2019 Uk Automotive Trade Report

2019 UK AUTOMOTIVE
TRADE REPORT
INSIGHTS FROM AN INTERNATIONAL TRADE HUB AT THE HEART OF EUROPE
CONTENTS FOREWORD
2019 UK AUTOMOTIVE TRADE REPORT

Page 3 FOREWORD
Page 4 SUMMARY
FOREWORD
Page 6 1: SETTING THE SCENE:
THE UK AUTOMOTIVE INDUSTRY If the course of our future Automotive is ready to inform and assist government
trade policy started with in promoting the country’s competitiveness around the
Page 8 2: UK AUTOMOTIVE TRADE SNAPSHOT the 2016 EU referendum,
we are now at a crossroads.
world; global trade is complex and it needs the knowledge
and insight industry experts can offer. Looking globally,
Our trading ecosystem there are challenges enough without Brexit - even
Page 13 3: KEY TRADING PARTNERS has as its foundation superpowers aren’t immune from the effects of trade
borderless trade, tensions, unsettling business and consumer confidence.
Page 20 4: CHALLENGES integrated relationships
with supply chains and
Furthermore, the pathway to zero emission, connected and
autonomous vehicles brings with it new business models,
regulatory alignment disruptors and trade challenges and the UK has to be in
Page 27 5: OPPORTUNITIES across Europe. Principles a position of authority and influence if it is to meet these
now under threat from a challenges head on and prosper.
Page 33 6: RECOMMENDATIONS FOR GOVERNMENT hard Brexit.

The UK needs to be at the centre of future regulatory
AND INDUSTRY Our first UK Automotive Trade Report highlights just how
important the automotive sector is to the UK economy, and
discussions; promoting international collaboration, creating
an environment that boosts trade, easing burdens and
how simple, frictionless trade is at its heart. This is the first minimising or eradicating disruptions to trade flows. We
Page 35 7: ANNEX: DATA SOURCES time that SMMT’s extensive registration and production data must introduce an ambitious global trade policy, going
has been matched to external sources such as the ONS and beyond comprehensive trade agreements and exploring
HMRC to create an in-depth and comprehensive analysis of opportunities to reduce tariff and non-tariff barriers.
the sector. It paints a fascinating picture of the complexity
of the global trading system and the UK’s role within it. Over the 10 years since the global financial crisis, we have
Its publication is timely, providing a clearly defined set of proven that the fundamentals of the country’s automotive
recommendations to help policymakers and industry keep sector are strong. We have a dedicated workforce,
this vital sector central to a changing UK trade strategy. engineering excellence, world famous brands, modern
infrastructure and the technological knowhow to keep
This sector is a global trade powerhouse that generates Britain innovating and competitive.
more than £100 billion in trade for the UK economy each
year, and is the country’s biggest single exporter of goods, The outcome of the Brexit negotiations will ultimately
accounting for 14.4% of total exports – the majority of which decide our future trading relationship with the EU and we
are shipped to our largest trading partner, the European hope it remains a close and frictionless one. Regardless of
Union. The US and Asia are other key markets but the sector this, however, the UK must have a strategy that is positive,
operates globally, exporting to some 160 countries in total. modern and ambitious. The automotive sector should be at
its heart as this report demonstrates that no meaningful
These are more than just numbers; they represent hundreds trade policy can keep the UK at the forefront of global trade
of thousands of jobs and livelihoods, which goes beyond large and innovation without taking us into account. n
manufacturers to encompass a broad, delicately balanced
ecosystem of parts, components and service suppliers.
Attracting volume manufacturing to the UK has helped establish

a supply chain that supports not just domestic production but
additional export opportunities as well. This adds to the strong
premium and luxury brand presence in the UK traditionally. More
recently, the UK has seen thousands of exciting start-ups and Mike Hawes Chief Executive
SMEs emerge, challenging current thinking in terms of mobility. The Society of Motor Manufacturers and Traders (SMMT)
Page 2 | 2019 UK AUTOMOTIVE TRADE REPORT THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS 2019 UK AUTOMOTIVE TRADE REPORT | Page 3
SUMMARY SUMMARY
UK AUTOMOTIVE: £101 BILLION TRADE HUB
TOP 5 CAR EXPORT

MARKETS
14.4%
£44.4 BILLION
EU USA CHINA
AUTO SECTOR LARGEST

EXPORTER OF GOODS
Source: ONS
1 2 3
Exported in 2018 JAPAN TURKEY
SECTOR GENERATES
TRADE WORTH MORE THAN
4 5
1.3 MILLION £101 BILLION 87.9%
VEHICLES BUILT FOR EXPORT IN 2018
94.3%
81.5% 59.3%
£57 BILLION
New van market New car market
imported imported
Car production Van production (of which 80% from the EU)
exported exported
Imported in 2018
SMMT ESTIMATES THE

TOTAL VALUE OF TRADE 1: Set forward-looking auto trade strategy
20%
COULD INCREASE BY
RECOMMENDATIONS 2: Preserve current market access
FOR GOVERNMENT
10
UK IS RANKED IF AUTOMOTIVE 3: Strengthen industry engagement
TH WAS REMOVED AND INDUSTRY 4: Seek new trade opportunities

FROM UK EXPORTS
5: Lead regulatory discussions
14
IT DROPS TO
TH FROM £101BILLION 6: Enhance domestic customs system
TO £122 BILLION
7: Foster trade promotion
IN THE WORLD
FOR ALL EXPORTS 8: Link trade and industrial strategies
IN 2018
BELOW BELGIUM,
CANADA, MEXICO
AND RUSSIA
1: SETTING THE SCENE: THE UK AUTOMOTIVE INDUSTRY
mainstream volume car manufacturers in the UK, eight major by growth at PSA’s IBC plant at Luton making the Vauxhall
premium and sports car manufacturers, four commercial Vivaro. This plant now accounts for almost three-quarters
vehicle manufacturers and eight bus and of UK output – the remainder being predominantly heavy
coach manufacturers. commercial vehicles and buses. Output in 2018 rose 8.5% to
84,888 units on 2017.
The UK is also home to the largest number of small volume
car manufacturers and there are more than 2,500 suppliers CV production was around 200,000 units between 1999 and
to the sector. 2008 but fell with the scaling back and eventual closing of
the Ford Transit plant in 2013, as well as LDV in 2009 and
The build-up of output at the Japanese-owned Honda, Vauxhall Astravan production by 2013. Today, 60% of CV
Nissan and Toyota plants during the 1990s, alongside ongoing output is exported, predominantly to the EU.
production at Ford, MG Rover, Peugeot and Vauxhall, helped
lift UK production to a new peak of 1.80 million in 1999 – the The importance of exports has increased in recent years,
best since 1972’s record 1.92 million units. Nissan began with 81.5% of cars built for overseas markets in 2018 – the
producing cars in the UK in the mid-1980s, with Honda third highest level on record. Exports in 2000 accounted
and Toyota starting in the early 1990s. The culture and for 64.8% of output, and surpassed 70% in 2004 and 80%
processes utilised at these Japanese-owned plants were in 2011. The EU accounts for more than half of all exports.
adopted across the sector, helping to improve efficiency and The sector’s success has been dependent on free and
international competitiveness. frictionless trade afforded by the UK’s membership of the EU
single market and customs union.
However, by 2006 Ford, MG Rover and Peugeot had ceased car
production in the UK and Vauxhall had stopped producing cars at In the event of the UK leaving the EU without a deal, it would
its Luton plant. Then with the global recession limiting demand, bring an immediate end to the seamless movement of goods,
UK car production fell to below one million units in 2009. resulting in disruption and delays at the border, throwing
just-in-time manufacturing into chaos and undermining the
A sustained period of recovery followed, taking production competitiveness of the sector – ultimately putting profitability
back to 1.72 million units in 2016. This was supported by and jobs at risk and threatening the viability of the sector.
strong growth at Nissan and Jaguar Land Rover, each
producing over half a million units. Output has since fallen Despite the current challenges, the automotive sector
following weaker domestic demand surrounding political continues to undertake a technological revolution, with
and economic uncertainty, the slowdown in demand in key developments in ultra low emission technology and
export markets such as the EU and China, combined with connected and autonomous vehicles, as well as data-driven
weaker demand for diesel cars and some disruption from manufacture and design. Looking ahead, the potential for
the switch to WLTP type approved cars. Output in 2018 the UK’s automotive sector is significant, but economic and
1
was down 9.1% on 2017 levels at 1.60 million units. political uncertainty is already having an adverse impact on
output, investments and job prospects.
The UK has a strong focus on premium and luxury cars. In
2018, 45.8% of all cars produced were premium products SMMT data on investment announcements shows that
(Jaguar Land Rover and MINI), while 1.7% were luxury and manufacturers are putting investment and expansion
sports cars (including globally iconic brands such as Aston decisions on hold until a decision is made on the UK’s
SETTING THE SCENE: THE UK AUTOMOTIVE INDUSTRY Martin, Bentley, McLaren and Rolls-Royce). departure from the EU. Maintaining global competitiveness
and an investment base here in the UK is essential to
Commercial vehicle (CV) production recovered in 2018, helped preserving a strong automotive sector. n
The UK automotive manufacturing sector is a bustling European trade hub, moving vehicles,
engines, parts and components worth more than £100 billion across the UK’s borders each year.
The sector is UK’s largest exporter of goods, worth some £44.4 billion in 2018 – equivalent to THE SECTOR IS A KEY PROVIDER OF JOBS AND WEALTH CREATION
14.4% of all goods exported and 7.0% of all exports (source ONS). Some 1.3 million vehicles
were produced for export in 2018.
168,000 people employed directly
The sector is also a key provider of jobs and wealth creation
– with 168,000 people employed directly, a turnover of £82
The sector has undergone huge transformation over the past
two decades to position itself as a key trade hub. There has Turnover of £82 billion
£18.6 billion added to the UK economy in 2018
billion and £18.6 billion added to the UK economy in 2018. been significant investment to modernise plants and make
them more efficient, supported by a flexible workforce making
The UK automotive sector is truly global, with products dynamic and reliable products that consumers want.
exported to some 160 markets. Exports accounted for 81.5%
of all car production in 2018, while imports accounted for The composition of manufacturers has also changed
87.9% of new car registrations. significantly over this period. There are currently six
2: UK AUTOMOTIVE TRADE SNAPSHOT
In the process, the sector – the 4th largest producer of motor FINISHED VEHICLE EXPORTS
vehicles in the EU – has maintained an equilibrium in its trade
balance, with a deficit of just over £12.6 billion despite an The UK automotive industry is increasingly export-led.
import-dominated domestic car market and a regionally integrated Since 2006, at least 75% of UK production of finished
supply chain largely dependent on imported componentry. vehicles has been destined for overseas markets. In
This was possible thanks to the UK’s diverse automotive 2018, cars dominated exports of finished vehicles with
manufacturing base, productivity levels among the most a 96% share of the total, while CVs represented only
competitive in Europe and a modern, export-driven business
4% of exports.
model focused on high-value, high-quality finished vehicles.
In volume terms, 2016 saw a record-breaking 1.4 million
However, after a peak in 2017, expansion has slowed. It is too
vehicles leaving British production lines for overseas markets.
early to say whether UK automotive trade has now entered
However, despite maintaining a sustained export share, units
into a downward period or whether cross-border exchanges
shipped abroad declined to 1.28 million vehicles in 2018. On
will soon overcome the bearish trends.
average, four in five cars and three in five CVs produced in the
UK are destined for export.
THE SECTOR’S TRADE OUTLOOK WILL
LARGELY DEPEND ON FOUR FACTORS:
2
CHART 2 | UK VEHICLE PRODUCTION FOR
EXPORT MARKET BY VOLUME
1 The future trading relationship
between the UK and the EU
All Vehicles Cars CVs
2 The resolution of international 1,600 160
UK AUTOMOTIVE TRADE SNAPSHOT trade tensions
3 The sector’s ability to maintain a strong,

