When regulations are about to change and no one has bothered to inform the automobile manufacturers, a certain kind of unease descends upon a manufacturing town. In Sunderland these days, you can sense it. The same shifts start and end, the same rows of completed cars wait for transportation outside the Nissan plant, but the conversations in the canteen have changed. There’s always someone with a phone, looking at the most recent line from Brussels.
The Industrial Accelerator Act, the cornerstone of the European Commission’s efforts to revitalize domestic industry, was intended to act as a buffer against the influx of low-cost electric vehicles from China. Rather, in its current draft, it resembles a silent notice of eviction for British automakers. Tax breaks, subsidies, CO2 credits, and the lucrative fleet sector—which accounts for about 60% of new car sales in Europe—would be available to vehicles assembled within the bloc. Vehicles made in Britain, even those coming out of Sunderland with parts sourced from the EU, might not.
The omission might have been inadvertent. After all, the conflict with Beijing is more significant. However, boardroom decisions are not influenced by intentions. The SMMT’s leader, Mike Hawes, has been direct in a way that trade body leaders seldom are. Before the EU-UK summit this summer, he has requested a written political statement rather than a treaty or legislation. Without it, he cautioned, investment plans are delayed, sometimes subtly, sometimes permanently. He seems to be aware of how these things often stray.
The math is what makes this moment unique. The EU has a favorable balance in the approximately €80 billion annual automobile trade between the UK and the EU. With an annual import of about €9.1 billion in parts, Britain continues to be the EU’s largest buyer and exporter of passenger cars. British workers are not the only ones harmed by cutting Britain out. It disrupts supply chains in northern France, Slovakia, and Spain, where small suppliers ship parts that eventually become a Leaf or a next-generation Juke. The seller also suffers when the customer is punished.
Naturally, Germany is anxious. Over 25% of its automobiles are sold in China, and for the past two years, its automakers have warned Brussels that any kind of protectionism will result in reprisals. France is exerting more pressure thanks to its smaller, more domestic supplier base. In other words, Britain is attempting to negotiate with a counterparty that is still at odds with itself, and the bloc isn’t speaking with a single voice.
As this develops, it’s difficult to avoid thinking about how Brexit was meant to be the ultimate test of British industrial fortitude. The automobile industry barely made it through it by further integrating itself into European supply chains. Those stitches could be undone by the IAA. For a fleet manager in Madrid, a Leaf made in Sunderland might end up costing more to run than a car made in Spain. This is the kind of information that determines procurement contracts, which in turn determine whether factories remain open.
It can still be fixed. According to EU officials, once the IAA is approved, Britain will probably be added to the list of trusted partners. However, this could take a year, and a year is forever when it comes to capital allocation. British automakers are currently waiting, making careful plans, and hoping that the language will change before the summer. The factories continue to operate. Is anyone in Brussels still aware of the significance of that?