A Critical Analysis of the UK Automobile Industry

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Table of Contents

Abstract
UK Automobile Industry
Europe Automobile Market
UK – Europe Trade
Issues arising from the Brexit transition
Discussion
Reference List

Abstract

Since the United Kingdom voted to exit the European Union (EU), immense pressure has been placed upon the manufacturing of cars in the UK. It has impacted access to raw materials, factory location decisions, sales, pricing, and general business strategy, to name a few. This paper explores the automobile industry in the UK and Europe, focusing on trade between the UK and Europe. It also touches on the UK’s challenges following the United Kingdom’s decision to quit the European Union (EU). Further analysis drawn from the challenges and issues highlighted is then made to draw a clear picture of the effect of the decision made by the UK. The United Kingdom is among the largest automobile markets in Europe and globally. In an article published in 2019 by Mathilde Carlier, the UK ranked as one of the biggest markets in Europe for automobiles.

UK Automobile Industry

According to the report, the UK ranks as Europe’s second-largest market. The automobile industry in the UK accounts for over 10% of the country’s exports and makes up over 10% of the country’s GDP (Hawes, 2021, 5). In 2020, more than half of the cars manufactured in the UK will be exported. The Society of Motor Manufacturers and Traders reported that America and Asia were the largest markets for these vehicles (Hawes, M, 2020, 1). Europe is a dominant market for the UK’s automobiles and components. The UK imports most of its light vehicles from Europe. The report suggests that around 80% of the cars imported by the UK were from Europe (Hawes, M, 2021, 12). The automobile sector employs many people within the region.

The sector boasts of being among the best developing sectors in the region and a significant employer with many car manufacturers. The industry is stretched with commercial vehicle manufacturers and several suppliers. In 2019, the country manufactured over a million vehicles, where 80% of these were exported. However, this was a decline in production compared to 2018 (Hawes, M, 2020, 3). A further reduction was observed in the rise of the COVID-19 pandemic. The industry was hit by numerous setbacks, such as lockdowns, resulting in many vehicle showrooms worldwide.

Europe Automobile Market

The automobile industry has pushed growth in Europe in recent years. The automobile industry is among the largest in the world. According to Renub Research, the market is expected to grow further in the coming years due to significant advancements in the industry (Renub Research 2021, 1). The press release by Renub stipulates that the automobile industry in Europe is one of the fastest-growing manufacturing branches in recent times. With the fast growth in the market, the demand for vehicles is growing. The manufacturers have been pursuing these demands by developing advanced technologies. The European market incorporates many manufacturers from different regions, such as the UK, which constantly compete to edge each other.

UK – Europe Trade

As earlier discussed, Europe is one of the largest markets for the UK’s manufacturing industry. Being one of the major players in the European market, the UK manufacturing sector has boosted the country’s economy exponentially. Trade between Europe and the UK has faced several challenges since 2020 when COVID-19 hit the global markets, crippling every current economy (Ward, M, 2021, 7). According to Mathew Ward, trade between the UK and Europe has reduced due to the pandemic. Exports from the UK declined significantly, affecting its economy and status in the European market. Due to the coronavirus pandemic’s disruptions to international trade, the worth of UK trade with the EU (and the UK trade value in general) fell dramatically in 2020, a trend that has continued into 2021 (Ward, M, 2021, 5). Covid-related delays are ongoing, as are interruptions in the UK-EU relationship.

Issues arising from the Brexit transition

The Brexit transition will pronounce a downfall in the EU-UK trade. The defeat means a decline in the country’s economy and stability in the market. The automobile sector was greatly affected by the decrease in the EU-UK trade in 2020 (Ward, M, 2021, 7). The industry is one of the country’s key players in economic growth. With the UK exiting the European Union (EU), trade between the UK and Europe is stipulated to hit a downfall, affecting both the UK and Europe. However, the manufacturing sector in the UK would receive the most significant setback as Europe consolidates several countries with big industries, such as Germany. Therefore, the European market wouldn’t accept a downfall of the same magnitude.

The European automobile sector continues to be a major success due to its increased efficiency, safety, and affordability. The automobile industry is critical to Europe’s economic growth. The development and production of automobiles in Europe have a lengthy history. Its distinguishing characteristics include an undeniably high degree of technology, a focus on safety, and heightened environmental awareness. Over the previous decade, Europe’s automaker has been one of the quickest branches of the manufacturing sector (Renub Research, 2021, 1). However, according to Rebecca Fagan, Brexit will negatively impact the automotive industry due to skills shortage. She argues that a fall in sales has pushed people into unemployment. Most of the sector’s income comes from exports, and exiting the European Union spells disaster for the industry (Fagan, R, 2018, 1). Importation of finished vehicles will reduce if the trade ties between the UK and other European countries break. The sector will have to depend on non-EU markets, which might be hard to penetrate. Many manufacturers in the non-EU markets follow different standards from those of the EU, making it hard for the UK to adopt, especially during this decade where technology is fast growing.

