What does Brexit mean for UK car manufacturing?

We look at the potential complications arising from Brexit for the UK's thriving Automotive industry and M&A confidence in the sector.

What drove us here

The outlook for the automotive sector appears perhaps surprisingly robust in a post referendum economy. UK car production has hit a 17 year high; the industry is comprised of 15 car plants directly employing 169,000 people and manufacturers have opted to situate key facilities in the UK - with JLR and Nissan collectively exceeding one million units in 2016.

However, does the now apparently imminent triggering of Article 50 threaten the success of a sector where exports accounted for 80% of all manufactured units in 2016?


57% of all exported vehicles went to the EU in 2016, driven predominantly by volume manufacturers such as Honda, Nissan, Vauxhall and Toyota which export the vast majority of their UK-produced vehicles to the EU. For premium manufacturer JLR, approximately 40% of their vehicles are sold in the EU (source: SMMT).  It is therefore crucial for the UK Automotive sector to have a suitable trading environment agreed with Brussels promptly to avoid a deceleration of growth and a reduction in investment. This will also be important to maintain and build the talent pool that drives innovation and development in the sector. Automotive manufacturing moves in model platforms so a platform won or lost now will form the bedrock for jobs and investment, or a loss of the same for many years to come.


Fortunately for the sector, the significant capital investment in UK facilities does act as a strong barrier to exit for car manufacturers in the short-term. Commitments to producing certain vehicle models in the UK span well beyond the two year negotiation timetable so we are increasingly only exposed to the result rather than the uncertainty beforehand. This also provides the government with time to negotiate the necessary trade deals, or alternatively provide suitable guarantees to encourage continued investment.

The UK car market is also one of the world's most diverse, with 44 brands offering nearly 400 different model types, with over 85% of all vehicles bought imported.  It is therefore important to consider the view from within the EU and particularly Germany; the industry's leading exporter and the largest economy within the single market. The UK is not only the largest export market for German manufacturers (810,000 vehicles in 2016) but BMW Group's MINI and Rolls Royce plants accounted for 12.5% of the 1.7 million units built in the UK last year.

Germany therefore has as much to gain from an agreeable trade agreement as the UK, something the country's automotive industry association, VDA, has been at pains to point out. In addition a notable shift within the UK towards increased usage of domestic car parts should dampen the effects of possible EU tariffs. A weaker pound should aid the cost competitiveness of UK manufactured cars but only to the extent inflation does not drive up input costs and wage inflation.

The M&A environment

We have witnessed an increase in acquisitions of UK companies in the automotive sector by overseas buyers since the referendum. Whilst GM is contemplating options for its loss making Opel brand, including a potential sale or partnership with France's PSA Group, significant investments have taken place in tangential industries such as Liberty House's acquisition of Covpress, a manufacturer of vehicle pressings and assemblies; Sumitomo Rubber's acquisition of Micheldever Tyre Services and China's CIMC Vehicle's acquisition of commercial trailer producer Retlan Manufacturing.

The road ahead

Despite the impending changes, in the short-term the automotive sector continues to thrive. Demand remains high and transactions continue to occur. However, the industry's long term performance is dependent on the government's ability to secure a trade deal with the EU that allows continued investment, growth and consumer choice. Establishment of terms such as those boasted by the European Free Trade Association (EFTA) could prove these issues to be but mere speed bumps in the road but should these issues remain in the government's blind spot, long term investment and demand in the sector could yet suffer.

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