With no sign of a trade agreement being reached between the UK and the EU, the European car industry is bracing itself for a hard Brexit which experts say could cost the sector €110 billion over five years.

If no deal is secured, an outcome made more likely by the UK government’s action in recent days over the Northern Ireland situation, tariffs would come into effect from January 1st 2021. This would make new cars more expensive, leading to a drop in demand. Auto industry bodies across Europe have highlighted the likely consequences in a joint statement. This includes new calculations which suggest that cost to the pan-European automotive sector would be some €110 billion in lost trade over the next five years and mean many lost jobs.

Without a deal in place by 31 December, both sides would be forced to trade under so-called World Trade Organisation (WTO) non-preferential rules, including a 10% tariff on cars and up to 22% on vans and trucks. Such tariffs are far higher than the unit profit margins of most manufacturers and would need to be passed on to consumers. A no deal would also mean parts would be more expensive.

The industry bodies estimate that a no deal scenario would mean a reduction in vehicle output by some 3 million units in both European and UK factories in a market already ravaged by Coronavirus. This they say would equate to losses worth €52.8 billion to UK plants and €57.7 billion to those based across the EU.

Commenting on the situation Hildegard Müller, President of German VDA, said, “The automotive industry needs stable and reliable framework conditions. It would be to the great disadvantage of both sides if the UK withdrawal were to end with the application of tariffs in mutual trade. This would jeopardise closely linked value chains and possibly make them unprofitable. Our member companies have more than 100 production sites in the United Kingdom. We hope that the EU and the UK will continue their close partnership with a comprehensive free trade agreement.”

Brian Cooke, SIMI Director General commented, “A no deal outcome would be extremely negative for the business relationships between the EU and the UK, adding unnecessary costs and logistical barriers. A solution for reaching an agreement that allows for tariff free and full market access simply must be found.”