diversified product portfolio
1,400 140
The automotive industry’s contribution as 4 The sector’s ability to adjust to global

industrial challenges such as vehicle
1,200 120
Cars and all Vehicles - thousands

a driving force behind UK trade in goods automation and electrification.
1,000 100
n The UK automotive sector is a vibrant trade
today is a key success built up over a
CVs - thousands
hub. The industry is the driving force behind UK
exports of industrial goods and a significant decade of investment. CHART 1 | TOTAL AUTOMOTIVE TRADE BY VALUE
800 80
contributor to the UK’s total exports.

TRADING WITH THE WORLD Exports Imports 600 60
n Automotive imports are essential for the sector, In 2009, the global financial crisis seemed to have 60,000
wiped out more than 10 years of slow and steady
covering the vast majority of new car sales and 400 40
growth of UK automotive trade exchanges. With UK
supply chain production inputs. manufacturing, imports and exports of automotive 50,000
products at record-breaking lows, no-one could 200 20
n An incredibly diverse automotive manufacturing predict that the sector was about to experience a
base, affluent domestic market and open trade phase of unprecedented expansion. 40,000 0 0
In 2018, almost 10 years after, UK automotive trade was 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
and investment policy allowed UK automotive
Source: SMMT
worth more than £101 billion, an increase of 118% compared
£ million
trade to quickly overcome the impacts of the
with 2009. Exports of motor vehicles, trailers and semi- 30,000
financial recession in 2008. trailers, including related parts and accessories, alone
amounted to £44.4 billion in 2018 – almost as much as total As a percentage of total production, exports of passenger
n Declining trends in the last year show the automotive trade in 2009 (ONS data). 20,000 cars peaked in 2011, covering 83.7% UK car production and
driving the sector’s comeback after the 2008 crisis. Despite
impact of uncertainty linked to the UK’s future Today, without exports of motor vehicles, the UK would a recent contraction of total manufacturing outputs, export
relationship with the EU, international lose its position as the world’s 10th biggest exporter of levels have been sustained. 81.5% of UK-built cars were
10,000
trade tensions, falling confidence among goods and slip to 14th place, behind Belgium, Canada and exported in 2018.
Mexico and Russia (WTO data).
consumers around the world and global In value terms, car exports fuelled the sector’s expansive
In less than a decade, the UK automotive sector has transformed 0 phase. The structural overhaul of the sector in the 2000s has
industrial challenges.
itself from a relatively sluggish market into a bustling trade 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 built resilience into the UK automotive industry, allowing UK
hub, importing and exporting millions of cars, engines, parts and Source: ONS carmakers to capture regional and global trade opportunities
components across the world. through high-value exports after the global financial crisis.
2: UK AUTOMOTIVE TRADE SNAPSHOT 2: UK AUTOMOTIVE TRADE SNAPSHOT
In 2018, the automotive sector was pivotal to UK exports of industrial goods. Exports of road vehicles were worth almost FINISHED VEHICLES IMPORTS There are currently some 4.6 million vans on UK roads, with
£40 billion, accounting for 11.7% of all UK goods exports, by far the UK’s most valuable exported product (HMRC data). almost all serving a role that will have a direct impact on
Traditionally, the UK is an affluent market for finished
the economy. The boom in online shopping has seen a surge
vehicles, with low brand loyalty. These factors create
CHART 3 | TOP 10 UK GOODS EXPORTED 2018 (VALUE) in demand for delivery vans. The UK is now the EU’s biggest
a highly competitive domestic car market – the second
online retail market, with 83% of consumers here buying
biggest in the EU after Germany. Competition is
goods and services online, compared with the EU average
strengthened by attractive financial packages for car
of 60%. Meanwhile, the rapid rise in the number of self-
Road vehicles (including air cushion vehicles) £39.9 (11.1%) buyers, as well as a business-friendly environment.
employed people, up from 3.3 million in 2001 to 4.8 million in
Petroleum, petroleum products & related materials £30.0 (8.3%) Against this background, it is no surprise to see imports 2017, has also been a key driver of van growth, with the trend
playing a major role in the UK car market. Following the to vehicle downsizing another factor.1
Power generating machinery & equipment £27.3 (7.6%) closure in the early 2000s of some assembly plants of
On the other hand, progressive opening to international
long-time investors such as Ford, MG and PSA, the share of
Gold Non-Monetary (Exc Ores & Concentrates) £24.2 (6.7%) competition has forced UK car manufacturers to increase
imports rose from 71.7% in 2000 to more than 85% in 2006. A
their competitiveness, specialise in profitable market
Medicinal & pharmaceutical products £23.5 (6.5%) recent uplift in 2018 marked an all-time record share of 87.9%
segments and seek new market opportunities.
enabling unsurpassed UK consumer choice.
Miscellaneous manufactured articles n.e.s. £21.3 (5.9%)
ENGINES TRADE
CHART 6 | UK REGISTRATIONS OF IMPORTED CARS
Other transport equipment £16 (4.4%)
The UK is home to nine engine manufacturers. Although the
£14.3 (4.4%) Volume Share overall value of engine trade is not comparable with finished
General industrial machinery & eqp. & machine pt.n.e.s.
90% vehicles, the export of diesel and petrol engines remains an
£13.7 (3.8%)
2.4
Ele machinery, app & appliances & ele pt thereof n.e.s. essential feature of the UK automotive industry.
Professional, scientific & controlling ins & app n.e.s. £10.3 (2.9%) 2.2 85% In 2018, 2,715,400 engines were built in the UK, maintaining record
levels of production, generating £8.5 billion turnover value in light
£ Billion £0 £10 £20 £30 £40 £50
2.0 80% vehicle engine production and supporting 8,000 jobs.
Volume - millions
Share
Source: HMRC 1.8 75%
TOTAL GOODS EXPORT: £361.1 BILLION CHART 8 | ENGINE TRADE (VALUE)
1.6 70% Exports Imports Total
The diversification of the industry’s export portfolio results from a large UK manufacturing base, with exports of premium and specialist 5,000
1.4 65%
vehicle manufacturers (SVM, luxury and sports cars) capturing high-value markets and volume exports supporting the creation of a
strong domestic supply chain. Export trends for CVs are more volatile. In volume terms, this market never reached pre-crisis export
1.2 60%
levels. This industry is cyclical and has a dependence on one volume manufacturer so has experienced large percentage swings when 4,500
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
compared year on year. In 2018, 59.3% of CVs were destined for export markets, down from 62.5% in 2017. The exports peak was 73.3% Source: SMMT
in 2009, but was below 50% in 2014/2015.
4,000
With regard to CVs, alongside the overall market for vans,
import volumes have risen strongly since the recession.
CHART 4 | UK CAR EXPORTS CHART 5 | UK VEHICLE EXPORTS In 2018, imports stood at 337,078 units, 47.6% up on 2008, 3,500
BY TYPE (VOLUME) BY SHARE OF TOTAL VOLUME compared with 23.4% growth in the market overall. Imports
share over this period has risen from 78.9% to 94.3%, having
Volume Premium Small Volume Manufacturers Cars CVs All Vehicles 3,000
peaked at 94.9% in 2017. During the last decade, Ford Transit,
90% LDV and Vauxhall Astravan production all ceased, supporting
800 18.0
£ millions
Volume and Premium manufacturers - thousands
the significant shift to imports. 2,500

700 17.8
80%
CHART 7 | UK LCV REGISTRATIONS (VOLUME)
17.6 2,000
600
SVMs - thousands
70% Import volume Import share

17.4 400 100%
500
17.2 350 1,500
60% 95%
400 300
17.0
Volume - thousands
90%
300 250 1,000
16.8 50%
Share
200 85%
200
16.6 150 500
40% 80%
100 16.4 100
75%
30% 50 0
0 16.2
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 0 70% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
2013 2014 2015 2016 2017 2018
08 09 10 11 12 13 14 15 16 17 18
Source: SMMT Source: SMMT Source: HMRC
Source: SMMT
1
www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-Light-Commercial-Vehicles-Delivering-for-the-UK-economy.pdf
2: UK AUTOMOTIVE TRADE SNAPSHOT
In 2018, total trade of petrol and diesel engines was worth Automakers’ success has served as a catalyst for the entire
more than £4 billion. The UK has consistently registered a UK supply chain. British suppliers and new investors have
trade surplus for this essential component in global supply increasingly built next to OEMs, revitalising the domestic
chains. This surplus has widened in the last four years to supply chain. UK parts manufacturers have also been looking
reach a record-breaking £1.78 billion differential in favour of for new buyers overseas, resulting in an uplift in exports,
UK engine exports in 2018. which exceeded £5 billion in the last two years.
The sharp decline in engine imports in the last four years
demonstrates the vitality of UK engine manufacturing and CHART 10 | TRADE OF PARTS
the competitiveness of the domestic industry for this crucial AND COMPONENTS (VALUE)
automotive market segment.
Imports Exports Total
On the export side, while the value of UK petrol engine exports
has consistently surpassed the £1 billion threshold since the 20
early 2000s, the value of diesel engine exports has significantly
3
increased since the 2008 recession. In the last two years, the 18
value of diesel engine exports has exceeded the value of petrol 16
engines’ exports. In 2018, the value of diesel engines shipped
14
overseas exceeded £1.6 billion, while petrol engine exports
were valued at £1.3 billion. 12
£ billions
The global slowdown in diesel demand, in part linked to fiscal
penalties, is of particular concern, causing a decline in output of
10
KEY TRADING PARTNERS
8
both diesel engines and diesel-engined cars made in the UK.
6
CHART 9 | ENGINE EXPORTS BY FUEL TYPE (VALUE) 4 UK passenger cars are exported to
Petrol Engines Diesel Engines 2 some 160 markets worldwide. The wider
n UK cars are shipped to over 160 destinations, with
2,000 0 European region is by far the dominant export
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 European, American and Asian markets receiving
1,800
Source: HMRC the vast majority of UK passenger cars. destination, receiving 57% of UK-built cars.
1,600
1,400
90% of UK car exports go to Europe, America
n The EU is and will remain the dominant trading
1,200 In addition, government programmes such as the SMMT- (22%) and Asia (15%) (SMMT data).
partner of the UK automotive industry for the
£ millions
managed and Automotive Council-endorsed Long Term

