Just before Christmas on 20th December, the Society of Motor Manufacturers and Traders (SMMT) issued a warning (HERE) about the consequences of leaving without a deal. The timing was not good since this was the Thursday before Christmas and I didn't spot a word of it in the mainstream media. It is however quite sobering.
"No Deal’ must be taken off the table or risk destroying the automotive industry and the hundreds of thousands of jobs it supports, the Society of Motor Manufacturers and Traders (SMMT) warned today. ‘No Deal’ with the EU would have an immediate and devastating impact on the industry, halting production, undermining competitiveness and causing irreversible and severe damage. Automotive businesses are exasperated by the current situation with only weeks until Brexit. Industry has been unequivocal about the impact of ‘No Deal’".
Mike Hawes, SMMT Chief Executive, said,
"As UK motor companies are being told to prepare for a ‘No Deal’ Brexit, the long-standing fears of the industry are becoming a reality. Brexit is already having an impact – in output, costs and jobs. But this does not compare with the catastrophic consequences of leaving the EU without a deal. The Just-in-Time nature of automotive means the impact of ‘No Deal’ will be felt, not in months or days, but hours.
"There is no such thing as a ‘managed’ ‘No Deal’. We would face immediate delivery shortages, additional costs and uncertainty, which will seriously damage our sector. Both government and parliament have a responsibility to take this option off the table or risk destroying this vital UK industry".
It could not be clearer. Or could it?
Just into the new year and to muddy the water, Lord (Peter) Lilley and Cllr Brendan Chilton (no I don't know either) published a 30 page pamphlet: 30 Truths about Leaving on WTO Terms, explaining why leaving without a deal isn't a problem at all (HERE). This was on behalf of Global Britain and Labour Leave. In section 17, they boldly say:
Just-In-Time deliveries will continue despite the need for customs declarations.
- Just-in-Time and Just-in-Sequence supply chains can and do operate across customs frontiers in the UK and worldwide.
- 21% of auto manufacturers’ bought-in supply chain comes from outside the EU against 36% from the EU and 43% from within the UK33. The reliable operation of production lines is as dependent on these non-EU imported JIT/JIS supply chains as those from the EU. Customs procedures at UK ports have never been cited as a problem for these supply chains.
- Ford and General Motors depend on supply chains that operate across the Canadian/US/Mexico borders where, because NAFTA is a free trade area not a customs union, there is a customs border.
It's difficult isn't it? Who do we believe? There are widely conflicting views on what no deal means in practice. On the one hand we have the trade body representing all the manufacturers in the industry who deal with these problems every single day, and on the other hand, a peer of the realm, Lord Lilley, a stockbroker's energy analyst before being elected to parliament in 1983, who has probably never even looked under the bonnet of a car and was responsible for the Child Support Agency fiasco.
I know who I believe.
Baron Lilley misses the point (he misses quite a few points in his pamphlet) about leaving without a deal but let's just focus on the car industry.
If Nissan (as an example) wanted to build cars for the European market and hadn't got a plant in Sunderland, would they contemplate doing it today? Maybe they would - personally I suspect not - but if they did, it would be a different plant perhaps building different models for different markets. Industries can cope with cross border trade but the plant may have more warehousing to hold greater stocks, and so on. But this all takes a long time, years and years and you cannot change your business model, range of vehicles or stock holding capacity overnight.
This is what the stockbroker's analyst can't seem to understand.
Incidentally, Lilley and Chilton say, "So, the EU could not impose punitive tariffs or barriers to UK trade" but don't mention that for cars the EU tariff is 9.8%. This isn't 'punitive', it's the standard tariff. Bear in mind 80% of Sunderland's output is exported, mainly to Europe and increasing their prices by 10% is not going to help. And this isn't even dealing with the major problem of non-tariff barriers.
Yesterday the Japanese PM Shinzo Abe was urged by the Japanese motor industry to try to persuade Mrs May to avoid no deal (Lilley's happy outcome) at all costs (HERE) in his talks at Downing Street today. The report says:
"....around 1,000 Japanese companies operating in the country, and many [use] it as a gateway to European markets. Major manufacturers like Nissan, Toyota and Honda have warned a no-deal Brexit could cost their UK operations millions in additional tariffs and disrupt the “just-in-time” supply chains on which they rely, sparking concerns they might reconsider their presence in the country".
And Jaguar Land Rover this very morning announce 5000 job cuts (HERE). But don't worry everything will be OK come March 30th. Lord Lilley says so.
Baron Lilley misses the point (he misses quite a few points in his pamphlet) about leaving without a deal but let's just focus on the car industry.
If Nissan (as an example) wanted to build cars for the European market and hadn't got a plant in Sunderland, would they contemplate doing it today? Maybe they would - personally I suspect not - but if they did, it would be a different plant perhaps building different models for different markets. Industries can cope with cross border trade but the plant may have more warehousing to hold greater stocks, and so on. But this all takes a long time, years and years and you cannot change your business model, range of vehicles or stock holding capacity overnight.
This is what the stockbroker's analyst can't seem to understand.
Incidentally, Lilley and Chilton say, "So, the EU could not impose punitive tariffs or barriers to UK trade" but don't mention that for cars the EU tariff is 9.8%. This isn't 'punitive', it's the standard tariff. Bear in mind 80% of Sunderland's output is exported, mainly to Europe and increasing their prices by 10% is not going to help. And this isn't even dealing with the major problem of non-tariff barriers.
Yesterday the Japanese PM Shinzo Abe was urged by the Japanese motor industry to try to persuade Mrs May to avoid no deal (Lilley's happy outcome) at all costs (HERE) in his talks at Downing Street today. The report says:
"....around 1,000 Japanese companies operating in the country, and many [use] it as a gateway to European markets. Major manufacturers like Nissan, Toyota and Honda have warned a no-deal Brexit could cost their UK operations millions in additional tariffs and disrupt the “just-in-time” supply chains on which they rely, sparking concerns they might reconsider their presence in the country".
And Jaguar Land Rover this very morning announce 5000 job cuts (HERE). But don't worry everything will be OK come March 30th. Lord Lilley says so.
