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Brexit Will Hit British Auto Business Hard, In Short-Term

Brexit Will Hit British Auto Business Hard, In Short-Term.

After Two Years Though, Normality Would Return, Report Says.
Rhys Says Either Way, Industry Will Prosper.

“However the net effects after this short-term dip would be relatively benign”

    Britain’s automotive industry is likely to be hard hit if the referendum on June 23 votes to leave the European Union, but the impact is likely to peter out after a couple of years.

    That’s the view of BMI Research, which said in a report that airlines, agribusiness, homebuilders, and retailers would be also amongst the hardest hit.

     Not everyone sees doom and gloom for the automotive industry if the verdict is “Brexit”, the short-hand term for Britain deciding to leave the E.U.

    Garel Rhys, emeritus professor of Motor Industry Economics and director for Automotive Industry Research at the Cardiff Business School, says either way, the future of the British automotive industry looks healthy.

    “It might not all be sweetness and light, but even if the U.K. is outside the E.U. the powerful hitters in Europe will make sure car industry and car makers and finance will still operate (in Britain). It’s not in anybody’s interest not to do that,” Rhys said.

    Not long
    BMI Research said Brexit would be a problem, but it wouldn’t actually last for very long.

    “Brexit would lead to a worsening of their (the auto industry’s) sales and balance sheets for up to two years after the June referendum. However the net effects after this short-term dip would be relatively benign,” BMI Research said in a report.

    “Over the longer run, as the UK pound finds its footing and uncertainty over trade and investment arrangements with the E.U. is gradually resolved, we expect the net effects to be balanced,” BMI Research said.

    But short term damage to the supply chain could be inflicted if tariff barriers are erected between the E.U. and Britain. Amongst other negatives investment would be postponed over a two-year period, but on the plus side, if the value of sterling depreciated sharply, U.K. assets would become increasingly attractive to foreign investors.

    Weaker sterling
    Weaker sterling would also make exports more competitive, while any negative impact on exports from possible curbs on sales to Europe would be offset by greater access to growing markets outside the E.U.

    “Growth in sales to non-E.U. markets has consistently outstripped sales growth to E.U. states in recent years. In fact, the share of U.K. exports destined for the E.U. declined from 53.6 per cent to 42.5 per cent for goods and 73.9 per cent to 60.6 per cent for services between 2005 and 2015, respectively,” BMI Research said.

    Cardiff Business School’s Rhys said Britain’s automotive market is the second biggest in Europe behind Germany, and has a trade deficit of $26 billion, so if it decides to pull out of the E.U. the business is so valuable the current participants will be desperate to make sure it continues. This effectively means free trade will continue, he said.

    In 2015, E.U. auto production reached 16 million vehicles, with 1.6 million made in Britain. Annual sales in Britain were over 2 million. Britain exports 80% of its production, led by Toyota, Nissan and Honda, and imports 85% of its new cars, with BMW, Mercedes, Audi, VW, FCA , Renault and Peugeot to the fore. 

    According to Rhys, German owned companies and German based production accounts for nearly 40% of the British market, more than twice the share of British factories themselves.

    “The British car market is more important in numbers to the German economy that it is to the British,” Rhys said in an interview.

    Thin case for disaster
    Rhys says the automakers case for declaring possible disaster is pretty thin.

    “This is based on fear of uncertainty, trying to reduce the unknown. But if they did a proper risk assessment, the case for going out is not much different from staying in,” Rhys said.

    This doesn’t square with the opinion of many political and corporate leaders who suggesting that if Britons vote to leave the E.U., chaos will follow.

    BMI Research said after big short-term difficulties following Brexit, British auto industry might well prosper long term. 

    Because non-E.U. markets are growing more quickly than E.U. ones, this would help Britain in places like China, where, assuming Britain’s market share for goods and services remains steady “we would expect China’s share of U.K. exports to surpass that of France and almost catch up with Germany’s (by 2025),” BMI Research said.

    “Measurably negative”
    Brexit would have a “measurably negative” short-term impact on British demand for components and finished vehicles imported from the E.U., but over more than two years, the positive and negative impacts on the E.U would be more balanced.


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