AutoAnalysis’ Brexit Impact Assessment Model

AutoAnalysis has developed a model to calculate the impact of tariffs on UK vehicle manufacturing if the UK switches to trading on WTO terms when its departure from the EU is complete.  We have modelled the tariff impact for each vehicle manufacturer in the UK. 

The model was first described on just-auto.com  and later at greater length in chapter 3 of the book Keeping the Wheels on Road.

The model works as follows, taking a hypothetical UK-made vehicle:

·  Annual production: 200,000, with 150,000 exported to the EU

·    Finished vehicle landed cost in the EU: £21,000

·    External bill of materials: £9,000 of which EU sourcing is 50% at tier 1s; UK content is 40% at tier 1 level, but 30% of this is actually sourced from the EU

·     Average import components tariff: 3.5%

·     EU finished vehicle tariff: 10%

Taking these base parameters, tariffs would add just over £39m to the vehicle’s bill of materials, but generate a far higher number, £315m, in EU tariffs on finished vehicles.

Applying this model to actual production volumes and known costs produces a total tariff bill for UK car and engine producers of over £3bn per year.  Some of this can be mitigated through various processing reliefs, although complying with tax authorities’ regulations here is not simple.

In addition to tariffs, the industry would face non-tariff barriers (NTBs) covering costs of regulatory compliance, customs processing, delays at the border, the need for additional stocks to cover supply chain disruption and increased working capital requirements to cover additional stocks, funding tariff payments and changes to the VAT regime.  Evidence from other industries suggests that NTBs can amount to between half and one and a half times the cost of tariffs.

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