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Impact Of Brexit On Uk’s Automobile Industry Case Solution & Answer

Impact Of Brexit On Uk’s Automobile Industry Case Solution

Introduction

Brexit refers to the UK’s decision, in a referendum on June 23, 2016, of leaving the European Union. Brexit is a blend of “British” and “Exit”. Though decided to leave European Union in 2016, the Brexit took place on January 31,, 2020 (Kenton, 2020). Moreover, the European Union and UK entered into a provisional free trade agreement on 24th December 2020. The agreement ensured the free trade of goods without impositions like tariffs or quotas. But, the future relationship between UK and European Union remains, as the trade in services, which contributes to 80% of the UK’s economy, remain uncertain in future.

The decision to leave European Union was put in referendum, with 51.9% voting in favor of the exit and 48.1% against the Brexit. Recent studies have showed a negative consideration about the impacts of Brexit on the UK’ economy. It is because the Brexit is expected to give rise to different uncertainties related to the immigration policies, foreign investment, trading in services, negotiation processes etc.

The trade of goods and services represents a very significant matter between the UK’s economy and the European Union. In 2015, the UK’s exports to European Union remained at 306 billion euros and imports stood at 184 billion euros i.e. the UK’s economy benefited with a trade surplus in the goods only. If represented in the percentage form, the UK’s to the European Union market comprised of the 2.7% of the Gross Domestic Product and the imports comprised of 2.5% of the GDP. The largest trade partner for the UK’ economy has been the European Union.

Impact of Brexit on the UK’s Economy

According to (Cavalier Bruno, 2016), the UK’s position after Brexit remains unclear. The Brexit is expected to have negative impacts for both the European Union and the UK’s economy. The Brexit is considered to be negative significantly for the real GDP growth of United Kingdom on a short term basis. It is expected the Brexit may lead the UK’s economy towards short-term problems including budget shortfalls, survival of businesses, legal obligations and the long term impact of European Union’s realignment policy after the Brexit.

UK’s Automobile Industry

United Kingdom has been a gigantic manufacturer of automobiles since 10 years. The automobile sector is the main driving force behind the United Kingdom’s economy. It produces more than 8 million out of which 80% are exported (Antervedi, 2018). It generated a sales turnover of 55 billion pounds, with a largest value generated from the exports. The key player in the UIK’s automobile industry include Honda, Jaguar, BMW, Ford, Alexander Davis etc.

(Ran, 2017), revealed that in 2016, the total turnover of the automobile industry was 5.9 billion pound, out of which the majority exports (i.e. 56%) went to the European Union (See Appendix 1). The UK’s automobile industry has been performing well due to its increased turnovers and total value added by the exports towards the Gross Domestic Product. The success of the UK’s automobile industry is based on different factors including large Research & Development investment (i.e. about 2.5 billion), high engineering excellence and quality production. Moreover, the UK’s economy has enjoyed favorable economic conditions due to trade between the two agents. It is because before the Brexit, the economy has enjoyed free trade with all the European Countries. The country was able to trade freely without tariff and non-tariff cost barriers and it got access to the acquisition of talent from the European Union.

Impact of Brexit on the UK’s Automobile Industry

The impact of Brexit on the UK’s economy has been analyzed through internal and external analysis using the PESTEL and Porter’s five-force analysis, which are detailed asbestos

PESTEL Analysis

Political Environment

In order to control monopoly and price cartels created by different industry players, the UK’s government have placed restrictions on price fixing and cartels. Moreover, the government also controls the size of the automobile companies. Before Brexit, the UK’s economy enjoyed a favorable position as it was freely trading its goods and services with all the European Union Countries without tariff and non-tariff trade barriers. But after the Brexit, it is expected the economy has to face different tariff and non-tariff trade barriers over the trade of automobiles, which contributes a significant portion towards the gross domestic product of the country.

Economic

The UK’s economy has been benefiting from the foreign direct investment, access to talent and imports of individual spare parts, from the free trade access with the European Union Countries. The inflation is also expected to increase in the future, across the whole world. After the Brexit, the country is expected to bear the tariff and non-tariff trade barriers, which could affect the economic well-being. First due to Brexit, the UK will not be able to exports its automobiles without paying tariffs. Secondly, the manufacturers’ imports for the automobile spare parts would be of a greater cost, due to imposition tariff barriers………………….

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