Britain’s vote to leave the European Union will have a major impact on the country’s economy, with campaigners for exit claiming that the move will have a largely positive effect, helping businesses cut costs and avoid many unnecessary regulations imposed by the EU. However, those opposing “Brexit” – a portmanteau of the words Britain and exit – have been warning against possible long-lasting consequences to British companies if the country decides to leave the 28-nation bloc, including facing difficulties selling their products in the EU and around the globe.
The auto industry is one of the sectors that is expected to be affected significantly by the referendum result, which will take Britain out of the union that allows free trade and free movement of people between its members. With the United Kingdom on its way out of the EU, automakers with operations there, which includes several foreign companies, are expected to face various challenges that have to do with selling products outside the country and possibly with their supply chains, as well.
Export and Lots of Jobs at Risk
Britain is the largest automotive market in Europe, and car makers like General Motors, Ford, BMW,Toyota, and Nissan, among others, all have manufacturing plants in the United Kingdom, selling the vehicles they build there within the country and throughout Europe.
These are in addition to British automakers, themselves, which have also benefited a lot from the tariff-free export to the EU. A vast majority of the vehicles produced in the UK are exported to the European Union, primarily thanks to the tariff-free market. Now, Britain will have to negotiate trade deals with the EU, and it’s highly likely that automakers will have to pay tariffs when exporting their vehicles to EU member states.
The newly-imposed tariffs will have a huge impact on the companies’ bottom line, with the EU expected to charge up to 10% on each product imported from the UK. Faced with potentially huge declines in profits and decreasing sales, foreign automakers will certainly consider leaving operations in Britain and take their business elsewhere. This would have a negative impact on the nation’s economy, and it may well lead to the loss of hundreds of thousands of jobs.
According to some estimates, the British auto industry employs about 800,000 people, many of which would lose their jobs if manufacturers decide to stop their investments in the country.
Car Sales to Slow Down
Financial and automotive industry experts expect the Brexit referendum result to affect car sales in Britain, as well. This will be result of the declining value of the pound sterling, which is already happening as a direct reflection of the Brexit vote, combined with the fact that Britain will probably impose tariffs on imports from the EU, making new cars produced in Europe more expensive for British consumers.
According to an analysis conducted by Evercore Automotive Research, car sales in Britain could drop by 4.5 % this year, followed by a 10% decrease in 2017. Such a sharp drop will reduce automakers’ profits by nearly $9 billion combined, the research states.
All things considered, the immediate reaction following the vote to leave the EU among most auto industry observers is that British automakers, along with foreign manufacturers who have been investing there for a long time, are in for a period of uncertainty regarding their presence in the country.