Honda UK Warns of Huge Costs From a ‘Hard Brexit’

Without a trade deal, EU exit could cost auto manufacturers immensely with both customs delays and export tariffs, Honda tells British Parliament.

Representatives of Honda Manufacturing UK warned British Parliament on November 14 of looming consequences if the country makes a hard exit from the European Union.

Honda told the gathered ministers of parliament (MP) that the company’s Swindon production facility requires a large flow of parts from continental Europe. With the capacity to produce up to 250,000 cars annually, Honda cannot maintain a large depot of parts. However, potential changes to customs laws in 2019 after the EU exit —or “Brexit” — could affect the necessary supply flow.

Typically, Swindon keeps on hand only a few hours’ worth of parts for production. New custom laws may result in importing delays from European parts builders. That could mean costly delays on the production line.

Honda estimated that every 15 minutes of delays would cost the company £850,000 a year. They went on to estimate that delays under the customs rules could amount to 90 hours per day.

Honda indicated on-site warehousing could be added. However, that would require 18 months and substantial costs. At the moment, the Swindon plant builds five-door Honda Civic hatchbacks. More than 33 percent of those cars sell in continental Europe, which would be affected by customs changes.

In addition to costly delays, tariffs may add to the cost of exported cars to Europe. Reuters reported that Honda said a 10 percent export tariff on those cars and a 4.5 percent import tariff on auto parts would render their business model untenable.

At the moment, the British government has some time to negotiate a new trade deal with European Union members. However, they must strike a deal before March 29. If not, a “hard Brexit” would remove all trading agreements. For automakers in the UK, that means the aforementioned tariffs and customs delays.

Expansion Plans

Shortly after the Brexit vote in 2016, Honda announced they would follow through with UK expansion plans despite the separation from the EU. At the time, Honda had begun investing £200 million in the Swindon factory with plans to export the car to the United States and Japan.

[Photos: Honda Manufacturing UK]