Will Brexit break England’s car business?

Britain’s awkward relationship with the rest of Europe has always been much more distant than the 21 miles of sea that separate England and France. Proof came in a referendum in June 2016, when the UK voted by a narrow margin to leave the European Union (EU), the sizable political and economic bloc that offers frictionless movement of people, goods, and money among its member states. The divorce is due to be formalized on March 29, 2019. At the moment, both sides are still arguing strongly over the silverware and who will get custody of what.

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With discussions bogged down on various issues, the chance of a no-deal exit—resulting in no official trade terms set between EU countries and Britain going forward—remains a possibility. For the big auto manufacturers, this is a major headache. The UK made 1.7 million cars in 2017, with half of those exported to the EU. In the event of a no-deal exit, cars will face sizable tariffs when crossing the Channel, and makers will have to pay out on the parts coming in from Europe. In fall 2017, Ford of Britain boss Andy Barratt said the tanking of the British pound’s value since the Brexit vote has already cost the company nearly £700 million, or $920 million at current exchange rates. But a no-deal exit could create more prosaic problems, such as where to store thousands of cars before they go to dealers. Now they come directly from Ford’s logistics hub in Belgium. In the event of a no-deal exit, Barratt admits the company would be looking for several acres of parking.

Jaguar Land Rover (JLR) has more to lose and is more concerned. The two brands are owned by India’s Tata Group but, until very recently, made all their cars in the UK. Sales have been sliding, with the company publicly blaming Brexit uncertainty as one of the factors. Even though JLR is opening a new plant in the Slovak Republic, which will remain inside the EU, most of JLR’s production will have to stay in Britain. With demand already falling for the diesel engines JLR fits to most of its European exports, and its gasoline models struggling to match the standard of rivals, the company is facing a bleak short-term future if politicians don’t thrash out a deal.

At the other end of the scale, Britain’s boutique automakers seem practically unconcerned at the moment. For luxury players like Bentley, Rolls-Royce, and Aston Martin, the latter flush with cash after its recent IPO, the downturn in the Chinese market is more of a worry than local difficulties in Europe. These brands don’t sell that many cars in Europe, and even if there is an increase in bureaucracy and cost, that’s unlikely to be a deal breaker for their affluent clientele. McLaren boss Mike Flewitt, himself a former Ford executive, says his company is more anxious about seamless parts supply and the ability to recruit engineering talent from EU countries than the possibility of tariffs.

Morgan, which is still hand-building cars using techniques that would have seemed old-fashioned 50 years ago, cheerfully admits it doesn’t expect Brexit to have any significant effect on its business at all, despite Germany’s being one of its biggest markets. Clearly, you can afford to be more blasé with a two-year order backlog.

Brexit isn’t merely a British problem. The UK buys many more cars built in the EU than it ships the other way, and senior executives at the German automakers sound just as worried when speaking privately about the risks of a no-deal exit come next spring. That still seems unlikely to happen. The general belief on both sides of the Channel is that something will be worked out and put through the necessary legislatures in time. If so, Britain and the Continent will remain engaged. But as the deadline approaches, thoughts are increasingly turning to the alternative.

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