LONDON -- Automakers with UK operations are concerned that Brexit will damage their exports because of rules that govern the sourcing of parts in finished vehicles.
When it quits the EU in 2019, the UK will need to negotiate new trade agreements with non-EU countries and also with the EU.
Automakers including Ford Motor, PSA's Vauxhall division and Honda fear that the deals could damage their business because they rely heavily on components imported from EU countries for the cars and components they build in the UK.
After Brexit, automakers will fall foul of the 'rules of origin' which stipulate a high proportion of a car's content must be made locally to avoid benefiting another country or region.
"This will have a drastic impact on UK trade with any countries outside the EU," Vauxhall wrote in a submission to a UK government committee investigating the possible economic effects of Brexit.
Typically, free-trade deals require 60 percent local parts content by value, but the average for cars built in the UK is 44 percent, according to the auto industry association, the SMMT.
Honda said its local content figure drops to 25 percent when the content of parts assembled in the UK was taken into account.
Honda UK said it spoke from experience after incurring tariffs on cars shipped from the UK to Israel, which penalized the company under rules of origin. "Failure to meet rules of origin thresholds…would make our vehicles uncompetitive, and would impose costs we cannot afford to absorb," the company said in its submission.
Britain's exit from the EU would also threaten exports of cars built in the EU, but using parts sourced from the UK.
Ford said EU cars using engines built in its UK factories in Dagenham and Bridgend would fall foul of rules of origin in free-trade agreements in certain export markets, specifically South Africa, Switzerland, Morocco and Serbia. "This would add significant cost to our European business, and potentially negatively impact UK powertrain manufacturing," the company said in a written submission. "The Rules of Origin issue is a key one for the industry," it said.
Automakers would have to source more parts from the UK to avoid paying tariffs under rules of origin stipulations but Honda said Britain's parts manufacturing industry was too weak to hit the targets. "It is only possible to source 40 percent of the parts needed to build a modern car from the UK supply chain," it said.
Aston Martin CEO Andy Palmer said it would be tough for his company to reach 60 percent from the 30 percent to 40 percent local content it currently sits at without bringing engine production back into the country from Germany. He told Automotive News Europe at the Frankfurt auto show in September that wasn't viable. "I can't see a scenario where we bring engine production back to UK. The cost of capital equipment on an engine is huge," he said.
Carmakers in the UK have opposed the country's exit from the EU from the outset, warning that it will push up the cost of building cars in British factories, especially the country leaves the EU without a free trade deal in place. The SMMT said that tariffs resulting from a no-deal Brexit would add 1.8 billion pounds to the cost of vehicles exported, around half of which currently go to EU markets.