1,000
Automotive Supply Chain Competitiveness (LTASC) programme foreseeable future.
800 have been successful in driving competitiveness of UK CHART 11 | UK 2018 CAR EXPORTS
suppliers. The £13 million supply chain programme leveraged BY DESTINATION (VOLUME)
600 n Maintaining frictionless trade with the EU and
an additional £41 million private investment from the sector,
400
helping 27 companies create or safeguard 3,200 jobs. high levels of economic integration with the
200 Africa 1.9%
Strengthening the UK suppliers’ base and ensuring their wider European region, including Turkey, is an
Source: 0
Oceania 2.5%
HMRC 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 participation not only in current regional and global supply essential precondition for the industry’s future Other Europe 5.4%
chains, but also in innovative production systems and supply global success.
TRADE OF PARTS AND COMPONENTS chains will be one of the key challenges for the future of our
sector and UK trade policy.
The post-crisis expansive phase for finished vehicles has n The vast majority of automotive trade
been matched by a significant increase of total trade value for
flows are between the UK and preferential Asia
automotive parts and components. In the 2009-2018 period,
trading partners. 14.8%
this market segment has seen the value of cross-border trade
exchanges increase by 92.5%, reaching an all-time record
value of £16.8 billion. n The UK automotive sector has captured EU27
52.6%
However, while exports of finished vehicles played a pivotal opportunities in fast-growing markets
role in the sector’s trade growth, exports of parts and such as China. America
components had stabilised on pre-crisis level, until 2015. 22.5%
Imports of automotive componentry, meanwhile, have been
instrumental to the sector’s expansion. In the aftermath of
the financial crisis, access to high quality and cost-competitive
parts and components allowed auto manufacturers to
Source: SMMT
become high-value assemblers despite a relatively limited
domestic supply chain.
Russia
Canada
EU27
Switzerland
USA Turkey
South Japan
China Korea
EXPORTS |
UK CAR PRODUCTION, EXPORTS BY DESTINATION
Position Country 2018
1 EU27 650,628
2 USA 221,164
3 CHINA 75,749
4 JAPAN 40,830
5 TURKEY 28,022
6 AUSTRALIA 26,546
7 SOUTH KOREA 25,905
8 CANADA 25,306
9 RUSSIA 17,800
3
10 SWITZERLAND 9,873 Australia
UK KEY TRADING PARTNERS FOR CARS BY IMPORTS AND EXPORTS
EU27
USA Turkey
South Japan
Morocco Korea
IMPORTS | China
UK CAR IMPORTS BY DESTINATION
Thailand
Position Country 2018 India
1 EU27 1,618,444
2 JAPAN 135,775
3 SOUTH KOREA 107,680
4 TURKEY 79,937
5 SOUTH AFRICA 48,432
6 USA 30,625
7 INDIA 14,064
8 MOROCCO 14,020
9 THAILAND 12,505
10 CHINA 10,098
South
Africa
3: KEY TRADING PARTNERS 3: KEY TRADING PARTNERS
UK CARS: EXPORT DESTINATIONS PREFERENTIAL EXPORTS REGIONAL SUPPLY CHAIN

Despite a worldwide reach, 90% of British car exports are Almost 70% of UK car exports are shipped to markets Highly integrated automotive supply chains exist across the EU and provide economies of scale that benefit both the
shipped to just 10 markets, with the world’s four biggest where UK industrial products are not subject to tariff EU27 and the UK. In 2018, more than £10 billion – 80% of automotive component imports to the UK – came from the
economies dominating the ranking (80%). barriers or are eligible for preferential treatment. EU. On average, 1,100 trucks from the EU27 deliver components worth £42 million to UK car and engine plants every
The EU is the top destination for UK cars, receiving 52.6% of In 2018, more than 650,000 UK cars were shipped to other EU day. Imported EU engines, the main component for any conventional vehicle, have consistently represented at least
exports. The USA is the second biggest market, receiving 17.9% member states tariff free and without unnecessary stops or 80% of all engine imports since 2011.
of UK car exports. The biggest Asian markets are China and checks at the border.
Japan, the third and fourth largest destinations, covering 6.1% CHART 15 | TOTAL IMPORTS OF PARTS, CHART 16 | VALUE OF UK ENGINE IMPORTS
In addition, thanks to its EU membership, the UK currently ACCESSORIES & COMPONENTS
and 3.3% of UK car exports. Turkey, Australia, South Korea,
benefits from 40 preferential trade agreements with more than
Canada, Russia and Switzerland make up the top 10.
70 countries. Such agreements potentially reduce tariff and
EU Non-EU EU Non-EU
non-tariff barriers on more than 16% of UK car exports – the
CHART 12 | TOP 10 CAR EXPORT percentage of all UK-built cars exported in 2018 to countries 14 100%
DESTINATIONS (VOLUME) offering some form of preferential treatment to British motor 12 90%
vehicles, amounted to approximately 200,000 units. 80%
10 70%
£ billions
2018 2017
However, preferential trade with the EU’s key trading partners 8 60%
50%
EU27 is fundamentally different compared with intra-EU trade. 6 40%
USA 4 30%
China CHART 14 | CAR EXPORTS PREFERENTIAL 2 20%

10%
Japan TRADE 2018 (VOLUME) 0 0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Turkey
Non preferential Preferential EU ROW Source: HMRC Source: HMRC
Australia
South Korea
Canada In terms of exports, more than £3.6 billion worth of UK automotive parts were shipped to other EU members in 2018, 69% of the
Non-preferential
Russia 31.4% value of UK component exports.
Switzerland
Thousands 0 200 400 600 800 CHART 17 | VALUE OF EXPORTS OF CHART 18 | UK EXPORTS OF PARTS,
Source: SMMT PARTS, ACCESSORIES & COMPONENTS ACCESSORIES & COMPONENTS BY SHARE (VALUE)
EU Non-EU EU Non-EU
ORIGIN OF CAR IMPORTS 6
100%
The EU also dominates car imports in the UK, 5 90%
representing 77.8% of the total in 2018. 80% of EU 80%
4 70%
imports originate from just four EU members, namely Preferential
£ billions
60%
Germany, Spain, France and the Czech Republic. 68.6% 3 50%
40%
In the same year, imports from Asian trade partners 2
30%
represented 13.5% of the total. Japan and Korea covered Source: 1 20%
ROW16% EU 53% SMMT
6.5% and 5.2% of imports, while imports from China have 10%
overcome the 10,000 unit threshold. 0 0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
The combination of EU customs union and the single market Source: HMRC
CHART 13 | CAR IMPORT REGISTRATIONS creates a framework that allows goods to move freely
Source: HMRC
BY ORIGIN 2018 between the UK and other EU member states.
Exports of UK engines are a perfect example of the integrated
India 0.7% Morocco 0.7% Within the EU single customs territory, all goods, including CHART 19 | UK ENGINES EXPORTS 2018 (VALUE)
USA 1.5% Thailand 0.6% nature of the wider European region.
automotive products, are traded tariff free regardless of their
South Africa 2.3% China 0.5% origin. This means that all UK cars destined for the EU market In this market segment, the EU remains the main export
Turkey 3.8% Others 0.4% cannot be subject to any import tariff.
South Korea 5.2% destination, with UK engine exports worth almost £1.3 billion.
While tariffs never apply on intra-EU exchanges, free trade The EU is followed by Turkey, with £913 million of exports,
agreements (FTA) do not always eliminate tariffs. In some ROW
24.8% twice as much as the entire North America region.
Japan instances, FTAs offer lower preferential tariffs to key trading
6.5% Together, the EU and Turkey account for 75% of all UK
partners without fully eliminating import duties.
engine exports by value.
In addition, in cross-border exchanges with trading partners EU
that have concluded an FTA with the EU, UK carmakers can 43.9%
make use of trade preferences only by complying with specific
rules of origin. Full tariff and non-tariff barriers apply if:
Turkey
EU 1: UK cars fall short of the necessary UK-EU content to qualify 31.3%
77.8% for preferential treatment; or
Source: SMMT 2: UK exporters decide not to make use of available preferences Source: HMRC
due to FTAs complexities, including rules of origin.
3: KEY TRADING PARTNERS 3: KEY TRADING PARTNERS
CASE STUDY: TURKEY CASE STUDY: CHINA CASE STUDY: GOING GLOBAL
Since 1996, finished vehicles, engines, parts and components This might explain why the USA has consistently been one UK exports to China of premium and luxury cars proved to be The global automotive sector is going through a period
have been traded between the UK and Turkey tariff-free and of the top export markets for UK SVMs and has performed resilient during the global recession because of the relatively of unprecedented change, with new technologies and
without rules of origin requirements thanks to the existing well for exports of UK premium cars. Despite the positive low volumes of exports at the time. Luxury and premium business models, demanding consumer expectations and
EU-Turkey customs union. These favourable conditions performance, since peaking in 2016, both premium and luxury vehicles benefitted from Chinese market expansion as well as increased competition. These challenges present huge new
allowed bilateral trade of automotive products between the car exports have experienced a significant slowdown. Hence, increased outputs, as those brands saw overall production opportunities in areas where the UK is a world leader and
UK and Turkey to prosper. the recent increase in UK car exports to the USA has been levels improve. Both volume and small volume manufacturers UK-based companies are well placed to succeed. Businesses
driven by UK volume manufacturers, who have sought to grew their businesses in China over this period, with UK around the world are looking for engineering excellence,
Turkish assembly plants largely rely on a steady supply of UK
rebalance their production output over the last three years,
engines, which are then incorporated into passenger cars and producers deciding to start exporting or broadening their innovative new technologies and services and trusted brands
resulting in an increased share of exports to the USA.
commercial vehicles. model ranges. – all areas where UK can deliver and there is huge interest in
what the British motor industry has to offer.
Meanwhile, in 2018 the UK imported more than 175,000 CHART 21 | UK CAR EXPORTS TO USA UK car exports to China peaked in 2014, at more than 135,000
finished vehicles from Turkey, including cars and CVs, when - BY VEHICLE TYPE (VOLUME) vehicles. China briefly overtook the EU as the main export In this context, relying exclusively on the domestic market
the UK was importing just over 65,000 finished vehicles from market for UK premium cars in 2014. Previously, China had represents a limit for UK automotive businesses, in
Turkey in 2008. already succeeded in overtaking the USA as the main export particular, for suppliers offering innovative solutions and new
Total Volume Premium SVM
market for UK SVMs in 2011, before the USA regained its pre- automotive technologies.
NON-PREFERENTIAL EXPORTS crisis import levels.
250 10 To help UK automotive businesses go global, SMMT has a
volume manufacturers (thousands)
SVM manufacturers (thousands)

