Is the Brexit trade deal good news for our industry?
Like most business owners, you no doubt paid attention to the Brexit trade deal agreed between the EU and the UK on Christmas Eve 2020. There was good news in the shape of what the government called ‘unprecedented’ 100% tariff liberalisation, which should mean no sudden hike in import fees. But that won’t replace the frictionless trade we enjoyed as part of the EU.
If you’re wondering what it all means for your dealership and where we go from here, you’re not alone. In this article, our MD, Richard Jones, shares his unique perspective as a leading figure in our industry, alongside thoughts and guidance from industry heavyweights Paddy O’Connell and John Lally.
Richard is beginning by shedding light on what you might be able to expect during the phase-in period, along with his thoughts on the Brexit trade deal. First and foremost, he thinks it’s time to look at the other aspects of the deal – not just the lack of tariffs.
The Rules of Origin changes are just as important as the no-tariff structure
The no-tariff structure got a lot of attention, but it’s not the only thing that matters. The Rules of Origin changes mean EU manufacturers can still bring their products here, and our manufacturers can sell to the EU in turn – so the UK remains a viable place for car manufacturing.
“I don’t think people realised how important the Rules of Origin changes were. Without them, they would have put a lot of vehicles off-side based on where they would be defined to have been manufactured.” – Richard Jones
The potential snags arise from the supply chain. It’s incredibly complex, with a flow of parts running between the mainland UK and multiple different parts of Europe.
In fact, according to the European Automobile Manufacturers’ Association, every year the UK and the EU trade almost three million motor vehicles, worth a collective €66 billion. The cross-channel trade in automotive parts alone accounts for almost €14 billion.
Thanks to the Rules of Origin changes in the Brexit deal, that trade will stay tariff-free and quota-free as long as the orders contain enough components made in either UK or EU factories. However, it does mean there’s going to be a lot more paperwork for businesses moving products or raw materials between the UK and the EU.
Paddy O’Connell, Head of the National Motorcycle Dealers Association (NMDA), points out that a lot of dealers sell accessories built in the EU alongside powered two wheelers (PTWs). He explains that the NMDA are concerned the impact of Brexit on logistics and lead times may lead to issues as lockdown restrictions ease and pent-up demand surges.
“At the NMDA we are keen to assist PTW dealers whose franchise or brand is based in the EU. In the future, franchised dealer agreements may be changed and therefore subject to any divergences between UK and EU law. NMDA urges dealer members to share with us any new agreements they may receive.” – Paddy O’Connell, Head of the NMDA
Businesses have time to adapt to the changes
The six-year phase-in period will help businesses adjust to the new processes. Better still, a 12-month grace period has been agreed on Rules of Origin declarations, so businesses have a full year to get hold of the documents they need from their suppliers.
“I think that we now have a deal that can provide some comfort. But we do effectively have more paperwork involved in moving either finished product or raw materials between the UK and the rest of Europe. So, it will have an impact.” – Richard Jones
The transition periods are great for the industry, but we can’t ignore the impact of new customs procedures and all the paperwork that comes with them. Trade will continue, and we have time to prepare ourselves for the changes, but the new hoops to jump through will make it harder to trade as seamlessly as we have in the past. We need to ensure we’re up to date with all the necessary procedures and put extra time aside for managing the new processes.
Accelerating our transition to electrified vehicle manufacturing could provide huge opportunities
The new Rules of Origin throw up fresh obstacles – but also a chance for the UK to push ahead. UK electric vehicle (EV) manufacturers have three years to start sourcing EV batteries locally or from the EU to avoid tariffs. This is an amazing opportunity for the UK to invest in EV manufacturing, which would create jobs, boost the economy and leverage the technical know-how that’s been building vehicles in this country for more than a century.
“We’ve been given a challenge … to become a source manufacturer for batteries, battery packs and battery-powered vehicles, and we’ve probably got about five years to really get our act together as a nation. I’m really optimistic about that – but it will need investment, and it will need government and industry to work together to make it happen.” – Richard Jones
The government has already set aside £73.5 million to invest in a range of green technologies, including recyclable batteries for EVs. There’s also exciting news from British start-ups AMTE Power and Britishvolt: they’ve signed a memorandum agreement together to build facilities that will produce batteries with a capacity of around 30 GWh a year.
Unfortunately, that’s not going to be enough by itself. We’re lagging behind our European and wider international counterparts, and the government-backed Faraday Institution believes we’ll need to reach a capacity of 130GWh per year by 2040 if the UK is going to keep its large automotive sector. If we don’t build a UK battery supply chain, says the Faraday Institute, it could cost more than 100,000 jobs in the next two decades.
The move to zero emissions will impact the leisure industry too, says The National Caravan Council (NCC) Director General John Lally. No matter how niche a market it seems, it’s very valuable in terms of the UK’s tourism offering. John is calling on the government to offer more support for the development of electric motorhomes and tow cars, making funding available for manufacturers to help them develop a series of lighter vehicle chassis to build electric leisure vehicles on.
It’s not only the development of the vehicles themselves that need encouragement. As John notes, “Manufacturers of electric cars need to be encouraged to ascertain and state the vehicle’s towing capacity. Grants will be needed to install the infrastructure necessary, for example on holiday parks in rural areas, to enable multiple fast-charing points for holidaymakers.”
The industry is also seeing an uptake in electric PTWs (e-PTWs), despite the government leaving PTWs out of the scope of the 2030 Road to Zero announcements. Paddy O’Connell thinks it’s time for the government to start looking more seriously at the sector. He’s calling for further activities “to ensure that fully licensed and registered e-PTWs are seen by the government as a green, viable, and safe option for the future of mobility.”
If government and industry pull together, we can make the most of the trade deal
There are definitely challenges ahead – but there are opportunities too. We’ve seen during COVID-19 that the automotive industry can do a lot of good when we work together, supporting customers and calling for government action. While this trade deal probably isn’t the best Christmas present any of us have ever received, there is a lot in it we can be thankful for, especially when weighed against a no-deal alternative.
If we work proactively with our partners and the government, we can tackle the obstacles ahead together. And if we seize the opportunity that’s been presented, we could help turn the UK into a real hub for EV manufacturing.
The good news is that it’s likely we’ll see an economic bounce back once we begin to recover from the pandemic. UK consumers should help drive the economy forwards in the second half of this year. As Richard puts it, “We know the end is in sight. We know that bounce back will come.”
If you’d like to learn more about Brexit’s impact on trade, the Lloyds Banking Business resource centre is full of articles and discussions covering the international situation and trade in a disruptive environment.
Extra resources to help you and your business navigate the new rules
If you’re moving goods such as vehicles, parts and accessories between the UK and countries in the EU, you can visit the government’s website to get support and learn more about the new procedures: https://www.gov.uk/import-goods-into-uk
One particularly useful document is this flow chart, which offers an overview of what to expect when trading with the EU: https://www.gov.uk/government/publications/guides-to-importing-and-exporting-goods-between-great-britain-and-the-eu.
You can also visit HMRC’s YouTube channel for easy-to-digest guides: https://www.youtube.com/watch?v=OZ6or0d6Cxk