Automakers in the U.K. and Europe welcomed the announcement of a Brexit trade deal on Dec. 24 that will avoid import tariffs they say would have been catastrophic for the industry.
The EU and U.K. trade almost 3 million motor vehicles worth €54 billion and €14 billion in auto parts every year, according to the European Automobile Manufacturers' Association, or ACEA.
Automakers feared exports in both directions would become uncompetitive if they were subject to tariffs. The U.K.'s Society of Motor Manufacturers and Traders, or SMMT, estimated that tariffs would have added £1,500 to the cost of a new car purchased in the U.K. and £2,700 to the price of a U.K.-made car sold in the EU.
The industry has also spent hundreds of millions preparing to adapt in case no deal was reached, in order to avoid disruption to precisely coordinated manufacturing models reliant on just-in-time component deliveries.
"We welcome today's agreement of a new EU-UK trading agreement, which provides a platform for our future relationship. We await the details to ensure this deal works for all automotive goods and technologies, including specifics on rules of origin and future regulatory co-operation," said Mike Hawes, Chief Executive of the SMMT.
The ACEA also welcomed the deal but noted that it would introduce new complexities to trade in both directions due to the bureaucracy involved in trading with a non-EU member.
"The impact of a no-deal Brexit on the EU auto industry would have been simply devastating, so we are first and foremost extremely relieved that an agreement was reached before the transition period expired," said ACEA Director General Eric-Mark Huitema.
"Nonetheless, major challenges still lie ahead, as trade in goods will be heavily impacted by barriers to trade in the form of new customs procedures that will be introduced on 1 January 2021," he said. The SMMT called for a phase-in period to ensure "seamless implementation."
The deal is particularly good news for Japan's Nissan Motor Co. Ltd., which has said the future of its passenger car manufacturing in the U.K. would be in jeopardy if a trade deal was not reached. The U.K.'s single biggest automaker is Jaguar Land Rover, owned by Tata Motors Ltd.
The SMMT said in November that a no-deal Brexit could have slashed already shrinking U.K. car production by another third and threatened 180,000 jobs.
The deal must still be ratified by EU member states and U.K. parliament before the end of the transition period on Jan. 1, 2021, which has temporarily enabled tariff-free trade to continue since the U.K.'s departure from the EU on Jan. 31.