After the commencement of the new comprehensive FTA However, UK manufacturers’ investment in production plants programme of international activity to support UK companies,
200 8
Total, premium and

between the EU and Japan, only three out of the top 10 in China resulted in declining export levels, particularly in the whether they are taking their first steps overseas or are more
export destinations cannot offer preferential treatment to 150 6 premium car segment. experienced operators looking to explore new markets.
UK-made vehicles – the USA, China and Australia.
100 4 A general slowdown in the market, turbulences in the Chinese SMMT’s annual programme includes 10 overseas events
While car exports to the USA grew by 5.3% in 2017-2018, stock exchange and political measures also contributed to with visits to the largest, established markets as well as
exports to China and Australia experienced a significant 50 2
lower export volumes in 2015-2018, despite an uplift of luxury missions to explore new and emerging market opportunities.
slowdown, decreasing by 24.5% and 31.3%. 0 0 car exports and a 10% cut to import tariffs on passenger cars Most activity is supported by grants from the Department for
2013 2014 2015 2016 2017 2018 last year. International Trade (DIT). For more than 15 years, SMMT and
CHART 20 | UK ENGINES EXPORTS TO TURKEY (VALUE) Source: SMMT the UK government, particularly through its Great campaign,
Measures that affected exports included a 10% super-luxury
have helped hundreds of companies grow internationally,
Petrol Diesel tax introduced in 2017, 15% customs duties on imported
1000 Automotive trade with the USA is not a one-way relationship. connecting UK businesses with new international customers
cars, additional taxes for imported components and variable
In 2018, the UK imported more than 30,000 passenger cars and potential partners in Europe, the USA, China, Japan,
900 emissions taxes.
from the USA. Of all UK registrations of cars built in the USA, Korea, India and several other markets.
800 83% are German brands.
CHART 23 | UK CAR EXPORTS TO CHINA - In addition to traditional supply chain events, the programme
700 US brands have a long history of significant investment in BY VEHICLE TYPE (VOLUME) increasingly supports participation in trade shows focusing
production of vehicles and component in the UK and have on new technology in order to help UK innovators seize future
600 been historically very successful in the UK market. Notably, opportunities in developing next-generation vehicles, such as
£ millions
500 the best-selling models since 1972 have been Fords. The Total Volume Premium SVM
EVs and connected and autonomous vehicles (CAVs).
Fiesta has been Britain’s biggest selling car since 2009,
400 although this is not made in the USA. Expanding the UK automotive sector’s international outreach can
160 16
be instrumental in achieving the government Export Strategy’s
300
CHART 22 | UK REGISTRATIONS OF CARS objective to grow UK exports from 30% to 35% of GDP.
200 140 14
IMPORTED FROM USA (VOLUME)
Total and premium manufacturers (thousands)

INTERNATIONAL EVENTS 2015 -2019
Volume and SVM manufacturers (thousands)

100
2018 2017 120 12
SMMT is present at all major international
0
2013 2014 2015 2016 2017 2018 automotive trade shows and exhibitions
100 10
BMW
Source: HMRC
Mercedes 80 8
Ford
60 6
CASE STUDY: USA MONTREAL
STUTTGART
Jeep CHICAGODETROIT
PARIS
FRANKFURT
TOKYO
40 4 LAS VEGAS ISTANBUL TEHRAN SEOUL
In 2018, 17.9% of British car exports were directed to the USA, Chevrolet ALGIERS CHONGQINGSHANGHAI
DUBAI NEW DELHI
the second largest export market after the EU. With regard PUNE
Honda 20 2 MEXICO CITY
to trade in automotive parts and components, US imports to
the UK are worth £467 million, while UK exports to the US are
Cadillac 0 0
worth £358 million (HMRC data).
2013 2014 2015 2016 2017 2018
0 5,000 10,000 15,000 20,000 25,000 25
Since June 2009, the USA has enjoyed one of the longest Source: SMMT
Source: SMMT
periods of economic expansion in its history.
4: CHALLENGES
Any new customs barrier in the UK-EU trading relationship

£1.8bn would put the industry’s just-in-time operating model in
COST jeopardy, forcing more inventory to be held on site, tying
ON EXPORTS up cash in unproductive operations. Delays to the arrival
of components at vehicle production plants are measured
WTO
WORLD TRADE
in minutes. Every minute of delay could cost approximately
£50,000 in gross value added to the industry, over £70 million
ORGANISATION
per day (based on five day working week).
car exports to the EU only
The combination of the customs union and the single market
removes bureaucracy and unnecessary administrative
requirements. Currently, goods moved within the EU only
Impacts for other market segments might be even more
4
require an Intra EU Trade Stats (intrastat) declaration,
disruptive. Heavy duty vehicles and buses would face 22% and which can be done by completing an additional box on a VAT
16% tariffs respectively. For UK manufacturers of parts and return, if the value of trade is below a set threshold. For
components, tariff liberalisation will mean sudden exposure to many automotive companies the threshold is exceeded and
increased competition from third countries and the loss of free they must supply supplementary declarations which require
and frictionless trade to their main export market. slightly more compliance information.
CHALLENGES If the UK is no longer part of the EU customs union and
BREXIT AND CUSTOMS single market, all companies, regardless of the value of their
trade, will be required to provide a full customs declaration,
Every day, more than 1,100 trucks cross into the UK entry and exit summary declarations, customs procedure
BREXIT IMPACT
from the continent bound for UK car plants (based on codes, increased detail on the origin of the products, a
an SMMT member survey) – the vast majority without
The UK automotive industry’s success Both pillars are threatened by a disorderly EU withdrawal and by
being checked at customs – to deliver some £42 million
unique consignment number, and relevant safety and
the potential introduction of trade barriers between the UK and security information. Businesses would need to develop
following the 2008 crisis was built on two its closest trading partners.
of components. Every day, these components help build systems, produce documentation and administer the new
5,800 cars and 10,400 engines – the majority is then requirements, resulting in an increase in the cost of doing
essential pillars: a favourable environment Brexit uncertainty exacerbates investment risks and undermines shipped back to EU customers and assembly plants. business in and with the UK.
for automotive investments and seamless the UK’s attractiveness as an investment hub for domestic and
Seamless movement of automotive goods across the Channel
international automotive manufacturers. The impossibility of has been enabled by the UK’s participation in the EU customs
access to the European market. precisely estimating trade costs in the medium to long term union and single market, which provide EU businesses with
hampers sourcing and export strategies alike, and risks damaging the ability to move goods within the community without £2.7bn
the industry’s reputation and overall competitiveness. stopping at borders. COST
ON IMPORTS
The introduction of new trade barriers would also disrupt the fully The introduction of any friction at the border – be it in the
n Maintaining current levels of regional
integrated regional supply chain and reduce market access for form of additional and costly administrative requirements
integration and frictionless trade with the more than half of UK automotive exports. or delays to the movement of goods – would undermine the WTO
WORLD TRADE
competitiveness of UK Automotive and would be particularly ORGANISATION
EU is an essential precondition for the auto
challenging for the small- and medium-sized businesses that car from the EU only
industry’s future global success. BREXIT TARIFFS make up more than 90% of the automotive sector.
In a ‘no deal’ scenario, UK exports would inevitably face
n Losing preferential access to key markets tariffs on automotive products destined for the EU27
would negatively affect UK auto manufacturers
market. Tariffs on UK exports of light vehicles would IN A SINGLE DAY IN UK AUTOMOTIVE…
amount to £1.9 billion.
and consumers through the reintroduction of
If passed directly on to consumers, import tariffs would push up
bilateral tariff and non-tariff barriers. the cost of UK-built cars sold in the EU by an average of £2,800,
1,100
n An escalation of international trade tensions
and that of light commercial vehicles by £2,000 – affecting
demand, profitability and jobs. UK manufacturers would have
EU TRUCKS
deliver to UK
5,800 10,400
car and engine CARS ENGINES
to absorb these costs – in a market with wafer thin margins – in plants manufactured manufactured
would severely disrupt the UK automotive sector. Components
order to maintain market competitiveness. WORTH
n Technical and environmental regulations vary In terms of imports, the UK’s tariff schedule in a ‘no deal’ scenario
£42m
delivered just
would – temporarily – maintain tariffs on finished vehicles, while in time
from region to region and often result in major
liberalising all parts and components. This solution aims to
from EU
1,100 4,000
additional costs. limit manufacturing costs and maintain negotiating capital at CARS ENGINES
distributed to delivered to UK
the same time. However, unilateral tariff liberalisation and the UK dealers factories
n Vehicle electrification and automation imposition of tariffs on trade with the EU would result in a major
impact on UK manufacturers and importers.
challenge traditional business models Import figures based on
Tariffs on imports of EU light vehicles would amount to £3.1 SMMT estimates;
and policy frameworks. billion. UK buyers of cars or vans from the EU would be faced with 4,800 6,500 output figures:
SMMT from production
an average increase of £1,700 if manufacturers and their dealer CARS ENGINES and export international
exchange data.
networks were unable to absorb these additional costs. exported exported Components value HMRC
worldwide worldwide
4: CHALLENGES 4: CHALLENGES
REPLICATION OF TRADE AGREEMENTS CASE STUDY: JAPAN

