| 4:11 PM EST

Nissan, Toyota Want U.K. to Pay for Higher Brexit Tariffs

"Hard" Brexit threatens demise of Britain's auto industry
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Carmakers want the British government to pay their higher tariffs if the U.K. fails to secure a new trade pact with the European Union by year-end.

Nissan and Toyota tell The Nikkei that they have asked for tax supports if the U.K. still has no replacement deal on tariffs in 2021. Sources tell the Tokyo-based newspaper that other Europeans also are pushing for aid in the event of a “hard” Brexit.

 Image: SMMT

Looming Deadline

Britain officially exited the EU at the end of January. But it has continued to enjoy the zero tariffs of membership through a transition period that will expire on Dec. 31. More importantly, the EU has imposed an Oct. 15 deadline to reach a new deal.

British Prime Minister Boris Johnson says his government is prepared to push into the new year with no deal. Without one, tariffs between the two markets would rise to a World Trade Organization default of 10%.

Carmakers have been warning since the U.K. voted in mid-2016 to leave the EU that the 10% tax hit of a “hard” Brexit would make their operations in England financially unsustainable. Honda announced more than a year ago it will shut down its factory in Swindon, England, in 2021.

Neither trading partner appears to have budged this year. Reports in Europe say the EU is telling the region’s domestic producers to expect no favors if an agreement doesn’t materialize soon.

Vanishing Act

Last year, production by British auto plants skidded 14% to 1.3 million units. As usual, about 40% of the output went to the EU.

Getty Images

A 10% tax on EU-bound cars would cost local producers £4.5 billion ($5.8 billion) per year, according to the country’s Society of Motor Manufacturers and Traders.

Brexit fears have been drying up foreign investment in Britain’s auto industry for three years. SMMT estimates that auto industry investments plummeted from $1.6 billion in 2017-2018 to $109 million in the first half of 2019.

The group rightly describes the crisis as an “existential threat.” Shrinkage in output, which dipped 3% in 2017, accelerated to 9% in 2018 and 14% last year. Output through August plunged 40%.

Earlier today, SMMT reported that Britain’s domestic car sales in September slid 4% to a 10-year low as year-to-date volume sagged 33%. Sales for the year to date were down 33%.

The decline has eliminated 13,500 jobs so far this year. SMMT says the impact of the coronavirus pandemic is largely to blame for this year’s slump. But it also cites the urgent need for a trade deal to avoid the “second shock of crippling tariffs.”

Do-or-Die Time

The U.K. already is heading for a 34% drop in full-year production to 885,000 vehicles this year, the trade group warns. Without a new trade deal, it adds, that figure could drop below 750,000 units by 2025.

Britain’s auto sector has been in relentless decline since the Brexit vote four years ago. The deadline by which the government can save the day with a workable trade solution is just weeks away.

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