Brexit Vote: Why the 'Leave' Result Has Global Automakers Worried

Jaguar XK8
Jaguar introduced Austin Powers' latest secret weapon, the new Jaguar XK8, at the New York International Auto Show in 2002.Getty Images

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By Paul A. Eisenstein

The vote by citizens of the United Kingdom to leave the European Union is causing widespread worry in financial and business circles around the world. And among those fearing the impact are key global automakers like Toyota, General Motors and Britain’s own Jaguar Land Rover.

Calling it “the big unknown,” one industry official warned that automakers will have to give serious thought to future trade and investments, among other things. The possibility that the Brexit vote could trigger other movements away from the E.U. is adding to the worries, according to financial and political analysts.

“All hell will break loose,” said Joe Eberhardt, the CEO of Jaguar Land Rover’s North American operations. “First of all, it will have a short-term impact on the currency. My bigger concern is long term. Right away all the exporting companies in the U.K. will be facing tariffs because they are not part of the negotiated E.U. trade agreement. It would not be good for us.”

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The British maker warned ahead of the Brexit vote that it would likely see a one billion pound, or $1.47 billion drop in earnings by the end of the decade. There had been concerns about JLR expansion plans, though, following the vote the maker said the development would not impact plans for a new assembly plant in Slovakia.

Read More: U.K. Voters Back Brexit, Will Leave European Union

While some carmakers took a cautious and neutral stance ahead of the vote, both Toyota and Nissan warned that a move to exit the European Union could result in quite a bit of turmoil going forward. Both trade and labor deals will need be renegotiated and production plans could be shifted.

Japanese makers stepped in two decades ago as much of Britain’s auto industry — including such brands as the Rover Group — largely collapsed, and those foreign companies are now among the country’s biggest motor vehicle manufacturers. But analysts suggest brands like Toyota and Nissan could readily shift production abroad if economics work against the U.K. going forward.

Only a handful of Britain’s specialty manufacturers are still locally owned. Even such classic marques as JLR, Rolls-Royce and Bentley are foreign-owned, in order, by India’s Tata, and Germany’s BMW and Volkswagen.

Read More: David Cameron, Britain's Prime Minister, to Step Down After 'Brexit' Vote

“The immediate aftermath of the leave vote is set to see a sell-off of U.K. financial assets and a sharp depreciation in sterling,” wrote LMC in an analysis of the Brexit vote. “If a weaker currency persists, this might provide some support to U.K. exporters during the negotiation period, but uncertainty over the future of the U.K.’s relationship with the E.U. will weigh on business and consumer sentiment and depress U.K. growth.”

What happens in a post-E.U. Britain will continue to have an impact on the rest of Europe — and its auto industry, LMC concluded. Almost 90 percent of the cars sold in the U.K. are imported, 80 percent from the Continent. E.U. economic powerhouse Germany, the consultancy said, could see exports to Britain drop by 130,000 vehicles a year. Overall, LMC expects Britain’s car market to drop by 410,000 units in 2018 compared to an earlier forecast.

Read More: Brexit Vote Sends Pound to 31-Year-Low, Pummeling Markets

At a time when the European auto industry is just beginning to recover after a decade-long recession, that is creating deep concern.

Ford Motor Co., which has moved much of its once-huge British production base to the Continent over the last 20 years, said its primary goal is to “maintain a stable trading environment so that we can continue building a strong and sustainably profitable business in the U.K. and Europe.”

The U.S. maker said it will now take “whatever action is needed to ensure that our European business remains competitive.”

But with the vote tossing the long-established European order up into the air, what that will mean for Ford and the rest of the auto industry is entirely uncertain.