Chapter 1

Introduction

1.1

Being one of the biggest importers of the world, the UK automotive industry plays an important
role with more than 78.9 billion turnover euros and including 15.3 billion values to the UK
economy and it still holds reputation around the world. It is graceful, limber and basically
competitive with top stages of efficiency in the world. Home brand Jaguar and Land Rover were
the leading manufacturers followed the Nissan- Japanese car maker. In terms of productivity
and motorsport sector, UK is the leading European car producer settling it at the boundary of
the automotive industry with over 1.5 million units manufactured in the year 2018. Due to the
domestic availability of the resources, the cars manufactured in UK grew from 36% in 2011 to
44% in 2017 and continued to increase. For the third consecutive year, the automotive sector in
UK has produced more 100 billion euros in total trade in the year 2019. UK export vehicles,
engines and components to more than countries worldwide across all continents and provide
employment to thousands of highly skilled people. UK automotive industry account for 13% of
total export of goods, worth 44 billion euros, investment of about 3 billion euros on automotive
R&D each year and employment to a portion of 180,000 directly in manufacturing and 864,000
across the wider automotive industry.

In the year 2019, 1.3 million cars, 78,270 commercial vehicles and 2.5 million engines were
made in UK. Out of 10 cars, 8 of them produced in UK are exported overseas to 160
multifarious markets worldwide.

According IBIS World’s analyst, industry operators temporarily closed the production units in
March 2020 for many weeks to stop the spread of virus which is expected to reduce the output
production by 40%.

According to Society of Motor Manufacturers and Traders, in the first eight month of 2020, new
car registrations fell by 39.7% when compared to2019.

https://www.automotivecouncil.co.uk/uk-automotive-sector-overview/

https://www.great.gov.uk/international/content/about-uk/industries/automotive/

https://www.smmt.co.uk/industry-topics/uk-automotive/

Section1.

Global Foreign Direct Investment flows fall by 13 percent to 1.3 trillion dollar in 2018.
The main reason behind the third year’s consecutive decline was due the United States
multinational enterprises big scale repatriations of gathered foreign earnings in first 2
quarters of the year 2018 after the introduction of tax reforms in 2017 in the country.
FDI Inflows –

Developed economies reached their lowest FDI flows since 2004 by amount of 24
percent decline. FDI flows in North America were strong and declined by 4 percent to
291 billion dollar whereas it halved the amount to 172 billion dollar in Europe. Negative
outward FDI flow from the US due to tax reforms was not able to compensate the rise of
21 percent through cross border merger and acquisitions deal.

Host countries such as Ireland and Switzerland in Europe experienced an amount of -

$66 billion and -$87 billion negative inflows. Due to halved new equity investment, there
was a decline by 36 % to $64 billion in the United Kingdom. Flows increased by 20% to
$70 billion and inflows doubled $44 billion respectively in the Netherlands and Spain
due to a number of megadeals despite the repatriations.

FDI inflows decreased to $252 billion by 9% in the United States majorly one third fall in
cross border merger and acquisition sales. Australia created a new record by reaching
its FDI inflows to $60 billion because of the reinvestment of $25 billion by foreign
affiliates of their profits in that country.

FDI inflows remained identical to the amount of $706 billion with a rise of 2% in
developing economies. In 2018, there was a record of higher FDI inflows in Developing
Asia and Africa while it declined in Caribbean and Latin America.

In 2018, FDI rose to $512 billion by 4% in developing Asia which is already the biggest
recipient of FDI flows where there was also a sign of positive growth in all sub regions.
An increase of 4% to $139 billion was attracted by the largest developing economy,
China. South East Asia generated a new record by rose of 3% to $149 billion for the
third consecutive year.

If we see Africa, FDI flows increased by 11% to $46 billion but is still below the average
of about $ 50 billion of the past 10 years. Resumption of asset seeking investments,
slowly growing multifarious investments in some economies and double in amount of
FDI flow form $2 billion to $5.3 billion in South Africa were major points for the increase
in flows.

In the year 2018, the FDI flows of Latin America and the Caribbean went to $147 billion
which was 6% lower failing to maintain steadiness after the incline in 2017. If we take
the context of South America, due to lower flows in Brazil and Colombia, the FDI
declined whereas the inflows remained identical in Central America.

FDI flows were going with their declining trend in transition economies by 28% to $34
billion in 2018 after a jump in 2017. This contraction rose as the biggest economy and
the largest recipient, Russian Federation, flows was halved from $26 billion to $13
billion. Due to the inhabitancy in the Russian Federation by the asset holders of the
overseas entities, there was a decline in flows.

If we see developing and transition economies, half of the 20 hosting countries continue
to be part of it in the world. The United States stays the biggest recipient of FDI instead
of the FDI decline followed the countries like China, Hong Kong and Singapore.

Section 2 –

Brexit is a combination of 2 words – British and Exit where UK left European Union as of
31 January, 2020.

https://www.investopedia.com/terms/b/brexit.asp

There are 3 main reasons for the happening of Brexit –

1. The first reason was economics. European Union thought that Britain will follow
his lead but that did not happen. In terms of export, UK is the third foremost
target for Britain. The lives of German’s and Europeans are not same. For
example, there is 20% unemployment in EU whereas it only account for 4% in
Britain. Southern Europe has very dull economy.

2. The second reason is sovereignty. There is a trend in increase of nationalism

around the world. For many people, there is no purpose of European Union as
they take away your control from particular nations. Factors like fear and lack of
trust in losing control was a possible reason.

