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U.K. Auto Unaffected By Brexit; Long-Term Impact Doubted

U.K. Auto Unaffected By Brexit; Long-Term Impact Doubted.

“Britain is also six per cent more efficient than Germany, and now has the added advantage of the sharply lower value of sterling”

Britain’s car sales are still keeping healthy, while foreign manufacturers line-up to say they will stay despite Brexit, and one leading expert says membership of the European Union (E.U.) was never going to make much difference either way.

Latest sales data for October shows car sales in Britain rose 1.4 per cent compared with the same period last year to just over 180,000. That is in contrast with mainland Europe where sales fell one per cent, with Germany down 5.6 per cent, and France in negative territory too.

“The U.K. market has, so far, not shown major after-effects from the June Brexit vote,” said LMC Automotive analyst Jonathon Poskitt.

According to Britain’s Society of Motor Manufacturers and Traders October’s sales data would have been the first to provide the solid evidence of any Brexit impact, given the probable at least 3 month time lag for orders.

Meanwhile Toyota and Honda, which both have huge factories in Britain, said they had no plans to leave, after Britain’s most important manufacturer Nissan said it would stay and increase production, after being guaranteed the government would ensure tariff-free trade with the E.U. continued after Brexit.

Timetable maintained
The British government has said it will officially start negotiations to leave the E.U. by next March, but that time-line has been clouded by legal action. Despite this, the government said it maintains its timetable.

Garel Rhys, emeritus professor of Motor Industry Economics and director for Automotive Industry Research at the Cardiff Business School, said he always thought Brexit for Britain’s motor industry wouldn’t actually make much difference, although he conceded that a decision by Nissan to move would have been disastrous for the north-east region where its factory is situated.

Rhys said he always expected Nissan to stay, although the fact that the French government had influence over its management was a cause for concern. Renault of France owns 43.4 per cent of Nissan, and the French government owns 15 per cent of Renault. France has made some unfriendly noises about Britain since the Brexit vote, and makes no secret of the fact that it would like more Nissan activity in France.

Many experts believe Britain will eventually negotiate a free trade deal with the E.U., but Rhys said even if this was not possible, the fact that Britain’s car makers are much more efficient than Europeans would mean that the addition of tariffs would be easily handled, even if it was the worst case scenario of 9.7 per cent from World Trade Organisation rules. 

“We have the most efficient plants in Europe. British productivity is 25 per cent better than France or Italy and 40 per cent better than Poland,” Rhys said.

Migrated east
Many new car plants have migrated to eastern European countries like Czech, Slovakia, Poland and Hungary from Belgium, France and Germany.   

“Britain is also six per cent more efficient than Germany, and now has the added advantage of the sharply lower value of sterling,” he said.

Since Brexit, Britain’s currency has plunged close to 20 per cent against the dollar and other important currencies. This means the price of British exports are cheaper and imports more expensive.

“Free trade would be good, but when you cut away all the blather, the industry is so efficient, it doesn’t really matter,” Rhys said.

He said U.S. car makers manage to sell into Europe with its effective 9.7 per cent tariff, and had this observation.

“If Europe is this fantastic power house of efficiency, why does it need to hide behind a tariff barrier of 9.7 per cent?”

“Given that the Japanese have now committed I can’t see any other manufacturers wanting to go,” he said.

BMW makes Minis in Britain and was most vociferous before the Brexit vote in saying if the country left the European Union there could be dire consequences. Last week it said it won’t make any decision about staying in Britain until the conclusion of Brexit talks. The talks are expected to take about 2 years.

Least anchored
“(GM’s) Vauxhall plant (in England) is its most efficient in Europe. There’s McLaren, bus makers, motor racing too, and I’m even pretty hopeful for the components sector. Leyland DAF (trucks) are the least anchored, but generally economics are good and profits enormous. I’ve no reason to change my pre-Brexit view that leaving wouldn’t make much difference.”

“Where the motor industry is concerned it will be almost business as usual. The British government won’t be spending as much money and subsidy to keep industry here as some people are saying, and the tariff issue is not as important as people make it out to be,” Rhys said.

Investment bank Morgan Stanley has said the European auto market is very exposed to the U.K. consumer, which represents 20 per cent of Western European demand. It reckoned a month ago that a slowdown in the U.K. market was a key risk for 2017.

“We forecast an eight per cent decline (in U.K. sales in 2017) which impacts also on Western European growth forecasts,” Morgan Stanley said.

Ford Motor has said Brexit is a significant market risk and it is a question of “when” not “if” sales fall from today’s levels.

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