The UK has been facing a decline in imports since the COVID-19 pandemic hit. The Brexit transition would spell further downfall as many manufacturers would withhold stocks. This might force manufacturers who rely on imported components to close business or downscale operations. The manufacturing sector in the industry will be crippled and might take time to recover. The automobile industry in the UK employs a wide variety of professions across Europe (Hawes, 2020, 5). With the Brexit transition, the workforce sourced from Europe may reduce since the relationship between the UK and Europe is uncertain. Hostility among the outsourced labor force may cause the country to lose workers who migrated to the automobile sector.

With the fast-growing technology in countries such as Japan, the automobile industry may lose its status in the world markets as it will lack backing from the European Union. The European Union is like an umbrella covering countries and offering support in world markets (Carlier, M, 2022, 1). Without this support, the UK lacks enough power to penetrate other markets. Other regions have treaties and agreements that protect them from external interferences. These are some of the challenges the UK automobile will face if it ventures without backing a body with power (Hawes, M, 2021, 3). Another challenge that the automobile industry will have to face is currency collapse. Without the European Union, the British currency will lose its strength against other currencies, such as the dollar, used in most countries outside Europe, making it more robust than the British Pound in those markets. Due to this, major foreign manufacturing companies may pull out of the UK market.

Mike Hawes, in his report, states that the UK has left the European Union but not the European automobile sector. However, the industry will require maintaining trade agreements with the European Union for its sustainability (Hawes, M, 2021, 3). This suggests that the country’s automobile sector depends on the European market. The UK relies on other European countries such as Austria for raw materials for its automobile industry. Leaving the European Union may force the government to seek alternatives for raw materials. Leaving means excluding themselves from all agreements signed within the union. Without raw materials such as oil for the automotive sector, the industry will crumble down and might take time to recover. The industry has been declining, and a further decline could be catastrophic.

Sales in the automobile industry have reduced since the COVID-19 pandemic. According to Mike Hawes, sales in the automobile industry dropped drastically in 2020 due to the COVID-19 pandemic (Hawes, M, 2021, 7). It depicts that the sector can be easily affected by certain events and circumstances. The industry will decline in sales as many of the showrooms selling UK-made vehicles will cut off the supply and seek alternatives from other manufacturers. It will hurt the automobile industry because manufacturers will have to scale down operations.

Although many challenges are connected to the Brexit transition, its resilience allows it to cope with some of these challenges. Hawes suggests that the government maintain its trade agreement with the European Union to protect the automobile industry (Hawes, M, 2021, 3). The UK is determined to negotiate removing non-tariff barriers to ensure the industry’s sustainability at global levels. This strategy might help uphold the industry’s position in the European market.

Discussion

Following the UK’s decision to leave the European Union (EU), immense pressure has been placed upon the manufacturing of cars in the UK. It has impacted access to raw materials, factory location decisions, sales, pricing, and general business strategy, to name a few. Leaving the European Union has its benefits and disadvantages that cannot be ignored. As discussed in the previous section of the paper, Brexit transition impacts are also felt in the automobile industry. The industry is among the largest and fastest-growing sectors in the UK and Europe.

Many experts have given suggestions, and reports have been prepared to show the industry’s status in the economic growth of the UK. However, the industry has been on the verge of collapsing since the UK left the European Union, as many vehicle manufacturers across the globe have intensified production and technology in this industry. The paper accounts for the industry’s possible and existing challenges due to the Brexit transition. The paper analyses the issues and challenges the decision might cause to the industry and the economy.

This section highlights some possible solutions to the issues discussed in the previous quarter and their effectiveness in maintaining the industry’s status in the world market. According to Hawes, it is crucial to keep the relationship between the UK and the European Union for trade to remain solid (Hawes, M, 2021, 3). This argument gives the basis of all solutions that may be developed to protect the automobile industry from collapse.

The UK may enter into agreements with other countries to source raw materials for its industries, substituting what they acquire from the European Union. This might help reduce the lack of enough raw materials and provide a backup whenever the relations with European countries collapse. The UK can advance its technology and compete with the automobile manufacturing giants such as Japan and Germany. Growing automobile technology will help the industry keep up with the fast-changing automotive manufacturing world. Recently, the world has witnessed the birth of hybrid vehicles that have reduced carbon footprints. With the UK adopting the zero-emissions campaign, its automobile industry will compete at the same level as the other countries. The technology has not yet had widespread acknowledgment, which might give the industry a chance to rise back. Taking advantage of this and pushing for advanced technologies in the industry will provide the UK with its lost glory.

Although the industry is faced with many challenges, there is still the chance to trade fairly with the other markets outside Europe and develop strong bonds with potential partners. Collaborations with countries such as China and others that have advanced technologies in the industry also will help the country compete with the European Union and reduce the effects of the Brexit transition.

Reference List

Carlier M, (2022) ‘The automotive industry in the United Kingdom’, Statistics & Facts. United Kingdom. Web.

Fagan R, (2018) How Will Brexit Affect the UK Automotive Industry. Web.

Hawes M, (2020) UK automotive at a glance. SMMT Motor industry facts 2020 pp 1-41.

Hawes M, (2021) Driving global Britain. UK Automotive Trade Report 2021, pp 1-40.

Renub Research, (2021) The Europe Automotive vehicle market is expected to reach 21.59 million units by 2030, propelled by Electric and Mild Hybrid vehicle Growth. Web.

Ward M, (2021) Statistics on UK-EU trade. House of Commons Library, pp.5-26.

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