Car manufacturers would suffer under no-deal Brexit, Moody’s warns

The profits of British, Japanese and German car manufacturers would suffer in the event of a no-deal Brexit due to tariff increases, the credit ratings agency Moody’s has said today.

Jaguar Land Rover, Nissan, Toyota and BMW are among the companies with sizeable production capacity in the UK that would face a 10 per cent tariff, in line with other non-EU countries, to export to the EU if no deal is reached, a Moody’s report has shown.

The report estimated that for Nissan, which produced 442,000 cars in the UK last year, the direct impact of tariffs would account for close to 30 per cent of operating profit.

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Profits would also be hit by production and trade disruptions brought about by no deal, which would cause the companies to “to take further steps to reevaluate their production strategy in the UK and across Europe”, Moody’s said.

Jaguar Land Rover, the UK's largest car manufacturer, would face "significant additional cost", the report said. The company produces 75 per cent of its global volumes in the country, making 449,000 units in Britain last year, with about 20 per cent of its cars sold in mainland Europe.

Moody’s said that customs delays and additional documentation could require car manufacturers to increase inventory levels. UK-based car companies may face “additional customs processes for imports into and exports from the UK that could hinder just-in-time manufacturing” as well as “potential weakness in UK sales”, it said.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), the UK motor industry's trade association, said: “Tariffs alone should be enough to focus minds on agreeing a withdrawal deal, with the billions of pounds of additional cost putting UK vehicle and parts makers at a significant competitive disadvantage."

He added: “At 10 per cent on vehicles and up to 4.5 per cent on components, WTO tariffs are far higher than the margins of many volume manufacturers and would have a devastating impact on the sector and on consumer choice if customers are unwilling to absorb these costs in the form of higher prices.”

However, the report predicted that wage pressures arising from weaker EU migration would be contained by higher unemployment in the UK, a result of economic damage from no deal.

It also said the likely depreciation of the pound as a result of no deal would make UK exports more price competitive, although it would push up prices for the import of parts.

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Moody's vice president Motoki Yanase said: “The UK production of these automakers is highly interconnected to the EU and so a no-deal Brexit will create a significant negative impact through various channels, most notably the cessation of tariff-free automobile trade with EU countries.”

A UK Department for International Trade spokesperson said: “Our priority is securing a deal with the European Union as this will avoid disruption to our global trading relationships.

“If we leave the European Union without an agreement, our tariffs will need to strike a balance between protecting consumers and businesses from possible price rises and avoiding the exposure of sensitive industries to competition. We will make an announcement once a decision is finalised.”