Written evidence from Vauxhall Motors (BRA0016)

Overview

1. Vauxhall is part of an integrated European business with both sister company Opel Automobile in Germany and new parent company Groupe PSA in France. We are a significant contributor to the UK economy directly employing 4,800 people and a further 30,000 people indirectly through our supply chain and retailer network. Vauxhall/Opel has two manufacturing sites (of which both run just-in-time manufacturing operations), a European aftersales parts warehouse and a European Customer Contact Centre all in the UK.

2. Our manufacturing site in Ellesmere Port produces the Vauxhall/Opel Astra and has been in continuous production since 1964. Over 80% of its production is exported outside of the UK. Our manufacturing site in Luton has been manufacturing since 1903 and currently produces the Vauxhall/Opel Vivaro commercial vehicle, exporting over 60% of production outside the UK. 73% of total UK production is destined for the Single Market making access to this market post Brexit, in both tariff free and no non-tariff barrier terms, vital.

3. Of key concern to our operations are:
1. Uncertainty around the future relationship between the UK and EU does not create the necessary environment for automotive business to operate within.
2. It is essential that we can remain competitive and benefit from tariff free trade without non-tariff barriers together with frictionless movement of goods.
3. It is necessary that businesses, like ours, are allowed sufficient time to prepare and review the impact of any future relationship and that the arrangements are fully resilience tested.

Market access: how important is free access to the Single Market? What would be the impact of trading with the EU under WTO rules and tariffs? How significant are tariffs compared to other costs?

4. Access to the European market and the benefits associated with single market access and operating within a Customs Union is essential for our operations. Europe remains, by far, our biggest trading partner.  73% of total UK production is destined for the Single Market (excluding the UK) making access to this market post Brexit, in both tariff free and no non-tariff barrier terms, vital.

5. The UK's membership of the EU has enabled us to access talent from right across the EU and provides regulatory certainty through harmonisation. The single market has therefore been critical to the competitiveness of the UK automotive sector and it is vital that government works with the industry to assess how “single market arrangements”, as referenced in the Prime Minister’s Lancaster House speech, could maintain these benefits and ensure a complete absence of tariff and non-tariff barriers.

6. We consider trading with the EU under WTO terms as a worst case scenario. Tariffs presents initial cost to our UK business of 10% import duties on cars and an average of 3.5% on components used in UK manufacturing.

Non-tariff barriers: how significant are non-tariff barriers potentially arising from leaving the Single Market and Customs Union? What are the most significant ones? How best could impacts be mitigated?

7. Non-tariff barriers tend to relate to changes in regulations or requirements for new conformity assessment procedures.  For the purpose of this response, comments relating to regulatory changes below should also be considered as a Non-tariff barrier.

8. Trading with the EU outside of the single market and the customs unions would also require customs declarations for both the exportation and importation of vehicles, i.e. exporting a vehicle from the UK to the EU would require UK customs officials to file an export declaration to the EU and EU customs officials would have to file an import declaration for the UK produced vehicle. The same would happen for vehicles exported from the EU to the UK. This represents a change to current arrangements and where there is change there is a cost, both in terms of a cost to file a deceleration and a cost in delay.  We believe that additional staff would be needed to manage the increase in declaration filings.

9. Our manufacturing facilities operate ‘Just-in-time’ which allows delivery of parts for the vehicles we produce a window of up to 30 mins.  Operating just-in-time manufacturing results in minimal inventory being held which has the advantages of less space being required at our manufacturing sites, an efficient and lean way of producing vehicles. 

10. On top of the increased Customs facilitation cost, should UK ports not appropriately adjust their operations to ensure the free flow of goods entering and leaving the UK, our business will have to hold additional inventory at our UK manufacturing sites to ensure production lines are not stopped as a result of components being delayed clearing UK customs. If there is a change in the customs procedures which could lead to delays in goods entering and exiting the UK we will have to take action to mitigate against this.  Holding additional parts to ensure we can continue producing could cost our business an additional circa £XX million pa in inventory and additional carrier cost. In addition to the cost of holding additional stock, we would also have to factor in additional cost of purchasing or renting new warehousing to hold the inventory as well as increased racking cost which is not accounted for in this figure.

11. It is essential that a common customs code and procedures are maintained with the EU to prevent any disruption to the frictionless trade we have today. Government should prioritise delivering the ‘freest’ possible trading zone with minimal procedural and compliance costs

Regulation: what are the opportunities and potential disadvantages of seeking regulatory divergence from EU product, safety and other standards? To what extent should the UK seek to retain influence on these standards? Is it preferable for the UK to: establish an EU association agreement (or equivalent); replicate EU regulation; diverge from EU rules and standards? What dispute resolution processes would be most desirable? Should the UK seek to align professional qualifications with those in the EU?