After its withdrawal from the EU, the UK might cease to above 15% in Egypt (43%), Ecuador (26.5%), Colombia (35%), The UK and Japanese automotive industries are linked In addition to fruitful Japanese investment in the UK, bilateral
be a party to all EU preferential trade agreements, unless Mexico (21.3%), Morocco (25%) and South Africa (25%). by a long-standing trade and investment relationship. automotive trade is on the rise. Exports of UK passenger cars
the UK government successfully replicates the effects Since the mid-1980s, several Japanese investors have to Japan have increased by more than 160% in the last five
The reapplication of WTO tariffs in South Korea (8%), Chile (6%), chosen the UK as their European hub. years, from a little more than 15,000 units in 2013 to more
of these treaties on exit day. The replication of complex
Canada (6.1%) and Turkey (10%) is likely to reduce exports of than 40,000 units in 2018.
trade agreements requires time, and the UK is unlikely to The results of the Anglo-Japanese partnership are
luxury vehicles to these markets, while exports of premium and
preserve preferential treatment with several key trading remarkable. In 2018, three out of the top four British car Over this period, exports were driven by premium and volume
other types of UK-built cars could be severely hit.
partners unless a transitional period maintaining the status best-sellers worldwide were from Japanese brands, namely vehicles, with a recent uplift in exports of luxury cars.
quo is secured in negotiations with the EU. Nissan, Honda and Toyota.
CHART 25 | SELECTED TRADE PARTNERS: CHART 27 | UK CAR EXPORTS TO JAPAN -
More than 16% of UK cars are destined to preferential trading
TARIFFS ON CARS (MIN, MAX, AVG) BY VEHICLE TYPE (VOLUME)
partners. Some of them are among the world’s fastest growing TOP 10 BRITISH BEST-SELLERS WORLDWIDE
markets for UK car exports.
Min Max Weighted average Total Volume Premium SVM
60%
CHART 24 | PREFERENTIAL TRADE 1 Nissan Qashqai 45 4,500
WITH SELECTED COUNTRIES (VOLUME) 50% 40 4,000
2 MINI
Total, premium and volume

manufacturers (thousands)
40% 35 3,500
SVM manufacturers
30 3,000
2017 Car Exports 2018 Car Exports Growth
30% 3 Honda Civic 2,500
25
45 150 20% 4 Toyota Auris 20 2,000
15 1,500
40 10% 5 Vauxhall Astra 10 1,000
100 5 500
35 0% 6 Range Rover Sport 0 0
Ecuador Korea Columbia Chile Mexico Morocco Canada South Africa Turkey 2013 2014 2015 2016 2017 2018
30 Source: WTO, EU Market Access Database 7 Nissan Juke Source: SMMT
50
8 Range Rover
Thousands
25
% Growth
For countries where 0% tariffs apply on imported cars from any In parallel, registrations of new cars originating in Japan
20
0 WTO member without the need to have a preferential deal in 9 Range Rover Velar amounted to more than 135,000 units in 2018, covering 3.4%
15 of the UK market.
place – such as Japan – the lapse of existing trade agreements 10 Jaguar F Pace
would mean that car exports originating from EU27 countries
10 -50 would face significantly reduced non-tariff barriers, while CHART 28 | UK NEW CAR REGISTRATION -
regulatory barriers will apply in full to UK-built cars.
ORIGINATING FROM JAPAN (VOLUME)
5
The UK’s attraction as an inward investment destination for
0 -100 The replication of the text of existing agreements alone would not Japanese manufacturers was not just the possibility to reach Volume Share
be sufficient to maintain current levels of market access. Similar
Ecuador
Egypt
Japan
South Korea
Colombia
Chile
Mexico
Morocco
Switzerland
Canada
South Africa
Turkey
Norway
the UK domestic market but, moreover, the opportunity to

trade terms can only be preserved if UK automotive exporters 160 4.0%
use the country as a gateway to the EU and, ultimately, the
are able to continue to count EU27 content to comply with rules single market. 140 3.5%
Registrations (thousands)
of origin set by the different agreements in order to qualify for 120 3.0%
Source: SMMT Today, almost 70% of cars exported by UK-based volume
preferential treatment. 100 2.5%
manufacturers (VMs) are destined to other EU members.
Share
Preferential rules of origin vary considerably from agreement to Japanese brands play a key role in this market segment. 80 2.0%
Thanks to their competitive European supply chain and the
extensive network of preferential trade agreements, UK agreement. For example, older trade deals impose high regional 60 1.5%
automakers are penetrating markets traditionally protected by content thresholds for passenger cars to qualify for preferential CHART 26 | UK EXPORT DESTINATION BY 40 1.0%
significant trade barriers – Asian, South American and northern treatment, while modern comprehensive FTAs usually set lower VEHICLE TYPE IN 2018 (VOLUME)
20 0.5%
African markets among them. content thresholds. For components, different types of rules of
origin apply depending on the single FTA. 0 0.0%
In 2018, Japan and Korea stood out as growing export 100% 08 09 10 11 12 13 14 15 16 17 18
90% Other Europe
destinations for UK cars, with growth rates of 26% and 23.5% Source: SMMT
TABLE 1 | TYPICAL RULES OF ORIGIN FOR PASSENGER 80% Oceania
respectively. In South America, UK car exports to Ecuador more
CARS (HS 8703) SELECTED EU TRADE AGREEMENTS 70% EU 27
than doubled in one year, while exports to Colombia and Chile Japanese exporters of motor vehicles to the UK can gain up
60% Asia
increased by 21% and 6%. In the Middle East, Egypt recorded a to £4.8 billion thanks to the newly ratified EU-Japan trade
50% America
69% increase of UK car exports. Switzerland Korea Canada agreement. At the same time, a replicated agreement would
Country
(1972) (2010) (2016)
40% Africa
reduce testing costs and formalities for UK automotive
UK passenger cars are currently eligible for tariff-free treatment 30%
products exported to Japan.
in countries such as South Korea, Chile, Mexico, Morocco, Egypt Minimum 20%
Regional 60% 55% 50% 10% The evolution of the UK-Japan automotive trade and
and Turkey. Reduced tariffs are applicable to UK cars exported to Value 0 investment relationship will largely depend on the ability to
South Africa, Ecuador, Colombia and Canada. Added
Volume Premium SVM maintain the same levels of market access to the EU market
Shifting to trade on WTO terms with these countries would Should the UK automotive sector lose the ability to cumulate Source: SMMT after the UK’s withdrawal and on the replication of the EU-
mean the end of some of these markets as a significant export content originating from the EU27, UK content alone is unlikely to Japan comprehensive trade agreement.
destination for UK cars, with the application of average tariffs suffice to qualify for preferential treatment.
CASE STUDY: SOUTH KOREA INTERNATIONAL TRADE TENSIONS production inputs, as well as related compensatory and retaliatory Despite efforts to create global regulations in the context of the
measures, risk inflating manufacturing costs worldwide, to the UNECE World Forum for Harmonization of Vehicle Regulations
The EU-South Korea trade agreement is the cornerstone In a meeting in Washington DC at the beginning of the
detriment of end users and downstream industries. (WP.29), existing differences create significant costs in designing,
of the booming exchange of automotive products 2008 recession, G20 countries reaffirmed their commitment producing, testing and marketing automotive products in
between the UK and South Korea. Since 2011, when the to avoid protectionism as a response to the global crisis. Disruption of international supply chains would be considerable
different markets.
agreement entered into force, bilateral trade in vehicles, Although some protectionist measures were adopted by if producers are forced to seek domestic alternatives to
parts and accessories increased by more than 333%, imported materials targeted by import restrictions. Such The UK’s withdrawal from the EU represents a double
all G20 economies, ultimately the global trade environment
from £535 million to more than £2.3 billion (HMRC data). alternatives often do not exist or are not cost competitive. challenge for the UK automotive sector. First, the UK is likely
has not yet witnessed widespread beggar-thy-neighbour
Benefits of the agreement were mutual. For Korean car policies, which would have further exacerbated the crisis. to lose its ability to shape EU rules and influence the setting
A further escalation of international trade tensions in key
manufacturers, the reduction of tariff and non-tariff barriers of requirements from within one of the main regulatory
global markets such as the EU, USA, China and other Asian
meant a major increase in export volumes and values towards Trade of automotive products was not subject to significant trade superpowers. Second, any attempt by the UK to set its own
markets would represent a significant threat to the UK
the UK. The UK is now the second biggest export market in the restrictions in the aftermath of the crisis. However, the situation automotive regulations in the future risks creating additional
automotive industry.
EU for Korean-made cars after Germany. The value of exports has radically changed in the last few years. According to Global trade barriers.
of Korean cars to the UK rose from £350 million in 2011 to £1.2 Trade Alert, the number of new harmful interventions affecting In this regard, the significant slowdown in Chinese demand for
billion in 2018, a 250% increase (HMRC data), while exported In this context, it is essential the UK maintains its role in UNECE
trade of motor vehicles increased from just 15 per year in 2011- automotive products rings an alarm bell. UK car exports to China
units in the same period increased from fewer than 50,000 cars discussions and support initiatives for future global technical
2012 to 66 last year.2 declined from over 100,000 units in 2017 to a little more than
in 2011 to more than 107,000 in 2018 (SMMT data). regulations. In parallel, UK policy-makers should refrain from any
75,000 in 2018, a 24.5% decrease. This contraction was recorded
The vast majority of harmful interventions took the form of regulatory initiative that might result in new frictions on trade
Korean brands could also benefit from the high levels of despite China’s decision to lower tariffs applied on imported UK
import tariffs, applied either directly to automotive products or between the UK and the EU or create UK-only requirements.
regional European integration and export cars tariff free to cars from 25% to 15%. The impact of reciprocal tariffs on billions
the UK from other production facilities in the EU and Turkey. on raw materials used in their production. Globally, the UK is the of dollars’ worth of USA-China trade might have affected China’s
Hyundai, Kia and Ssangyong’s combined new car registrations third most affected jurisdiction by such measures after Germany domestic market far more than a single tariff reduction.
in the UK represented 8.0% of the market in 2018, almost and China (Global Trade Alert).
For the future success of the UK motor industry, current trade
190,000 new vehicles.
tensions impacting automotive trade should be resolved
The agreement offered similar opportunities for UK car
CHART 30 | HARMFUL INTERVENTIONS -
MOTOR VEHICLES through collaborative efforts to eliminate existing and future
manufacturers to expand their business in the Korean market, trade barriers.
Since 2010, UK car production for Korean buyers has risen
more than five-fold. South Korea is the UK’s seventh biggest 70
car export market, covering 2.1% of UK car exports in 2018, up AUTOMOTIVE REGULATIONS
from 1.6% in 2017. The value of exports of UK cars to South
60 Automotive safety and environmental regulations differ
Korea rose from £133 million in 2011 to £943 million last year
from country to country. However, three regional blocks
(HMRC data). UK car exports increased from 5,500 units in
2011 to almost 26,000 units in 2018 (SMMT data). shape the sector’s regulatory framework:
50
1: The EU and the block of countries following the type-approval
CHART 29 | UK-SOUTH KOREA TRADE approach embodied in the 1958 UNECE agreement;
IN CARS BY VALUE 40
2: The US and the group of counties following the self-
certification approach embodied in the Federal Motor Vehicle
Exports Imports 30 Safety Standards (FMVSS);
1,400 3: China, which opted for a unique mix of national standards
1,200 20 (Guobiao or GB).
1,000
£ millions
800
10
600 TABLE 2 | AUTOMOTIVE REGULATIONS
400
Position USA EU China
200 0
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
11 12 13 14 15 16 17 18 Source: Global trade alert accessed on 17th April 2019 (adjusted) EU Commission Ministry of Industry and Information
Source: HMRC NHTSA, part of
EU Council Technology (MIIT)
Authority the department of UNECE
EU parliament Administration of Quality, Supervision,
Transport
National Autorities Inspection and Quarantine (AQSIQ)
Despite an increase in bilateral trade of automotive parts Traditionally, steel has been the primary metal used in the
and components, the agreement had a limited impact on the production of many automotive parts and components. The
integration of UK and Korean supply chains. In this market World Steel Association estimates that, on average, 900kg of UNECE Agreement 1958
FMVSS EU regulations GUOBIAO (GB)
segment, South Korea enjoys a trade surplus, with more than steel is used per vehicle. UNECE Agreement 1997
Regulations
£113 million of imports to the UK, while exports of UK parts and
More recently, aluminium has been increasingly considered UNECE 1998 Agreement and Global Technical Regulations
components in 2018 were worth around £33 million.
as a valid alternative for the production of certain parts and
Without a bilateral UK-South Korea replicated agreement, components. Thanks to its physical properties, the use of
Compliance Self-certification +
trade of automotive products would happen under WTO terms. aluminium in the production of automotive products has helped Type approval Chinese type approval
This would mean the reintroduction of a 10% tariff on imports Proceedures Sample verification
car manufacturers to make cars lighter and more fuel efficient,
of Korean cars, 2%-5% tariffs on Korean parts and an 8% tariff playing a key role in reaching lower emission targets.
on UK cars and components to South Korea.
Existing trade-restrictive measures targeting essential Source: SMMT, adjusted from CAR (2016)
Data adjusted to December 31, 2018, including trailers and semi-trailers, website accessed in April 2019.
2
INVESTMENT RISKS CHART 32 | UK NEW CAR REGISTRATIONS

For decades, the UK has represented an ideal hub BY FUEL TYPE (VOLUME)
for new automotive investment. The UK’s favourable
business environment and the ever deeper integration AFV Petrol Diesel AFV share
of the EU single market were two essential pillars to 3.0 6%
revitalise domestic motor manufacturers and attract

new investment from abroad. Many overseas investors,
Japanese automotive manufacturers in particular, have 2.5 5%
chosen the UK as their European base since the 1980s.

