U.K. Auto Sector's Only Brexit Option Is Damage Control: Report

(Bloomberg) -- There is nothing good to come from exiting the European Union for the U.K. auto industry, leaving the government only one option: limiting the damage.

That's the view of an impact assessment from the Business, Energy and Industrial Strategy Committee published Thursday, which urged Prime Minister Theresa May and her cabinet to take a "pragmatic" approach to negotiations with Brussels. The report, arriving amid a hardening of positions in the talks with the EU, comes after opposition Labour Party leader Jeremy Corbyn raised the dangers of a hard Brexit for carmakers.

“There are no advantages to be gained from Brexit for the automotive industry for the foreseeable future,” according to the report compiled by 11 cross-party lawmakers. “The negotiations are an exercise in damage limitation. The government should acknowledge this and be pragmatic.”

The auto industry has been a key topic of debate post-Brexit due to its reliance on tariff-free trading to allow components to travel in and out of the country in the manufacturing process. The U.K. employs nearly 1 million people in the sector either directly or through supply chains and the industry makes up 13 percent of all goods exported from Britain, the second highest from any one sector, according to the report.

Among lawmakers' chief concerns is the introduction of a 10 percent tariff on U.K. exports and imports in the event of a no-deal Brexit, which might shift production away from Britain. Profit margins are small, between 2 and 4 percent, and tariffs could make some U.K. manufacturing unsustainable. The committee also said it could find no upside to breaking with EU regulations and recommended the government tries to preserve the existing framework.

Since October, Vauxhall Motors has announced 650 job cuts at its factory at Ellesmere Port, while Jaguar Land Rover is also planning U.K. production cuts, citing Brexit as a factor.

Investment from Japan, which has been key for the British car manufacturing industry over the last 40 years, may also be under threat. The Asian country's U.K. ambassador warned last month that "no private company can continue" if profitability falls away. In a more optimistic move this week, Toyota Motor Corp. said it will retain a plant in Britain as the sole European producer of its Auris hatchback.

"There are signs now that the continuing uncertainty is affecting investment decisions" and will cost auto-industry jobs, according to the BEIS report. The lack of clarity “is harmful to U.K. businesses and will drive away investment for as long as it persists."

--With assistance from Alex Morales

To contact the reporter on this story: Suzi Ring in London at sring5@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Anthony Palazzo, Elisabeth Behrmann

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