63.8%, reflecting the gradual easing of the UK’s retail lockdown.

Production for export fell by 45%, although overseas orders accounted for nine-out-of-10 vehicles built as key global markets, including in the EU, China, US, South Korea and Japan, opened for business earlier than the UK.

The SMMT said that “significant questions remain” about the nature of trading conditions from January 1, with uncertainty about customs procedures, regulation and damaging tariffs causing real concern.

According to the latest survey of SMMT members, this lack of clarity is now severely hampering nine in 10 companies’ (93.5%) ability to prepare for the end of the transition period.

The coronavirus crisis has exacerbated this, it said, with six in 10 (61.3%) automotive companies saying COVID-19 had diverted resources away from Brexit preparations, while more than seven-in-10 (77.4%) viewed securing a tariff and quota free FTA as crucial to their future success.

The latest independent production outlook commissioned by SMMT, and also released today, now expects just over 880,000 cars to be produced in the UK this year – some -2% lower than made in 2019 and 30% less than anticipated in January pre-crisis.