Brexit Vote Results Worries Global Automakers

Results could plunge EU auto industry back into recession.

by on Jun.24, 2016

Rue Brittania? The vote to exit the European Union could have a major impact on automakers.

(This story has been updated regarding Jaguar Land Rover plans for a new plant in Slovakia.)

The much anticipated vote on Brexit, which will now lead to Great Britain’s departure from the European Union, is causing widespread worry in financial and business circles around the world. And among those fearing the impact are key global automakers like Toyota, General Motors and Britain’s own Jaguar Land Rover.

Calling it “the big unknown,” one industry official warned that automakers will have to give serious thought to future trade and investments, among other things. The possibility that the Brexit vote could trigger other independence movements is adding to the worries, according to financial and political analysts.

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“All hell will break loose,” said Joe Eberhardt, the CEO of Jaguar Land Rover’s North American operations. “First of all it will have a short-term impact on the currency. My bigger concern is long term. Right away all the exporting companies in the UK will be facing tariffs because they are not part of the negotiated EU trade agreement. It would not be good for us.”

The British maker warned ahead of the Brexit vote that it would likely see a one billion pound, or $1.47 billion drop in earnings by the end of the decade. There had been concerns about JLR expansion plans, though, following the vote the maker said the development would not impact plans for a new assembly plant in Slovakia.

"All hell will break loose," says Joe Eberhardt, CEO of Jaguar Land Rover North America.

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While some carmakers took a cautious and neutral stance ahead of the vote, both Toyota and Nissan warned a move to exit the European Union could result in quite a bit of turmoil going forward. Both trade and labor deals will need be renegotiated and production plans could be shifted.

Japanese makers stepped in two decades ago as much of Britain’s auto industry – including such brands as the Rover Group – largely collapsed, and are now among the country’s biggest motor vehicle manufacturers. But analysts suggest brands like Toyota and Nissan could readily shift production abroad if economics work against the U.K. going forward.

Only a handful of Britain’s specialty manufacturers, like Morgan are still locally owned. Even such classic marques as JLR, Rolls-Royce and Bentley are foreign-owned, in order, by India’s Tata, and Germany’s BMW and Volkswagen.

“The immediate aftermath of the leave vote is set to see a sell-off of UK financial assets and a sharp depreciation in sterling,” wrote LMC in an analysis of the Brexit vote. “If a weaker currency persists, this might provide some support to UK exporters during the negotiation period, but uncertainty over the future of the UK’s relationship with the EU will weigh on business and consumer sentiment and depress UK growth.”

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What happens in a newly independent Britain will continue to have an impact on the rest of Europe – and its auto industry, LMC concluded. Almost 90% of the cars sold in the UK are imported, 80% from the Continent. EU economic powerhouse Germany, the consultancy said, could see exports to Britain drop by 130,000 vehicles a year. Overall, LMC expects Britain’s car market to drop by 410,000 units in 2018 compared to an earlier forecast.

At a time when the European auto industry is just beginning to recover after a decade-long recession, that is creating deep concern.

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Ford Motor Co., which moved much of its once-huge British production base to the Continent over the last 20 years, said its primary goal is to “maintain a stable trading environment so that we can continue building a strong and sustainably profitable business in the UK and Europe.” The U.S. maker said it will now take “whatever action is needed to ensure that our European business remains competitive.”

But with the vote tossing the long-established European order up into the air, what that will take for Ford and the rest of the auto industry is entirely uncertain.

(This story first appeared on .)

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