Automakers are worried about the implications of this sudden exit from the union

In a crazy turn of events, the U.K. has voted to leave the European Union, leading to a situation the world is calling “Brexit.” The implications of the decision to leave are already being felt. Prime Minister David Cameron, who was against leaving the Union, has reportedly announced his resignation, leaving his successor, who is unknown at this time, to lead the path of Britain as it leaves the EU. The big news, however, is how Brexit will affect the automotive market, which as you may or may not know, has grown dependent on the tariff-free importing and exporting that came along with Britain position in the EU.

To put it bluntly, all the trade agreements between manufacturers that build cars inside the U.K. and the other countries within the EU. have been thrown into chaos. For those of you who don’t know, a lot of manufacturers like Ford, Opel, Mini, Rolls-Royce, and even Nissan all build cars in the U.K., but are now concerned about the long term as it may become more expensive to import cars into the EU. from Britain. According to Automotive News, BMW, the brand that owns Mini and Rolls-Royce, has said that there will be a “period of uncertainty.” “We cannot say what this means for our U.K. operations until those future regulatory and legislative arrangements are agreed.”

Opel, who happens to be GM’s arm in Europe, claims that it is important that its U.K.-based Vauxhall division remains part of the Euro economic area. Ford has yet to say much, but it has three plants in the U.K. that build engines and transmission. It did say, however, that it will do what is necessary to remain competitive in Europe. That’s not all there is to say, though. The whole Brexit situation has already had huge impacts on the stock market, and the U.K.’s largest automaker by volume is already feeling a huge burn.

Continue reading for the full story.

What it Means for the Economy

2015 Vauxhall VXR8 GTS High Resolution Exterior
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The effects on some manufacturers were almost immediate. Investors just don’t know what to do about the uncertainty of trade between the U.K. and the rest of the EU. At this point, nobody knows the long-term implications, but take Tata Motors as an example. Tata Motors owns Jaguar Land Rover and saw its stocks plunge by 12 percent as a result of Brexit, the biggest fall the brand has seen since 2012. For what it’s worth, JLR is the U.K.’s largest automaker by volume and relies on Europe for nearly 20 percent of its global sales. Yikes. In the midst of the chaos, JLR has said via a spokeswomen, “Europe is a key strategic market for our business. We remain absolutely committed to our customers in the EU. “

According to Automotive News, Toyota warned its employees that the U.K.’s withdraw from the union could lead to as much as a 10-percent levy on cars built in Britain and shipped to anywhere inside the EU. As the record goes, Toyota produced nearly 200,000 cars in the U.K. last year – 75 percent of which went to the EU. Nissan, who also originates out of Japan, builds 475,000 cars a year in the U.K., most of which go straight into the EU. Honda, who produces 140,000 vehicles a year in the U.K., sends at least half of its production into the EU. Needless to say, a 10-percent levy on car’s imported could have a serious impact in one of two areas. Automakers will either have to suck it up and take a smaller profit from sales to cover the cost of importing, or the prices will increase in the showroom. The latter situation could lead to cars built within the EU falling lower on the pricing scale than those built in Britain and imported into the EU.

Evercore, an automotive research company, has predicted that U.K. car sales could fall as much as 4.5 percent this year, news that came just after a recent forecast of a 3-percent growth prior to the whole Brexit situation. Furthermore, the company’s Head of Research, Arndt Ellinghorst, claims that the U.K.’s exit from the EU could amount to a drop in automaker earnings by as much as $8.9 billion.

How Automakers Are Going to Handle the Shift

2016 Honda Civic Type R
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At this point, it isn’t really known how automakers will react in the long term. Of course, all brands will be watching closely as they will all have to change their strategy if it becomes more expensive to import cars from the U.K. And, for those of you thinking automakers could simply move production to a country within the EU, that won’t work either. Why not? Because that would lead to a dramatic loss of jobs and income for every automaker that is currently manufacturing in the U.K.

All of the Asian-based brands are looking to the future and proceeding cautiously, with one – according to Automotive News – saying, “We don’t have any choice but to be more cautious with our investment decisions, including moves like whether to produce a new or significantly redesigned vehicle model in the UK." But it’s not just brands like Nissan, Honda, and Toyota that are worried. The Germans now have a lot on their plate to worry about too.

You see, the U.K. is the largest import market for German automakers. In fact, half of the U.K.’s yearly new-car sales (half meaning about 1.3 million) are built by German-owned companies who have 100 production sites within Britain. Volkswagen is unsure how this will impact the Bentley brand while Daimler doesn’t expect any impact on the marker of Mercedes-Benz cars. Korean-based Hyundai has even said it is watching the market closely and will “respond accordingly,” but at this point, it is too early to know what that really means.

Conclusion

At this point, things are still in utter chaos as far as how this is really going to affect automakers, but preliminary reactions show that everybody is worried, at least to some extent. Aston Martin, the luxury sports-car brand from the U.K., has urged the powers that be in the Birtish government to push for tariff-free access to EU markets. Andy Palmer, Aston’s CEO, said the brand will now orientate its business in the context of “market volatility that may exist during the transition.” With any hope, these early concerns and stock fluctuations will level off, and things will proceed smoothly, but it is very possible that it could remain chaotic for some time to come. The EU is far from happy that the U.K. has voted to leave, and could even use the implementation of a tariff as a way to punish the U.K. for withdrawing. Of course, that’s just my speculation at this point, but things could really go a number of ways right now. As time goes on, and more details come to light, we’ll be sure to keep you updated, so stay tuned for future developments.

Source: Automotive News

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