12. Our company designs, builds and sells vehicles predominately for the European market.  The UK market is intrinsically linked with the EU.  Common regulatory standards provides a level playing field between companies operating across all EU countries.  Our manufacturing plants in the UK have benefitted hugely from being part of the EU’s common automotive regulatory system. This system enables market access and a level playing field for automotive products and services across European markets, which, in turn, has encouraged investment into the UK.  It is essential that government seeks to protect this position and ensure that, in withdrawing from the EU, the UK does not diverge from this common regulatory framework in any way that would inadvertently create market access barriers.  Any regulatory divergence, or uncertainty in the legal framework for the automotive industry, would amount to non-tariff trade barriers.  Original Equipment Manufacturers would have to develop and produce vehicles that can only be sold on the UK market, this will be at the expense of higher prices in the UK and smaller offerings for customers.

13. Regulatory divergence will not only create cost and market access issues, but would also likely hamper the prospects of agreeing the terms of a new trade relationship.  Government must ensure that the commonly held regulatory framework continues to provide the unique starting position of convergence.

14. The following regulatory areas are essential to maintain to ensure that there are no non-tariff barriers after the UK leaves the EU:

• Safety and type approval
• CO2, Emission and EURO standards
• End of Life Vehicles and recycling
• Data protection regulations
• Intellectual property rights, patents and designs
• Future technologies

Skills: how dependent is the sector on workers from EU countries, at all skill levels? What is the potential impact of restrictions on freedom of movement? How far can gaps be filled by UK workers?

15. As part of European business, we rely on the free movement of people between countries.  Previously we have been able to move teams of people into the UK to back-fill our manufacturing operations so that we can continue to produce vehicles while training our UK force on new products. 

16. Additionally, the ability to move employees around EU aids professional development which improves quality and competiveness of the business overall.  Intra-compay transfers are used typically for specific projects (skills/knowledge requirement) or development related reasons and can last between 3- 14 months, whilst long-term intra-company transfers are typically for key strategic manufacturing roles sharing skills/knowledge required and can last between 2-5 years and involve relocation with families. 

17. Movement of EU workers is also a key area of concern for the UK supply chain companies.

Trade opportunities: what opportunities are there for the UK to improve exports to countries outside the EU? Where should Government seek to prioritise in terms of trade deals? 

18. Comprehensive FTA’s covering goods include requirements stating a minimum cumulative percentage of content that must originate from the countries involved in the agreement in order to access the preferential duty rate. CETA, the latest EU FTA, outlines Rules of Origin for vehicles at 60%. While a similar level of cumulation will not be as challenging for our UK-EU trade, given how linked we are with the EU, this will have a drastic impact on UK trade with any countries outside the EU.

19. UK automotive manufacturing is underpinned largely by suppliers in the EU, very little by UK suppliers. This means UK originating content in our vehicles is very low. Low UK originating content risks new barriers to trade between the UK and future trading partners being established. A strong UK manufacturing base, underpinned by UK suppliers, is essential for a strong UK economy. As we move away from the European Union, it is even more essential to secure a vibrant and productive UK supply chain.

20. It is essential that Government should ensure that automotive goods originating in the UK and those originating in the EU are considered as originating content for the purpose of any future trade deals. This could be achieved through the application of the “diagonal cumulation of origin principle”, which would create an cumulation zone that recognised content produced in both the UK and EU as local content, ensuring that the integrated nature of the automotive supply chain is recognised.

21. The UK should also ensure that it explores every option for retaining the trading arrangements that currently apply to it as a result of trade agreements signed by the EU with third countries, such as the EU-South Korea FTA, Turkey and the Comprehensive Economic and Trade Agreement with Canada (CETA).

Transitional arrangements: what should the UK seek in transitional arrangements and for how long should they apply?

22. It is essential that we all only transition once which is why we need to ensure that the interim period  - that is the time between the UK leaving the EU and the new trading environment is agreed -  replicates the current arrangement, so continued access to single market and customs union. Once the new trading environment is clarified key stakeholders; businesses; ports; Customs Authorities; boarder authorities – will all need time to adapt to the new environment.  New systems/processes will be needed to operate in the new trading environment.  These will need to be agreed, developed and tested to give all partners the security that they will work.  In addition, business will have to work with supply chains to ensure their readiness for the new trading environment, for example; providing new documentation not needed historically such as Origin Declaration.

23. Clarity on the transition deal is needed as soon as possible.  Without certainty on the arrangements post March 2019, businesses like ours will have to take steps to ensure that we can continue to run our facilities effectively.   To protect our ‘Just-in-Time’ operations we would have to investment in warehousing to enable stocking of parts to accommodate any delay at the border.

26 October 2017