Hard Brexit could increase car production costs by £2,372 per vehicle, study finds

The cost of producing a car in the UK after a hard Brexit could increase by as much as £2,372 per vehicle, new research shows.

Analysis by PA Consulting found that falling back onto World Trade Organisation rules would put tariffs of 10 percent on finished cars and 4.5 percent on component parts, a move which the firm said would endanger the UK’s automotive industry.

Similar costs would be incurred for European based manufacturers importing cars into the UK, while increased time delays at borders could also impact “just-in-time” supply chains that are currently standard for the industry.

Tim Lawrence, global head of manufacturing at PA Consulting Group, said: “Both the EU and the UK would benefit from keeping free trade and supply chains unaffected because any tariffs would be damaging for both sides based on today’s complex supply chain arrangements.”

The research also identifies three possible scenarios emerging in the event of partial trade restrictions between the UK and Europe.

Manufacturing companies or suppliers with substantial operations in the UK and a large domestic market are likely to encourage suppliers to locate and expand their offerings in the UK, the report said. This would involve increased investment in UK parts procurement, in order to reduce the impact of tariffs imposed on component parts moving between the UK and EU.

Multinational companies that build cars in the UK and export to the EU may relocate onto the continent. The increased cost of exporting 200,000 cars per year could be £460m, which in two years would easily pay for the cost of a new plant in the EU area, the report stated.

EU firms that export vehicles to Britain may move some manufacturing to the UK, PA consulting said. However, such a scenario would be dependent on the size of the UK market and supply costs. Prices will likely increase for UK customers, with increased prices covering the costs of any tariffs.

Lawrence said: “Car makers will have to review their manufacturing and supply chain network and investment decisions and plan for scenarios based on extra tariffs and charges/incentives on corporation tax. Some may consider investment options into the UK, but equally some may consider investing into the EU.”