Although the industry fundamentals remain strong, with
New car registrations - millions

2.0 4%
increasing expenditure on automotive R&D investment,
AFV market share

mounting political and business uncertainty has led UK
investors to take a cautious approach when considering future
1.5 3%
investment plans. Dwindling levels of publicly announced
investment decisions are a warning signal of investors’
reluctance to make new commitments without the necessary
1.0 2%
clarity on the UK’s future trade and industrial framework.
CHART 31 | PUBLICALLY ANNOUNCED UK 0.5 1%
AUTOMOTIVE INVESTMENT DECISIONS (£BN)
7 0.0 0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
6 Source: SMMT
5.83
5
5
The forthcoming changes present significant opportunities
4 for the sector. However, change also means new challenges
£ billions
4.16
3.43
to the existing automotive legislative framework, including
3
commercial policy.
2.50
2
To remain relevant, the UK motor industry will need to be fully
1
1.66
1.10
integrated into future international supply chains stretching OPPORTUNITIES
0.59 from suppliers of new raw materials to the most advanced
0
2012 2013 2014 2015 2016 2017 2018 software developers. The UK business ecosystem and the UK
Source: SMMT automotive sector in particular must strive for continuous
improvement, favourable legislation and innovation. n The reduction of non-tariff barriers is REDUCTION OF NON-TARIFF BARRIERS
a key priority for the UK and European
In this context, a strong collaborative approach must be While most discussions on trade in industrial
GLOBAL TECHNOLOGY SHIFT built between UK automotive manufacturers, innovators and automotive sector.
policy makers to ensure that the UK remains an investment
goods tend to focus on tariffs, non-tariff
The automotive industry is going through a dramatic
shift in the way vehicles are powered and driven, as
hub where the next generation of vehicles will be designed, n Removing tariffs through bilateral trade barriers (NTBs) are often more costly than
developed, manufactured and deployed.
well as in the way they are manufactured. negotiations is important to improve market import duties. Although most NTBs serve
The government’s £1.5 billion planned investment in EV
To date, there are 195,410 plug-in vehicles on UK roads, out
development, infrastructure and market development
access and open new commercial opportunities. legitimate policy objectives, NTBs affecting
of about 35 million cars. The new car market share of plug-in
vehicles in 2018 was 2.5% (battery electric vehicles 0.7%;
through to 2021 is a step in the right direction. More
n Shaping mutually supportive trade rules and
UK automotive exports can result in overly
critical is ensuring an orderly structural transition in the
plug-in hybrids 1.9%), up from 1.94% in 2017. Alternatively
UK automotive industry from designing and manufacturing industrial strategies is pivotal in ensuring the
restrictive measures, redundant operations and
fuelled vehicles represented about 6.0% of new car
registrations in 2018.
internal combustion engines and vehicles to designing and UK will play a key role in the development burdensome compliance procedures.
manufacturing batteries, power electronics, motors and
According to Deloitte’s global projections, EVs – including electric vehicles. of electrified vehicles and connected and
According to a 2016 business survey by the International Trade
battery electric vehicles and plug-in hybrids – will represent autonomous vehicles. Centre (ITC), EU exporters are affected by a large variety of NTBs.
Domestic, regional and international trade rules should
20% of global light duty vehicles sales by 2030. Bloomberg’s
develop accordingly, in order to support the UK automotive Conformity assessments and technical requirements, entry
projections foresee a 28% market share. n Automation, electrification and the servitisation
industry’s participation in new global value chains. Future formalities, rules of origin and taxes were identified as
The progressive substitution of traditional internal trade rules should allow unhindered and safe exchange of of the automotive industry present vast some of the most burdensome measures. The automotive
combustion engine vehicles with intelligent vehicles powered data, free flow of data as part of the wider data economy, sector is no exception and reducing these NTBs can achieve
untapped potential.
by electricity or alternative fuels will be accompanied by a a correct use of new technology to lower trade costs and considerable benefits for UK automotive exporters.
complete overhaul of existing business models. increase productivity.
5: OPPORTUNITIES 5: OPPORTUNITIES
TABLE 3 | ISSUES WITH BURDENSOME REGULATIONS

overall market impact and administrative burden. D: TAXATION
RAISED BY EU EXPORTER, BY TYPE A broader use of functional equivalence and mutual Cars are frequently subject to luxury taxes with particularly
Number of issues recognition of similar safety standards could also represent negative impacts on British premium and luxury brands. For
(product/destination/ Share of total (%) a quicker way to considerably lower costs of automotive example, in Indonesia motor vehicles are classified as luxury
partner goods and are subject to a sales tax ranging from 10% to 120%,
product development, manufacturing and marketing.
A. Technical requirements 1,229 16.9 However, mutual recognition of respective standards must depending on the vehicle type. In Australia, a 33% luxury tax is
not undermine the current high levels of vehicle safety and applied above the value of AUD 64,132 (approximately £35,000)
B. Conformity assessment 22,314 31.9 for regular cars and AUD 75,526 (approximately £40,000) for fuel-
environmental performance or result in new barriers on trade
C. Pre-shipment inspections and other entry formalities 582 8.0 efficient vehicles.
with existing trading partners.
In some jurisdictions, fiscal measures benefitting domestic
D. Trade remedies 41 0.6
producers of electric vehicles are not available for equivalent
B: RULES OF ORIGIN imported vehicles, a discriminatory treatment resulting in market
E. Quantity control measures 215 3.0
A simplification of rules of origin would help automotive distortions to the detriment of British motor manufacturers. In
F. Charge, taxes and price control measures 193 2.7 other cases, such as the so-called kei cars in Japan, domestic
exporters make use of existing trade preferences,
particularly for automotive SMEs interested in vehicles enjoy tax and insurance incentives which are not
G. Finance measures 103 1.4
internationalising their business. available for directly competitive imported automotive products.
H. Anti-competitive measures 33 0.5
Domestic taxation is usually excluded from formal trade
Future rules of origin for automotive products should reflect
I. Trade related investment measures 10 0.1 negotiations. However, separate government-to-government
the existence of global value chains by providing greater
discussions could also tackle taxes when they are particularly
J. Distribution restrictions
flexibility on the use of non-originating materials (NOM).
24 0.3 impactful on international automotive trade, including
Reasonable value added thresholds, increased tolerance potentially over-restrictive fiscal measures on diesel.
K. Restrictions on post-sales services 12 0.2 thresholds for NOM, a greater use of diagonal and full
cumulation would provide additional flexibility.
L. Subsidies 1 0.0 REDUCTION OF TARRIFF BARRIERS
In particular, rules of origin on electric batteries and key
M.Government procurement restrictions 29 0.4 Even if the vast majority of UK trading partners offers at
materials and components for new-generation vehicles
least some form of preferential treatment to automotive
N. Intellectual property 13 0.2 should be attainable and reflect the existence of international
products, tariff reduction is still necessary to open new
global value chains. Allowing fleet averaging as an option to
O1. Preferential rules of origin and related certificates of origin 580 8.0 overseas markets.
calculate originating content and permitting duty drawbacks
would also be beneficial to qualify for preferential treatment Some of the existing preferential trading partners maintain
O2. Non-preferential rules of origin and related certificates of origin 594 8.2
and reduce costs. tariffs on UK automotive exports, although at a reduced rate
P. Export related measures 1,291 17.8 compared to tariffs applied on imports from non-preferential
trading partners.
TOTAL 7,264 100 C: CUSTOMS FORMALITIES
SOURCE: ITC business survey in the EU, 2015 - 2016 Customs procedures and border enforcement rules can cause TABLE 4 | MIN MAX PREFERENTIAL AND MFN
high additional costs for UK automotive traders. Such costs TARIFFS (SELECTED COUNTRIES AND PRODUCTS)
could be reduced through customs administrative arrangements
A: TECHNICAL BARRIERS the EU and USA estimated the UK’s motor vehicle output Country Product EU MFN
or FTAs aimed at eliminating unnecessary controls (for example,
could increase by as much as 7.3% should the parties agree to
Modern comprehensive trade agreements such as those controls at origin, but not again upon arrival).
reduce NTBs by 75% in the sector.4 Passenger Cars 0% - 4.4% 15% - 35%
between the EU, Korea, Canada and Japan contain
Arrangements should allow for efficient customs clearance
automotive-specific chapters aimed at addressing regulatory Automotive chapters should become part of all future Colombia
barriers and facilitating the recognition of equivalent trade agreements. However, regulatory barriers related to taking into account participation in international supply
chains and strengthen the actual benefits to which trusted Parts 0% - 5.4% 0% - 10%
automotive standards. The agreement with Japan also technical standards, type approval certificates or testing
includes an innovative safeguard mechanism allowing the re- requirements could also be reduced through discussions partners have access. Enhanced cooperation on security
imposition of tariffs should the parties fail to implement their with relevant counterparts without the need to launch could also help reduce pre-notification requirements. Passenger Cars 6.3% - 25% 15% - 40%
commitments on automotive regulatory barriers. formal trade negotiations.
An overhaul of existing formalities for origin declarations Ecuador
In this context, the UK automotive sector would greatly would be beneficial. At present, suppliers send a declaration
According to a recent government-commissioned impact Parts 0% - 10.9% 0% - 15%
benefit from the achievement of a robust International Whole for a fixed period of maximum two years and the onus is on
assessment on the EU-Japan trade deal, the British
Vehicle Type Approval scheme under the future UNECE suppliers to inform their clients if anything changes during
automotive industry could gain £1 billion in exports.
regulations section. that period. A longer or unlimited validity of the declaration Passenger Cars 0% - 18% 0% - 25%
However, potential export gains for UK motor manufacturers
until informed otherwise would reduce the administrative South
are dependent on the removal of regulatory barriers and A harmonised global approach to regulations applicable to
burden for OEMs who must contact suppliers each time a Africa
related costs,3 given that Japan does not charge any tariffs SVMs would be beneficial for UK manufacturers of luxury
Parts 0% - 15% 0% - 20%
on automotive imports from the UK. A similar 2013 study and sports cars. In particular, British SVMs need appropriate declaration expires and on suppliers who in many cases are re-
assessing the impact of a potential trade agreement between regulations that are commensurate with their lower volumes, submitting the same information for the same part year on year.
DIT, Impact assessment of the EU-Japan

