UK warned hard Brexit will hit car sector

The UK’s car industry is doomed to a sharp decline if the country loses access to the EU single market, the head of Germany’s auto industry lobbying group has warned, with automakers likely to move production to low-cost EU countries in eastern Europe.

The comments by Matthias Wissmann mark the first time a senior figure in the German car industry has publicly outlined the consequences from a change to Britain’s trading arrangements with the EU for a sector that has powered the UK’s industrial renaissance in recent years.

“If there’s a ‘hard Brexit’ then we will see a shift to central and south-eastern Europe,” Mr Wissmann, head of the German Association of the Automotive Industry, said, adding countries such as Slovakia and Poland “are very attractive, have low labour costs and are part of the EU”.

A former German transport minister and one of the country’s most powerful lobbyists, Mr Wissmann also predicted that no carmaker would make big UK investments in the current climate. “The longer the period of uncertainty lasts, the longer people will be reluctant to invest,” he said.

Theresa May, UK prime minister, has promised to start formal divorce talks with the EU by March and has indicated that she wants a clean break from the EU single market and customs union so as to be able to reassert control over Britain’s borders.

At the same time, she has indicated she might seek to shield some favoured sectors — including the car industry — from the impact of Brexit. She recently gave assurances to Japanese carmaker Nissan that trading conditions at its Sunderland plant would not change after Britain’s EU exit.

Carlos Ghosn, Nissan chief executive, had previously said he would not invest in the site unless the UK government offered compensation to offset the impact of any new tariffs the company might face.

Still, many business leaders are worried that Mrs May is more focused on immigration than the economic consequences for Britain of severing its ties to Europe’s common market. Such concerns have fuelled the 17 per cent fall in the value of sterling since the June 23 referendum.

In Germany, too, many in the business community view Mrs May’s rhetoric with alarm. Germany exported 809,000 vehicles to Britain last year, representing 18.4 per cent of its total motor exports.

Some British ministers have speculated about the possibility of seeking sectoral deals to keep trade flowing, including a special regime for key traded goods such as cars.

But Angela Merkel, German chancellor, last week warned against such “comfortable” deals and urged companies engaged in sectoral talks on market access to avoid compromising on EU principles — particularly freedom of movement.

Mr Wissmann backed that position. “The UK is an important market for us but the EU market is much more important,” he said. “If the EU were to fall apart, that would be a lot worse for our industry.”

Germany’s priority must be “to keep the EU 27 together”, he said.

Foreign investment into Britain’s car industry over the past few decades — particularly from Germany — has fuelled a big rise in output. BMW, for example, employs about 8,000 people in Britain and last year produced more than 200,000 Minis there — about 12 per cent of UK car production.

But Mr Wissmann warned that the UK could end up like Italy, whose output of cars has shrunk from about 2m a year 20 years ago to 500,000 now. Slovakia’s production has risen from virtually zero to more than 1m vehicles in the same period. “If the UK doesn’t want to suffer the same fate as Italy’s car industry, it must be concerned to retain full access to the single market,” he said.

Mike Hawes, chief executive of UK motor industry body the SMMT, echoed Mr Wissmann’s warning. He said the fundamentals of the UK car industry “remain very strong”, it had been “extremely competitive in recent years, attracting international investment and growing production to levels that are approaching a record high”. But “maintaining the trading conditions we enjoy within the single market is essential” to beating international competition and preserving the sector’s success, he added.

Many carmakers with plants in the UK already have operations in eastern Europe. Toyota and Renault-Nissan both have factories in Turkey, while Opel, the General Motors division that owns Vauxhall, has two manufacturing sites in Poland. Jaguar Land Rover is constructing a factory in Slovakia, its first big plant outside the UK, which is due to open in 2018.

Additional reporting by Stefan Wagstyl and Patrick McGee


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