auto britain
The Aston Martin Vantage Roadster. Britain is at risk of being cut out of the technology of the future, setting the stage for long-term decline. The resulting job losses, easily in the tens of thousands, would be a harsh manifestation of the economic cost of Brexit. Image Credit: Supplied

Aston Martin, Austin-Healey, Jaguar, Lotus, Triumph, MG. Those are just a few of the legendary auto brands that have rolled out of British factories over the years.

The list of British-made cars that consistently earned money is a lot shorter. Now that Britain is firmly outside the European Union, it could be on the verge of dwindling even more.

The Brexit deal worked out with the European Union last month avoided cross-channel tariffs that would have been disastrous for auto manufacturing in Britain. But the pact will create more customs paperwork and slow down supply chains, while creating disincentives for global carmakers to continue investing in British factories as they begin retooling for electric vehicles.

A provision of the deal that takes effect in 2027 could lead to punishing tariffs on cars made in Britain with imported batteries.

At the same time, Brexit has intensified competition between Britain and its erstwhile partners for auto industry investment. The European Union no longer needs to take Britain's interests into account as it aggressively promotes a domestic battery industry. On Tuesday, officials in Brussels announced creation of a 2.9 billion euro ($3.5 billion) fund that will be used to support research into new battery technologies and help build battery factories. Some of the money is expected to go to Tesla, which is building a factory outside Berlin.

Britain is at risk of being cut out of the technology of the future, setting the stage for long-term decline. The resulting job losses, easily in the tens of thousands, would be a harsh manifestation of the economic cost of Brexit.

"The Brexit deal was better than expected but has a number of bear traps," said Andy Palmer, former chief executive of Aston Martin and now nonexecutive vice chairman of InoBat Auto, a battery startup.

If the British government doesn't take action to avoid those traps, in particular by promoting a domestic battery industry, Palmer said, "it's an existential risk to the British car economy."

Some auto executives are already questioning whether it makes sense to build cars in Britain once the current generation of models reaches the end of its life cycle over the next few years. The British government plans to ban the sale of new gasoline and diesel cars starting in 2030, a move praised by environmental groups but harshly criticized by the auto industry.

Carlos Tavares, chief executive of Stellantis, the new company formed from the merger of Fiat Chrysler and Peugeot, told reporters during a conference call last week that the ban would discourage the company from putting money into its British factories.

"If we are told that in 2030 internal combustion engines cannot be sold in the U.K., then we are not going to invest in internal combustion engines any more," Tavares said.

The alternative would be to make electric vehicles in Britain, but Tavares questioned whether the numbers added up.

"The biggest market is on the continental Europe side," he said. "Maybe it makes sense to build on the continent."

Tavares stressed that no decision had been made about Stellantis's operations in Britain. But his comments bode ill for a Stellantis factory in Ellesmere Port, near Liverpool, that builds mid-size Opel and Vauxhall brand models and employs about 1,000 people.

Britain currently has a piece of the electric car market, the fastest-growing segment in Europe. Nissan builds its compact Leaf electric car in Sunderland, in northern England, at a complex that also produces compact SUVs. Nissan said last week that its battery supplier, Envision AESC, would upgrade a plant in Sunderland to produce a more powerful battery for the Leaf.

"We are committed to Sunderland for the long term," Ashwani Gupta, the chief operating officer of Nissan, told the BBC.

That is a good sign for the 6,000 people who work for Nissan in Sunderland. But Nissan is planning to build its next-generation electric car, the Ariya, in Japan, and has not committed to building the battery-powered SUV in Sunderland.

"Therein lies a flashing yellow light," Palmer said. "If they're not tooling up the next-generation EV in Sunderland, and everything is going electric, that's a concern."

Britain was once one of the world's leading auto producers, its glamour epitomized by Rolls-Royce, Bentley and James Bond's weaponized Aston Martin. But auto production peaked in 1972 and has been pretty much downhill since. Brands like Rover, Austin-Healey or Sunbeam, widely admired but only intermittently profitable, disappeared. MG, once known for two-seat sports cars, belongs to SAIC, a Chinese automaker that uses the brand name for a line of SUVs.

Almost all the surviving British car factories are owned by foreign companies with global footprints, capable of moving production to where it is most efficient. Toyota, which builds Corollas in Derbyshire and employs 3,000 people, is another example.

Being able to export is crucial; 80% of the cars produced in Britain are sold abroad.

Brexit was another setback to British auto output. Four years of uncertainty about the terms of Britain's divorce from the European Union, amid a global slump in car sales, discouraged automakers from modernizing their British factories or retooling for next generation models.

British car production fell 14% in 2019 from the previous year, a bigger plunge than any other major auto-producing country except Iran. Britain ended the year in 16th place among automaking nations after the Czech Republic, producing 1.4 million cars and light trucks, according to the International Organization of Motor Vehicle Manufacturers. And that was before the pandemic caused car sales to plummet worldwide.

The country's auto output will drop further in July when Honda closes a factory in Swindon that produces Civics, the Japanese company's only automobile plant in Europe. Honda's poor sales in Europe were the main cause for the shutdown, which will put 3,500 people out of work, but Brexit probably played a role, analysts say.

Even if Britain is no longer a car manufacturing heavyweight, the industry remains an important part of the British economy, employing 168,000 people. Often the factories are in places, like Sunderland, that have few other large employers.

Most carmakers have been noncommittal about the plans for their British operations.

"We look forward to the continued success of our U.K.-based design, engineering and manufacturing operations, which have been serving the European market for more than 30 years," Nissan said in a statement.

BMW said it welcomed the Brexit deal but added in a statement: "A complete evaluation of the importance of the treaty can only be undertaken after publication of all the details."

For fans of British motoring, it's hard to be optimistic.

"We're left with just the old part of the industry, internal combustion engines," said Peter Wells, a professor of business at Cardiff University in Wales. "That's going to wither away eventually."