How Will Brexit Impact the Automotive Supply Chain?

When the British voted to leave the EU, many people were taken by surprise. The largest Nissan assembly plant in the UK is located in Sunderland, producing over 500,000 units annually with a workforce of 7000 people. Most of the production is exported to the EU, and up until the vote, the workers and others involved in the automotive manufacturing supply chain benefitted from open access to the European market.

Given the significance of the UK to the world economy, the vote has global economic repercussions and its' impact is not limited to the UK and its citizens. What is the risk to the automotive supply chain trade with Brexit?

According to the UK automotive association, SMMT, 77% of its members, which include Jaguar Land Rover, Toyota, BMW, Ford and Nissan, thought remaining in the EU would be better for the industry. Jaguar Land Rover estimated its annual profit could be cut by $1.35 billion by the end of the decade as a result of Brexit. The Freight Transport Association also thought that leaving the EU would lead to supply chain disruptions.

Some of these disruptions could be sharp increases in prices of components, which are typically imported. Currency fluctuations can make imports of critical raw materials more expensive, squeezing cash from operations. Collaborating closely with your suppliers in this area may help eliminate any disruption in available of materials. Re-positioning inventory and finished goods stock may be a requirement to deter sourcing issues.

Others, like the Economist Intelligence Unit, have predicted a decline of nearly 500,000 automotive units by 2017 – 2018. Justin Cox, head of European production forecasting, predicted the largest share of that loss would likely come from German plants. Still others feel that the exit could lead to labor shortages, which would exacerbate the driver shortage.

According to the Financial Times, the risk of disruption for the automotive industry is high with exports subject to 10 percent tariff charges. The media site also discusses possible benefits, saying, “Outside the EU, Britain would be nimbler and would regain control over trade policy and, possibly, a whole range of regulations. Car manufacturers could benefit from a trade deal with China (unlikely to happen in the EU).”

In the longer term, the impact on business will depend on what other arrangements and trade agreements that the EU will put in place. For now, at least, nothing actually changes to UK rules and procedures. However, it could be years before a clear picture of the future emerges. The EIU predicts the UK will outline its proposed EU trade deal by the end of this year. That may bring some stability, however analysts expect a pullback in foreign investment and potential job cuts at OEMs. UK carmakers, their suppliers, logistics providers and indeed much of the world, will be watching closely.