Brexit & the auto industry: brace yourselves

June 27, 2016

Last week, voters across the United Kingdom trudged to the polls to determine whether the UK should remain a part of the European Union or go it alone. When the ballots were counted, 52 percent had opted for independence.

After a brief, shocked pause, panic ensued.

Financial markets collapsed. Politicians began shifting blame. Scotland and Northern Ireland began planning their own separations from England. Even pro-"Brexit" officials began backing away from their promises of a new, allegedly glorious Britain, awash in money and free of immigrants.

All of that is best discussed elsewhere. What really matters here is: how will Britain's departure from the EU affect the auto industry? Here are a few of the big points to consider:

1. UK automakers could face big losses. Roughly 1.5 million vehicles are made in the UK each year, and 80 percent are exported, with most going to Europe. Those vehicles could be slapped with a 10 percent tariff, reducing interest from consumers and slashing profits for automakers. Jaguar Land Rover, for example, could see annual profits tumble by 1 billion pounds (currently, $1.3 billion, but stay tuned).

2. GM and Ford stand to lose, too. Since their European sales are tied to the pound, devaluation of the pound could cut into annual profits. For every 1-percent drop in the pound, GM could lose $25 million, with Ford losing $48 million.

3. European brands won't have an easy go of it, either. Depending on how negotiations between the UK and EU pan out during the divorce proceedings, Euro brands like Volkswagen, BMW, and Mercedes-Benz could see tariffs levied on their own vehicles once they cross the English Channel. Because the UK is Europe's second-largest auto market after Germany, that could take a big bite out of profits.

4. The UK auto market will shrink, at least in the near term. Due to the uncertainty that Brexit has caused, UK car sales are expected to fall 120,000 this year and 400,000 in 2017 and again in 2018. For a market that moves between 2 million and 3 million vehicles per year, that's a substantial reduction.

5. British automakers could be forced to up their efficiency game. Most car companies that sell vehicles in the EU are being held to stricter emissions standards starting in 2021. The UK negotiated a break for its automakers, but after the UK's withdrawal from the EU, that agreement could be in danger.

And that's probably just the tip of the proverbial iceberg. More issues are certain to emerge as the UK begins the long, complicated process of leaving the EU. Things are likely to get much worse before they get better.

Frankly, the situation is so bad, some are wondering if the new UK government that takes over in October will ever start the process of separating from the EU. More than a few Brits who voted to leave have wished they could borrow their beloved Dr. Who's TARDIS and change their vote.

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