3
CEPR, Estimating the Economic Impact on the UK of a Transatlantic Trade and Investment
4
Economic Partnership Agreement (EPA) on the UK, 2018 Partnership (TTIP) Agreement between the European Union and the United States, 2013 Source: EU Market Access Database
5: OPPORTUNITIES 5: OPPORTUNITIES
For countries with which the EU does not currently have In the Pacific region, Australia applies tariffs up to 5% on CAVS DEPLOYMENT AND STANDARDS
CHART 34 | R&D EXPENDITURE IN UK
a preferential trade agreement in place, tariff peaks on passenger cars and components. New Zealand has almost MOTOR VEHICLES AND PARTS (£MN)
Future trade rules applicable to the UK automotive sector
automotive products can be very significant. In particular, entirely liberalised imports of finished vehicles, while an could help create business opportunities only if fine-tuned
large markets in South America and south-east Asia remain average 4.3% tariff still applies on parts and components. 4,000
with the development of next-generation vehicles and
heavily protected by prohibitive tariffs. An average 35% tariff
Contrary to regulatory barriers, tariff reduction is achievable related technologies. 3,500
on passenger cars applies in Argentina and Brazil, the largest
potential markets in South America. Prohibitive tariffs on only through the negotiation of fully fledged trade Today’s driver assistance technology and the next 3,000
cars are applied in rapidly developing economies such as agreements at the multilateral, plurilateral or bilateral level. generation of autonomous systems are set to deliver 2,500
£ millions
India (125%), Thailand (80%), Vietnam (70% tariff peak) and An agreement among all WTO members would represent an overall annual £62 billion economic benefit to the 2,000
Indonesia (50% tariff peak). Tariffs on parts and components the optimal solution to lower tariffs globally. However, given UK by 2030 (SMMT Connect and Autonomous Vehicles:
1,500
in these countries are equally high, often ranging between the longstanding deadlock in WTO multilateral negotiations Winning the Global Race to Market). The development and
10% and 30%. deployment of connected vehicles could create 420,000 new 1,000
requiring consensus from the entire membership, only two
options are effectively available. jobs across automotive and adjacent sector. 500
The UK is on track to become a world leader in autonomous 0
CHART 33 | AVERAGE TARIFFS FOR A sectoral plurilateral agreement under the aegis of the WTO
vehicle testing and deployment thanks to forward-looking 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
SELECTED COUNTRIES represents a second-best solution. Such agreement would Source: ONS
enabling legislation, the availability of enabling infrastructure
eliminate tariffs among all major automotive producers and
and market attractiveness.
Cars Parts traders. However, the possibility of free-riding for those
WTO members who would not join the negotiations as well The forthcoming transport revolution also represents a unique
90% opportunity to favour international harmonisation and avoid artificial intelligence and data, ageing society, clean growth
as major divisions in similar negotiations on services and
80% environmental goods are a stark warning for the prospect of the development of a patchwork of national regulations and future of mobility. These recognise the areas the country
plurilateral negotiations on automotive trade. or standards for new transport technologies, which would (and globe) are going to evolve in, and the five foundations of
70%
ultimately represent additional costs and barriers to trade. productivity: people, places, business environment, infrastructure
60% Hence, regional and bilateral trade negotiations remain the and ideas, which set a path to improve productivity in the UK.
most viable option to reduce tariff costs. In this context, The creation of a global level playing field largely depends
50% on the capability of all major players to agree on common The specific Automotive Industrial Strategy Sector Deal is a signal
the UK’s withdrawal from the EU adds a significant layer of
40% standards applicable to future vehicles. Common international from UK government of the strategic importance to the economy
complexity. The UK should continue to advocate for further
standards would maximise the opportunity for the UK to of having a strong automotive industry. The sector deal builds on
30% trade liberalisation in EU trade negotiations, if the EU and the
become a global hub for CAV development and deployment. the longstanding partnership between government and industry.
UK maintain an exceptionally close trading relationship after
20% The automotive deal, the second sectoral agreement signed
the UK’s exit. In this scenario, three priorities should top the In this context, the UK’s role in developing UNECE Global under the government’s new Industrial Strategy, recognises the
10% agenda of UK’s trade policy: Technical Regulations is pivotal. In addition, the UK should substantial changes that are taking place in the industry, from
0% 1: Advocate a speedy finalisation of longstanding trade advocate for a stronger partnership between automotive how vehicles are powered to the way in which they are built.
Argentina
Australia
Indonesia
Thailand
Brazil
NZ
China*
USA
agreements and negotiations between the EU and regulatory superpowers such as the EU, the USA and China to It commits government and industry money to ensure the UK
bridge existing differences and find acceptable compromises. remains a globally leading country in which to research, test
emerging markets such as Argentina, Brazil, Vietnam,
Source: WTO, EU Market Access Database and build components and vehicles while meeting the grand
* 2017 data Thailand and Indonesia.
challenges set out in the overall Industrial Strategy.
TRADE, R&D INVESTMENT AND
2: Advocate discussions with existing preferential trading
INDUSTRIAL STRATEGIES
partners to upgrade and modernise older trade agreements.
High tariffs effectively ringfence regions that are increasingly The sector’s response to mounting external challenges
attractive destinations for both finished vehicles and 3: Advocate speedy negotiations with major industrialised
is a renewed effort to bring forward the industry’s
CHART 35 | EMPLOYMENT IN R&D PERFORMED
components, either for the sheer size of their markets or their economies such as the USA, Australia and New Zealand. IN UK BUSINESSES, 2017
technological innovation frontier.
increasing importance as regional manufacturing hubs. Should the EU and the UK agree on a looser trade
Although Brexit uncertainty is threatening new major capital
Tariffs for top export destinations such as the USA, China relationship, in setting its own trade policy the UK should Pharmaceuticals
investment, the UK automotive sector continues to invest in
and the Pacific region are generally lower compared with ensure that any agreement with third countries would not
research and development. In 2017 alone, R&D expenditure in the
rapidly developing markets, but automotive exports to these result in additional barriers on EU-UK trade. In this scenario, Motor vehicles and parts
sector amounted to a record-breaking £3.6 billion (ONS data).
countries often remain costly. Given the importance of these the UK should closely follow the EU trade agenda and avoid
markets for British automotive exports, tariff reductions embarking into negotiations that risk hurting the interests of The automotive business is the second biggest employer in Computer programming
the UK of R&D researchers, technicians and support staff and information service
would be beneficial. the UK and the wider European automotive industry.
after the pharmaceutical sector. In 2017, the automotive Soware development
In 2018, China reduced tariffs on cars from 25% to 15% and At the same time, the UK should ensure its automotive industry employed more R&D staff than computer programming,
lowered duties on components from 6-25% to 3-6%. However, businesses are not at a competitive disadvantage compared Aerospace
software development or R&D services (ONS data).
given the role of China as the world’s biggest automotive with EU competitors. This could be achieved through parallel
market and producer, tariffs remain a significant barrier. negotiations avoiding significant time gaps between the The sector’s ambitions have been matched by the launch of the UK R&D services
conclusion of EU agreements with third countries and the government’s Automotive Industrial Strategy.
In the USA, tariffs on passenger cars (2.5%) and components
Machinery and equipment
(0-2.5%) are significantly lower compared with other major finalisation of similar agreements between the UK and new The overall strategy sets out how the government plans to
automotive production hubs. However, a 25% import duty EU preferential trading partners. In this scenario, parallel support businesses to create better, higher-paying jobs with
0 5 10 15 20 25 30
on light commercial vehicles, pick-up trucks and heavy duty negotiations seeking ambitious agreements with Australia investment in the skills, industries and infrastructure of the future. Source: ONS Thousands
vehicles represents a significant tariff peak. and New Zealand would be a reasonable first step. The Industrial Strategy sets out what it calls grand challenges:
5: OPPORTUNITIES
Regardless of the outcome of Brexit negotiations, the UK A stronger synergy between UK auto exporters and British
automotive industry must take centre stage of future trade, financial and insurance services could foster international
investment and industrial strategies, and these strategies operations, including the prospect of smaller suppliers taking
must be mutually reinforcing. A credible forward-looking their first steps to exporting overseas.
trade agenda must focus on the UK’s largest exporter of
Gathering additional evidence in this area could help create
industrial goods, while a serious investment and industrial
modern, business-friendly trade rules. For example, the full
strategy should aim to increase the sector’s technological
inclusion of services in the calculation of regional value added
development and production potential.
thresholds could help UK automotive exporters to qualify for
Taking into consideration the peak in UK car production preferential treatment in future FTAs.
and domestic market in the last 10 years, SMMT estimates
the total value of trade could increase by 20%, from £101 Easing labour mobility for professionals offering automotive-
billion to £122 billion. This could be achieved through the related services could also help address longstanding skill
revitalization of the UK sales market and by preserving gaps and ensure that talents across the world can contribute
existing supply chains and market access levels. Sound to the sector’s success.
trade, industrial and investment policies must ensure that It is foreseeable that services will play an even greater role in
the shift to automated, connected, electric and shared the automotive industry. The future of mobility is inherently
vehicles will result in even greater trade opportunities for linked to the idea of mobility as a service. Today, some of the
UK manufacturers. world’s biggest mobility providers do not own a single vehicle.
In this context, trade rules applicable to next-generation We can expect traditional manufacturers to take a more
vehicles and components should allow UK automotive proactive role in shaping new mobility services.
manufacturers to supply new raw materials and innovative According to a 2018 report by PWC, today, less than 3% of
parts tariff-free from key trading partners, while future industry revenues and less than 1% of profits come from
investment should land modern facilities in the UK – including
6
connected services and mobility services. By 2030, these may
gigafactories to produce electric batteries – in order to
both be around 30%.
add local value to final products through substantive
manufacturing activities. A future in which intelligent environmentally friendly vehicles
transport goods and people on demand can be fully deployed
only if domestic legislation and international trade rules will
THE RISE OF AUTOMOTIVE SERVICES
Traditionally, the international trade framework has
enable cross-border exchanges of automotive goods and
services bundles. EIGHT RECOMMENDATIONS FOR GOVERNMENT AND INDUSTRY
clearly distinguished rules applicable to goods and
rules applicable to services. However, services already
2
permeate and add value to the UK automotive industry.
1 ET FORWARD-LOOKING
S P RESERVE CURRENT
Automobile engineering services are essential to design, AUTO TRADE STRATEGY MARKET ACCESS
develop, produce and test new automotive models, R&D is n Ensuring no new barriers are introduced on
n Any UK trade policy needs to have the
critical to spur automotive innovation, manufacturing services
automotive industry at its heart, regardless of trade between the UK, EU and wider Euro-
are pivotal in producing automotive products.
the outcome of Brexit negotiations. Failing to Mediterranean region is essential to protect
The UK’s aftermarket industry generates more than £21 billion do so would immensely reduce the chances to regional supply chains, maintain a competitive
in revenues and contributes £12.2 billion to the UK economy, increase the contribution of UK exports to the domestic market and preserve the majority of
but that is still a fraction of what British maintenance services national GDP and endanger the UK’s role as a key UK automotive exports.
could gain globally and in markets such as China, India and the leading exporter of industrial goods.
Middle East. n Maintaining existing trade terms for preferential
n Government and industry should exercise access to major markets beyond the European
Marketing services are often at the centre of automotive region is pivotal to support the sector’s
thought leadership in shaping national,
branding strategies and play a key role in enhancing visibility
regional and global trade rules applicable international expansion strategy and to
of UK automotive products when they are introduced to new or
to new-generation vehicles and automotive preserve British consumers’ choice.
under-served markets.
technologies. The sector needs a positive, n Government and industry should spare no
The UK domestic market would not be the second biggest modern, automotive-friendly trade agenda.
car market in the EU if passenger cars were not offered in
efforts to defuse international trade tensions
combination with innovative financial solutions and insurance in major automotive markets. Such tensions
services. Leasing exemplifies how the boundaries between threaten the multilateral trading system and
goods and services are already blurred in our sector. risk disrupting trade flows of raw materials and
automotive products.
Clearly, greater penetration of UK services in preferential
and third markets could benefit the UK automotive industry.
6: EIGHT RECOMMENDATIONS FOR GOVERNMENT AND INDUSTRY
3 S TRENGTHEN INDUSTRY ENGAGEMENT

