Life After Brexit: What Happens Now?

Britain says it doesn’t want to be part of the European Union anymore. Voters in the so-called Brexit referendum yesterday voted to say tootle-oo to the EU. What does that mean for the British automotive industry? Actually, there is no British automotive industry any more. All the major brands that used to define the English motorcar business are now owned by foreign companies.

Volkswagen owns Bentley. BMW owns Rolls Royce and MINI. Jaguar and Land Rover are owned by Tata Motors of India. The company that makes those iconic black taxis roaming the streets of London is Chinese. An investment firm from Kuwait is a major investor in Aston Martin. Even MG, the company that started the sports car revolution in the United States after World War II, is now under Chinese ownership.

Part of the reason for the Common Market idea that grew into the European Union was a desire to promote trade between the countries of Europe by eliminating import tariffs. What happens now is anyone’s guess, but the stock markets are not looking kindly on the future. The Dow is down over 500 points as I write this.

Many Asian car makers have built factories in England specifically for export. More than two thirds of the cars built by Nissan, Toyota, and Honda in England are exported to European countries. England is Germany’s largest trading partner. More than half of the new cars sold in England every year are made there.

With uncertainty now the dominant mood of the day, “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,” said one Asian automaker executive with manufacturing capacity in Britain, speaking on condition of anonymity.

Automakers are calling for tariff-free trade to be maintained between Britain and the EU.  But European nations may not be inclined to allow British-made goods to enter their markets duty free after England has given them all the proverbial finger. If you want out, that means you’re out, doesn’t it?  If you take your ball and go home, can you really expect the other kids to play with you?

Daimler CEO Dieter Zetsche said he did not expect any impact the fortunes of Mercedes Benz. But he said in an e-mail, “This is not a good day for Europe and in my view, certainly not for the UK. Geographically, the country may be an island; politically and economically, it is not. It is now even more essential that Europe does not continue to drift further apart.”

England may have cut off its nose to spite its face, as my old Irish grandmother was fond of saying. Industry analyst Evercore now expects the British car industry to suffer a 7% contraction compared to the 3% growth it had been forecasting previously. That 10% swing will deprive the UK of billions of dollars worth of economic activity, something that British voters are apparently quite comfortable with.

Much of England’s displeasure with the EU stems from years of  having regulations crafted in Brussels crammed down its throat. Similar concerns are a factor in political discord around the globe as people begin to finally realize that all the lovely free trade agreements they entered into over the past decades come with a loss of sovereignty over their own affairs. That is certainly a factor in the widespread opposition to the proposed Trans Pacific Partnership.

There is a feeling that those treaties may have done wonders for the income of CEOs but little for ordinary people.  In the US, real wages have not kept pace with inflation for the past 30 years while executive compensation has exploded. British voters have said enough is enough. But have they carefully thought out the consequences of their decision? Free trade agreements may have undesirable side effects, yet unwinding the economic and social ties between England and its neighbors is going to be a long and painful process.

Perhaps today the people of England would be wise to consider the words of the Zen master: “Be careful what you wish for. You just might get it.”

Source: Automotive News