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UK carmakers say weak pound won't offset no-deal Brexit tariffs

London

UK carmakers won't get enough of a sales boost from the weakening pound to offset European Union tariffs that would accompany a no-deal Brexit, their industry association warned.

While sterling's slump amid concern that Britain will quit the bloc without an accord may encourage exports and lift the pound value of such sales, costs from EU border levies and parts purchased in foreign denominations will be higher, the Society of Motor Manufacturers and Traders said.

Completed vehicles exported to the EU after a no-deal split would attract a 10 per cent sales tariff, based on terms detailed before the previous Brexit deadline in March, the SMMT said. Components sourced from parent companies in mainland Europe and Japan would also attract duties and cost more to buy.

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"We don't see that as compensatory for the application of tariffs," SMMT chief executive officer Mike Hawes said in a briefing in London, referring to the weaker pound. Carmakers have already devoted at least £330 million (S$550 million) to no-deal preparations and will need to spend more in preparation for the latest Oct 31 deadline for the split, he said.

The likelihood of a hard Brexit has increased since Boris Johnson took over as prime minister last week. The former foreign secretary has said he will take the country out of the bloc by the deadline with or without an agreement. The pound fell to its lowest level in more than two years on Tuesday as markets became increasingly worried about that prospect.

Carmakers have already been scaling back operations in the UK. Ford Motor is planning to close a UK engine factory as the last major step in an overhaul of its unprofitable European operations. Honda Motor is shuttering a plant in Swindon, west of London, employing 3,500 workers, while Nissan Motor no longer plans to build the X-Trail sport utility vehicle in Sunderland, northern England.

Car production in the UK fell by a fifth in the six months through June compared to the same period in 2018, the SMMT said. Newly pledged investment also fell by more than 70 per cent to £90 million in the same period and has effectively stalled, Mr Hawes said.

The CEO reiterated that a no-deal exit is the "worst imaginable" outcome for the auto industry and said that some companies would be less prepared for the Oct 31 deadline than they were for the original end-March leaving date. That's because they will not be able to repeat the tactic of bringing forward annual planned shutdowns, he said. BLOOMBERG