3. Third reason is political elitism.

https://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-brexit/?
sh=755e5d3a1f9d

The automotive industry is a crucial part of the UK providence as UK has a good

bonding with EU in this sector. The UE reports for 81 percent for import and 52.8
percent for export of UK vehicles. Tariffs can change like 10 percent on passenger cars,
10-22 percent on commercial vehicles and average of 3-4 percent for automotive parts
if no alternative is found. There has been a threat for automotive sector after there is
recent fall in pound sterling against the Euro. The price of the imported parts from the
EU will increase which count for 60 percent of components in manufactured cars of UK.

https://www.wns.com/insights/blogs/blogdetail?504=the-pros--cons-of-brexit-for-uk
%E2%80%99s-automotive--healthcare-industries
 The exit of UK from EU has affected in its supply chain, regulatory division, and
approach in talent and unpredictability in free trade agreements of enduring third
countries. Automotive car industry in UK generates 82 billion euros turnover and 12
percent of its export and 800,000 indirectly employment to people in UK. Impact of
Brexit might have remarkable effect on the UK industry ranging from restriction trade
between the both countries to additional custom tariffs and policies. UK may also lose
the market outside EU and reduction in tariff as a Brexit impact.

https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/international-
markets/deloitte-uk-brexit-industry-insights-automotive-final.pdf

Both UK and UE car industries are interlinked. People in EU purchased 51 percent of all
exported UK made cars and EU reports for 85 percent of import in terms of passenger
cars as of year 2018.

https://www.acea.be/news/article/fact-sheet-brexit-and-the-auto-industry

UK car manufacturers may face more export tariffs even after the trade dealing on
Brexit with EU. Cars manufactured in UK don’t meet the requirements of having
adequate British parts and in addition will have to add tariffs when cars are exported to
EU even if there is a zero tariff trade agreement.

https://www.business-live.co.uk/manufacturing/major-blow-automotive-industry-
suggestion-19023763

Firms after Brexit deal on free deal agreement will though have added tariffs in UK as it
needs funding for electric vehicles. Automakers will require papers to justify that
vehicles fulfill new UE and UK content approach for conventional pieces at 55 percent.
Initially, it was 40 percent for electric vehicles but due to rise in battery parts, majority
comes from Asia. Manufacturing its own battery in UK and to compete with Europe and
become more globally active will be a major challenge for UK.

https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/uk-car-sector-
warns-of-brexit-costs-as-it-pushes-for-investment/80127239

There was a reduction in units of car sold in UK with 2.7 million in 2016 with a decline of
8 percent to 2.5 million in 2017. Companies like Jaguar Land Rover reduced the
number of staffs by 1000 in numbers, Vauxhall decrease their dealerships and Nissan
decreased 10% of its staff due to decline in car sales. According to Society of Motor
Manufacturers and Traders, there might an increase of 1500 euros to the UK imported
cars from addition of 2.7 billion euros to imports and 1.8 billion euros to exports on the
basis of tariffs of EU if the brands and retailers cannot captivate additional costs. If we
take the context of Formula 3 and Formula 4 championships, UK depends on EU
manufactured cars.

The UK car industry account for 900,000 people employment and as the industry has
restricted on its budget due to recent decline in sales figure, engineers, technicians and
executives have lost their jobs in the automotive industry. There could be an unpleasant
impact on automotive manufacturers and suppliers on shortage of existing skills. The
people of UK Manufacturing and Engineering business leaders announced 22 percent
scarcity in the number of skills at technician level as the majority of all vital business
issues as of Q4, 2017. The UK will have to advertise its automotive industry strongly as
an appealing anticipation for capturing talented and knowledgeable pools both in home
country and abroad to engage more in creativity, success and avoid missing major
skills.

https://blog.v-hr.com/blog/how-will-brexit-affect-the-uk-automotive-industry

Recommendation –

I have found some major points for the UK automotive industry that can be beneficial for
them after Post Brexit issues.

1. There should be a good understanding and knowledge regarding the supply

chain system relating to any new papers or rules and agreement demand by the
automotive car industry.
2. For the hassle free environment and flow of information, there should be good
communication and bonding between people linked in the automotive industry
like customers, partners and manufacturers.
3. UK automotive industry need to work on some of its day to day needed factors
like skill development and organizing of the workforce to limit the number of daily
or future restriction and no restriction environment for people which might have
changed recently.
4. For the betterment of people linked with original equipment manufacturers and
suppliers or providers, they should fund in good government rules and regulation,
strategy and plans for better conformability with newer regulatory needs.
5. To reduce risk, execute any change, the automotive industries should be
equipped with certain policies like enterprise resource management to handle
and to report on contracts.
 6. Manufacturers must think of a good strategy for better capability and
creativeness to live in as usual scenario whey they feel comfortable and can
proceed with their investment and improvements.
7. Innovation is the key to success. Young people from automotive sector are
generally backward to their unused full potential in that particular sector. When
emerging talent and new creative ideas will meet, it can have an advantageous
point.
8. UK automotive industry can prove its legacy by placing a global position in the
industry.
9. Regarding recruitment plans, and to avoid shortages in automotive skills, some
strategies like collaboration with universities and colleges to promote marketing
in the field of automation can aid to be beneficial.

Conclusion –

To conclude, I can say that car industry in the UK is a massive industry in the context of
the country. It generates huge revenue and employs lot of people in that sector.
Regarding Brexit issue, I cannot see any good news or some sort of advantage for the
automotive industry in the UK in the coming days. Different kind of negotiations by the
government only work in limiting the damage made to the industry and it cannot be a
permanent solution. Being practical, the government should focus on improving the
broken relationship between UK and EU for betterment of both as it can aid to higher
volume manufacturing in car sector as it was a success story in the previous days.