A British exit from the European Union risks subjecting the country’s $100 billion car industry to export tariffs that would hurt profitability, according to the Society of Motor Manufacturers and Traders.
Vehicles exported to the EU could attract a 10 percent tax if the U.K. votes to leave the economic bloc in a June 23 referendum, SMMT CEO Michael Hawes said in an interview on Thursday. Components may face a 2.5 percent tariff, he said.
"That means a plant has to find 10 percent extra efficiency, which is a lot when margins are already wafer thin," Hawes said.
While U.K. car sales have remained healthy, demand for latest models slowed in April, Hawes said. That could in part be due to consumer jitters ahead of so-called Brexit, he added. The long investment cycles that new models require mean any wider impact would be felt in the medium- to long-term, the CEO said.
Now largely under foreign ownership, Britain’s car industry has had to reinvent itself after leading brands struggled to compete with overseas competitors with lower operating costs.
Of the world’s 20 biggest automotive suppliers, 18 have a base in the U.K., and the average locally-sourced content in a British-built car stands at 41 percent, compared with 36 percent in 2011. Britain has the capability to manufacture 80 percent of the components, Hawes said.
Nissan's Sunderland factory “is arguably the most efficient plant in Europe but it still has to compete with plants in the EU to get the next production allocation,” Hawes said. Factory owners in countries like Poland are unlikely to lobby governments for a quick alternative trade agreement with the U.K., he said.
Last year, Japan-based Nissan announced investment of 173 million pounds ($253 million) for production of its new Juke model and the expansion of the Sunderland facility.
Tata's Jaguar Land Rover, BMW's Mini and Rolls-Royce, and Volkswagen's Bentley also build cars in the UK, as do Toyota and Honda.
The SMMT lobby group surveyed its members at the beginning of the year, and the results showed 77 percent were in favor of remaining in the EU. The 9 percent seeking a Brexit were mostly small- to medium-sized companies, rather than larger manufacturers of parts and cars.
“There is a certain vulnerability there,” Hawes said. “The U.K. is heavily integrated with the EU and the global industry. We’ve been hugely successful and we don’t want to jeopardize that. At the moment, the biggest thing is the uncertainty.”