n Close collaboration between government and 6 ENHANCE DOMESTIC CUSTOMS SYSTEM
n Government and industry should collaborate to
enhance trade facilitation and ensure legitimate
UK Automotive as the UK’s largest exporter
of industrial goods is essential. Collaboration trade does not face costly border delays.
should be ensured through the establishment n Investment in physical and digital infrastructure is
7
of flexible engagement mechanisms, including crucial to provide a world class customs service to
automotive interests at the highest level of UK UK automotive importers and exporters.
trade strategy and policy formation.
n Create a non-burdensome systems environment
n UK exporters and importers need to ensure which supports and promotes trade to and from
trade policy experts are part of their senior
management teams, in order to give a
the UK for businesses of all sizes.
ANNEX: DATA SOURCES
n Incentives should be provided for upgrading,
meaningful contribution to the development of investment and upskilling of suppliers dealing
government trade policies on priority markets, with customs formalities today and in the future
rules of origin and key defensive and offensive – especially smaller businesses. SMMT has used three key sources for the trade data – ONS, HMRC and our own SMMT data
trade interests. sets. The two government sources are used for value of exports and imports. They use slightly
n Given the complexities of trade policy, government different classifications and approaches, but the overall difference is relatively small in this context
should reassess its model of generalist civil
servants and ensure that a team of specialists 7 F OSTER TRADE PROMOTION
n Many of the markets with the greatest (see table). We have used ONS data for the headline figures and HMRC data for country specific
leads industry engagement in this area. opportunities for UK firms often present information (which is not available from the ONS data). SMMT data is used for volumes of vehicle
significant language and cultural challenges,
complex regulatory environments and market
production destined for export and new registrations by origin.
4 SEEK NEW TRADE OPPORTUNITIES access barriers.

For more information on SMMT data and for additional data please contact [email protected]
n Government and industry should explore n Financial support must be available to support
opportunities to improve market access for UK UK companies, in particular to help them
automotive products by reducing tariff and non- explore distant, risky markets. The HMRC 4-digit data codes and for the purposes of this
tariff barriers. Export £billion 2017 2018 % change report certain codes in 87 (motor vehicles and parts and
n Government support is crucial to enabling an
accessories) and 84 (engines). The detailed codes are given
n Comprehensive trade agreements should not impactful presence at key international events,
HMRC 43.0 42.2 -1.9% below. The HMRC data can be analysed at country level, so
be considered the only instrument available to raise UK profile and open up opportunities
offers greater granularity.
to reach ambitious trade policy objectives. for UK firms.
ONS 44.9 44.4 -1.2% Chart 3 uses HMRC SITC Division (two digit Standard
Non-tariff barriers can be addressed without
International Trade Classification) data, whereas table opposite
resorting to formal trade negotiations.
8
and other HMRC data in this report uses four digit codes.
LINK TRADE AND INDUSTRIAL STRATEGIES Difference (£) -1.9 -2.2
n Any potential gain from the reduction of trade n Mutually supportive trade rules, industrial https://www.uktradeinfo.com/Statistics/
barriers with third countries cannot be analysed strategies and investment plans can ensure BuildYourOwnTables/Pages/Home.aspx
Import £billion
in isolation from potential negative impacts on that the UK will remain a hub where automotive
existing trading partners. businesses can develop, manufacture, deploy HMRC CODES USED
HMRC 55.3 54.6 -1.3%
and trade their products.
- 8701 Tractors
5
n The UK automotive sector should give inputs - 8702 Motor vehicles for the transport of >= 10 persons
L EAD REGULATORY DISCUSSIONS ONS 57.6 57.0 -1.0%
going beyond traditional topics and step-up - 8703 Motor cars and other motor vehicles principally
n The UK needs to remain at the forefront
to the challenge of building a solid industry designed for the transport of <10 persons, incl. station
of international norm-setting of Difference (£) -2.3 -2.5
position on future key policy areas - from wagons and racing cars
automotive regulation.
mobility services to data exchanges, privacy and - 8704 Motor vehicles for the transport of goods, incl.
n The UK’s role in UNECE discussions must be cybersecurity. The ONS data uses the change in ownership balance chassis with engine and cab
preserved and strengthened, especially in key of payments methodology, whilst HMRC uses physical
n Government and industry should work ever - 8705 Special purpose motor vehicles
technology areas. movement of goods.
closer in a cross-departmental effort to ensure - 8706 Chassis fitted with engines, for tractors, motor vehicles
that the UK’s strategic interests in a strong, The ONS data uses SIC29 and covers all motor vehicles, - 8707 Bodies, incl. cabs, for tractors, motor vehicles
n The UK should increase its efforts to bridge gaps
including engines and parts and accessories. The ONS
between regulatory superpowers, reduce existing modern and innovative automotive sector are - 8708 Parts and accessories for tractors, motor vehicles
data gives both home and export details and a split
regulatory barriers and avoid the development of a prioritised and sustained by future trade and - 8709 Works trucks
between EU and non-EU. See https://www.ons.gov.uk/
patchwork of national regulations or standards for industrial policies. - 8716 Trailers and semi-trailers
economy/nationalaccounts/balanceofpayments/bulletins/
future transport technologies. uktrade/previousReleases and for data and http://www. - 840731, 840732, 840733, 840734 Petrol Engines
siccodesupport.co.uk/sic-division.php for SIC29 definition. - 840820 Diesel Engines
THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED
71 Great Peter Street, London, SW1P 2BN
Tel: +44 (0)20 7235 7000
E-mail: [email protected]
@SMMT SMMT
www.smmt.co.uk
SMMT, the ‘S’ symbol and the ‘Driving the motor industry’ brandline are registered trademarks of SMMT Ltd
Disclaimer
This publication contains general information and although SMMT endeavours to ensure that the content is
accurate and up-to-date at the date of publication, no representation or warranty, express or implied, is made as to
its accuracy or completeness and therefore the information in this publication should not be relied upon. Readers
should allow seek appropriate advice from a suitably qualified expert before taking, or refraining from taking, any
action. The content of this publication should not be construed as advice or guidance and SMMT disclaims liability
for any loss, however caused, arising directly from reliance on the information in this publication.
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2019 UK AUTOMOTIVE

2019 UK AUTOMOTIVE TRADE REPORT

Page 33  6: RECOMMENDATIONS FOR GOVERNMENT hard Brexit.

Attracting volume manufacturing to the UK has helped establish

UK AUTOMOTIVE: £101 BILLION TRADE HUB

TOP 5 CAR EXPORT

AUTO SECTOR LARGEST

SMMT ESTIMATES THE

TH WAS REMOVED AND INDUSTRY 4: Seek new trade opportunities

TH FROM £101BILLION 6: Enhance domestic customs system

2 The resolution of international 1,600 160

UK AUTOMOTIVE TRADE SNAPSHOT trade tensions

3 The sector’s ability to maintain a strong,

The automotive industry’s contribution as 4 The sector’s ability to adjust to global

Cars and all Vehicles - thousands

contributor to the UK’s total exports.

the significant shift to imports. 2,500

70% Import volume Import share

managed and Automotive Council-endorsed Long Term

UK KEY TRADING PARTNERS FOR CARS BY IMPORTS AND EXPORTS

UK CARS: EXPORT DESTINATIONS PREFERENTIAL EXPORTS REGIONAL SUPPLY CHAIN

China CHART 14 | CAR EXPORTS PREFERENTIAL 2 20%

volume manufacturers (thousands)

SVM manufacturers (thousands)

Total, premium and

Total and premium manufacturers (thousands)

Volume and SVM manufacturers (thousands)

Any new customs barrier in the UK-EU trading relationship

REPLICATION OF TRADE AGREEMENTS CASE STUDY: JAPAN

Total, premium and volume

the UK domestic market but, moreover, the opportunity to

INVESTMENT RISKS CHART 32 | UK NEW CAR REGISTRATIONS

revitalise domestic motor manufacturers and attract

chosen the UK as their European base since the 1980s.

New car registrations - millions

AFV market share

CHART 31 | PUBLICALLY ANNOUNCED UK 0.5 1%

AUTOMOTIVE INVESTMENT DECISIONS (£BN)

TABLE 3 | ISSUES WITH BURDENSOME REGULATIONS

DIT, Impact assessment of the EU-Japan

3 S TRENGTHEN INDUSTRY ENGAGEMENT

4 SEEK NEW TRADE OPPORTUNITIES access barriers.

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Page 33 6: RECOMMENDATIONS FOR GOVERNMENT hard Brexit.

3 S TRENGTHEN INDUSTRY ENGAGEMENT

4 SEEK NEW TRADE OPPORTUNITIES access barriers.