Brexit is About To Destroy The British Auto Industry As We Know It...Or Is It?

Politics

Why supercharged Jaguars and burly Land Rovers may become rare in the US.

Unless you’ve been living under a rock lately, you’ve probably noticed that the word “Brexit” has become incredibly popular in recent days. Put simply, the phrase has been cleverly crafted to represent the UK’s decision to leave the EU. The European Union provided an internal tax-free market that made it easy for European countries to trade with each other. Now that the UK has opted for ejection, well, put simply, the shit storm is beginning to brew. In a single day the British pound fell to its lowest value in 30 years.

Even Prime Minister David Cameron has opted to leave his post following the vote. However, Brexit has many implications for the auto market as well and none of them seem to be good. The UK’s auto market is a fairly large one. Companies like Jaguar, Land Rover, Mini, Rolls-Royce, Bentley, and Aston Martin were all founded on the island nation but today, foreign companies own most of them. Bentley is a subsidiary to the very German (and very troubled) Volkswagen and Mini and Rolls-Royce's parent company, BMW, shares the same nationality. Jaguar and Land Rover have both been bought out by India’s Tata Motors. However, despite having home bases abroad these brands will all be impacted by the Brexit vote.

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No one knows just what this means for automakers now that the UK’s future import and export laws are up in the air. Thing is, even though many ex-British car companies are owned by companies based abroad they are still built in UK factories and by a British workforce. The EU provided a tax-free trading zone that allowed cars built in the UK to be exported to other countries within the EU without facing import and export taxes. Similarly, cars like Mercedes and BMWs that were imported to the UK from Germany (the UK is the most important export market for German cars) could be purchased by buyers in the UK without the added cost of steep import taxes.

Now that voters in the UK have approved the Brexit this will no longer be the case. To add to the mess, there are plenty of automakers from abroad that have manufacturing plants within the UK and build cars primarily for export. Just last year, auto factories in the UK churned out 1.6 million vehicles, 75% of which were exported to other countries, mainly within the EU. Automakers like Ford, Nissan, General Motors, Toyota, Honda, and more have factories within the UK and employ British citizens to build cars. Most of these companies have adopted a “let’s wait and see” policy before making brash decisions since the details of the UK’s exit have yet to be worked out. At this point, the only automaker to place layoffs on the table has been Ford.

It claims that it will take whatever action is necessary to best suit its profit-seeking interests. Of course, the possibility of a damaged auto market on both sides of the UK’s newly raised border has led to a lot of uncertainty, and if there’s one thing investors hate, it’s uncertainty. The result has been that stocks for many car companies have fallen almost as dramatically as the British pound has plummeted. Toyota, Volkswagen, FCA, Nissan, and Ford have all seen stocks fall by more than 5%. This is just the financial side of things, but what does Brexit mean for us gearheads who love all cool cars regardless of where they originated? For one, it may mean that projects from some of our favorite automakers are put on hold.

As previously mentioned, no one knows yet just how Brexit will affect each company, but if things take a turn for the worst we may see the brakes applied to Aston Martin’s crusade to put seven stunning new models on the road by 2023. JLR, which is currently reaping profits from a lineup that consumers find attractive again, has recently dropped a $1.67 billion investment on a new engine manufacturing plant in the UK. If Brexit results in the UK’s export market going to the trash, then we may not hear any of those eargasmic supercharged V8s on this side of the pond. On a more immediate basis, we can expect the price of exports from the UK to go up for buyers in the US and around the world.

The hit may even be felt for automakers that built cars outside of the EU and imported them into the UK. Currently, Ford is making a killing selling right-hand drive versions of the Mustang in the UK and this has, without a doubt, contributed to the car’s sales lead over the Porsche 911 and its main rival, the Chevrolet Camaro. If the UK’s import tax structure is reworked to raise import tariffs past previous levels put in place during the EU era, then Ford’s Flat Rock, Michigan, plant may see layoffs (hard may). Despite the fact that all of the news surrounding Brexit seems to be clouded in negativity, there may be a silver lining. After the dust settles following the withdrawal, markets will eventually adapt.

Once that happens, a second coming of the British auto industry could occur. As it becomes more profitable to build and sell British cars within the UK (or whatever kingdoms are left to unite after Brexit’s ripple effect is felt), the era of the quintessential British car may resurface. Suddenly Jaguar XFs will be cheaper for British buyers than a Mercedes E-Class, and this could balance the loss for Tata's brand. Of course, many such cars will not be available elsewhere because as any American who has lusted after the R34 Nissan Skyline knows, import and export laws can suck. For the time being, we, along with the automakers, will remain uncertain about the future. As with many things, the only way that the questions will be dispelled is with the passage of time.

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