Industry Trend Analysis - Brexit's Brightside Fading Due To Weak Supply Chain - OCT 2017
BMI View: T he low local content in UK-built vehicles could act as a major barrier to the UK a utomotive industry's ability to capitalise on Brexit and the negotiation of new trade deals with fast growing emerging markets.
The lower share of automotive components sourced from domestic suppliers could prove to be a barrier to unlocking the UK automotive industry's potential gains from Brexit. Previously, we highlighted that a potential upside to Brexit for automakers was that the UK would now be able to seek new trade deals with non-European Union (EU) countries on its own terms. We argued that this would allow the automotive industry to refocus its export efforts on faster growing emerging markets like China, Russia and Brazil, which have already become increasingly important drivers of export growth ( see ' The Brightside Of Brexit For Autos ' , July 15 2016). However, evidence suggests that the UK could find itself being unable to qualify for free trade in Autos given that the rules of origin requirements that characterise free trade agreements are, on average, too strict for the industry to meet.
More specifically, the low share of locally-sourced components in UK-assembled vehicles poses a real threat to the UK's plans of using new free trade deals with non-EU countries to boost automotive exports after the UK leaves the EU. According to the Automotive Council UK's June 2017 survey on car manufacturers' sourcing of locally produced components, local content makes up 44% of the total value of vehicles produced in the UK, up from 36% in 2011 ( see chart above). However, this 44% local content is still far below the 50-60% rules of origin requirements that are normally the benchmark of most contemporary free trade agreements according to the head of the UK's Society of Motor Manufacturers and Traders (SMMT), Mike Hawes.
|Local Suppliers Gaining Ground Fast Enough?|
|% Share of Total Auto Parts Sourcing By Origin|
|Automotive Council UK|