U.K. Looks at ‘Levers’ to Support Car Industry in No-Deal Brexit

Alex Morales and Siddharth Philip

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The U.K. is looking at the tools it can use to support carmakers in the event of a no-deal Brexit, Business Minister Nadhim Zahawi said.

The government is in talks with companies including PSA Group, Toyota Corp., Ford Motor Co., Nissan Motor Co. and Jaguar Land Rover Automotive Plc to establish where the "pinch points" and "pain" would be if the U.K. leaves the European Union without an agreement, Zahawi said.

"There are a number of levers available to me, to us in government to be able to help those businesses," Zahawi said in an interview, when asked whether loan guarantees were possible. He said he is working out how he can help car makers "within the confines of either World Trade Organization state aid rules, or, if we have a deal, EU state aid rules."

Carmakers have been vocal in opposing the sort of no-deal Brexit Prime Minister Boris Johnson has said he’s pursuing if he can’t reach an accord by Oct. 31. They’ve warned it would be "devastating" for the industry, disrupting just-in-time supply lines and ushering in tariffs that would drive up costs and make exports uncompetitive.

Production Move

PSA Chief Executive Officer Carlos Tavares said in July that all production will be pulled from its Ellesmere Port plant if Brexit makes it impossible to turn a profit at the 1,000-worker Vauxhall-brand facility. Nissan has suggested it may move some production out of the U.K. if the country leaves the EU without a deal.

“Any decision is not straightforward. We have to carefully analyze all the situations,” Gianluca de Ficchy, chairman of Nissan Europe said when asked on Thursday about the possibility of closing plant in Sunderland, northeast England. “The only clear conclusion we have reached is that if WTO tariffs will be applied, it will not be sustainable.”

Nissan, which sends 70% of its U.K. output to the EU, is urging Johnson’s government to support the industry by agreeing with the bloc not to apply tariffs, de Ficchy said. The imposition of WTO rules with a 10% duty on U.K.-built cars shipped to the EU would be impossible to offset through cost cuts, he said.

“A no-deal Brexit would have an immediate impact on the industry, putting jobs at risk and causing severe and potentially irreversible damage,” Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said in a statement. “The U.K. and EU automotive industries are deeply integrated so we need a deal that guarantees free and frictionless trade. Anything less risks destroying this vital industry”

Zahawi said one of the tools he’s considering is the so-called exceptional regional growth fund -- an award of grants outside normal competitive bidding processes designed to assist "where the economic situation in a local area deteriorates suddenly." He said the U.K. will seek to avoid disruption to supply chains in a no-deal Brexit by not imposing additional border checks.

"Essentially, we’re going to waive the deliveries through," he said, adding that there have been "encouraging noises" from authorities in Calais, the main French port for the U.K., that they’re "not going to cause any problems either because they don’t want to harm French businesses."

Still, that’s far from a cast-iron guarantee that there won’t be disruption, because the French will be obliged to follow EU laws and enforce a customs border.

Zahawi also said that the government is pushing an ambition for Britain to lead the world in developing electric vehicles and hydrogen technology, including a drive to develop a so-called gigafactory to make electric car batteries in the U.K.

The government announced as much as 1 billion pounds ($1.22 billion) of investment to accelerate the development of new battery technology and hydrogen fuel cells last month.

Zahawi said ministers are in talks with half a dozen or so companies around the world -- including in China and Japan -- about developing a gigafactory in the U.K. He didn’t identify the companies.

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net;Siddharth Philip in Sunderland at sphilip3@bloomberg.net

To contact the editors responsible for this story: Tim Ross at tross54@bloomberg.net, Thomas Penny

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