The Brexit Point: Automakers Ponder Britain’s Decision to Leave the EU

Automakers are digesting the momentous decision by British voters that the United Kingdom should leave the European Union. The result of the referendum held on June 23 means the U.K. government is now committed to withdrawing the country from the EU, and while that complex process will take a minimum of two years to complete, automakers are already thinking about the long-term future of their manufacturing operations in the country.

Seven major automakers—VW Group, Toyota, GM, Ford, Nissan, Honda, and BMW—have design, engineering, or manufacturing plants in the U.K. According to figures released by the U.K. automotive industry body, the Society of Motor Manufacturers and Traders, total production of British-made vehicles last year reached almost 1.6 million units, a 10-year high and a 3.9 percent increase on 2014. More than 77 percent of those vehicles were exported, with 57 percent exported to the EU.

The dilemma for Britain’s mostly foreign-owned auto industry is that once the U.K. leaves the EU, British-made vehicles will no longer be guaranteed tariff-free access to the European Union’s single market. Counting the 27 remaining EU member nations, that market totals more than 400 million consumers. After Brexit, a separate trade deal will have to be negotiated to allow British-made vehicles to be sold in the EU without attracting a 10 percent import duty.

The other concern for automakers is the impact of Brexit on the British pound, which tumbled to a 31-year low against the U.S. dollar on news of the referendum result. A weak pound might help British exports but will negatively impact the cost of cars imported into the U.K. In 2015 automakers enjoyed their best ever year in Britain, with 2.6 million new cars sold. Approximately 86 percent of those, however, were imports.

Leave campaigners said during the bitter referendum campaign that German and French automakers would help press for tariff-free trade in automobiles because the U.K. is such a large and profitable market for them, a claim that appears to have the backing of some German auto industry unions.

But the reaction of some shell-shocked senior members of the EU government suggests the U.K. will not be given any special favors, in part because they do not want to encourage other Eurosceptic nations to also vote on leaving the EU. “Out is out,” declared Donald Tusk, president of the European Council. Other EU leaders have said they now want the U.K. to leave the union “as soon as possible, however painful the process may be,” and that there will be “no renegotiation.”

While official reaction from automakers with plants in the U.K. has been carefully nuanced, it’s clear they are very worried by the economic uncertainty generated by Brexit.

BMW Group, which builds Mini and Rolls-Royce cars in Britain, says it respects the British electorate’s decision to leave the EU and that while there will be a period of uncertainty, “there will be no immediate change to our operations in the UK.” The company points out, however, that many of the relevant conditions for supplying the European market will have to be renegotiated, adding “we cannot say what this means for our UK operations until those future regulatory and legislative arrangements are agreed.”

Aston Martin Lagonda, which is owned by a consortium of private equity investors, said in a statement it acknowledged the decision and the rule of democracy and would now orientate its business in the context of the exit and the market and forex volatility that may exist during the period of transition. “It is important that Government must now maintain economic stability and secure a deal with the EU which safeguards UK automotive interests,” a company spokesperson said. “This includes securing tariff-free access to European and other global markets.”

Shares of Jaguar Land Rover, owned by India’s Tata Motors, plunged 12 percent in the aftermath of the Brexit result. In internal documents, the company had earlier warned that Brexit could by 2020 negatively impact the company’s pre-tax profits by $1.5 billion. Lower profits will mean less money to invest in new models. Meanwhile, decisions on the purchase of the Silverstone race track—slated to be redeveloped to include Jaguar Land Rover drive experiences—and on the whether to expand a new factory to be built in Slovakia have been put on hold.

In the aftermath of the Brexit vote, Jaguar Land Rover is claiming it’s business as usual. “We are a British business with a strong manufacturing base in this 
country,” the company said in a statement. “We call Britain home, and we remain committed to all our manufacturing sites and investment decisions.” However, JLR acknowledged Europe, which accounts for 20 percent of global sales, to be a key strategic market for the company and that it remained “absolutely committed to our 
customers in the EU.”

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