The Brexit impact on worlds automobile industry

  • May 28, 2017

When the referendum asked British voters the question: “Should the United Kingdom remain a member of the European Union or not?” About 52% of the United Kingdom elected to leave the European Union, which is a political and economic union of 28 member states that are located primarily in Europe. As it was an unexpected development, the global financial markets plunged into turmoil; the European countries were the hardest hit. One could fathom the post- Brexit outcome and its impact on the world economy including the automobile industry.

Automakers at risk?

Brexit, a blend of the words ‘Britain’ and ‘exit’, is a term that was coined to explain the planned withdrawal of the United Kingdom from the European Union. Among the other social, economic and political consequences that this historic decision would have on the nations all over the world, one pertinent question is how will this move affect the automobile industry of the globe? Are the automakers actually at risk, or will they pass through this phase without any major casualty?

According to a Fitch report, the Brexit created an uncertainty that will weigh moderately on revenue and earnings in the coming years for several automobile manufacturers. Automakers at risk include Jaguar Land Rover, Bayerische Motoren Werke (BMW), Peugeot, Volkswagen, Ford, and General Motors (Vauxhall), as they generate 5-10% of unit sales and revenue in the United Kingdom and export substantial local production to the European Union. However, there will be no immediate change in their operations. Cars imported from Europe to the United Kingdom may become expensive due to the fluctuating euro-pound exchange rates and a depreciating currency.

Dealt with a soft blow

There is volatility, yes, but the automobile sector was dealt with a softer blow. However, the consumer confidence tumbled as “new car registrations fell for the second time in more than four years in June 2016,” according to the Fortune. After the dust had settled in the global markets, global car sales advanced, with Western Europe and China, leading the way. According to a Global Auto Report, “Global vehicle production is expected to move higher across most of the world in the second half of 2016, providing a welcome boost to industrial activity at a time when heightened economic and political uncertainty is dampening the overall economic growth.”

Trends in major markets

In Canada, the observed slowdown was concentrated in sedans; light trucks continued to power ahead. Despite the moderation, purchases remained on target. There was, however, a profound effect on Germany as it is a major car exporter to British consumers. Higher assemblies, leading to increased manufacturing activity, supported the staggering markets of Asia. In the United States, due to low-interest auto-financing, there were record auto sales, while in Japan, which is an exportdependent country, the operating profit of the automakers fell.

The analysts will undertake forecasts’ revision, as the renegotiation of trade pacts, investment treaties and legislative and regulatory arrangements transpire in a two-year window. Markets may continue to remain on edge as long as the element of ambiguity continues, thus squeezing financial conditions.

Will Africa be affected?

Certainly! And out of the 54 nations of the African continent, it is South Africa which will face the maximum burnout. Because the United Kingdom is one of the most important automobile trading collaboraters of the southernmost tip of the African continent. According to Jeff Osborne, the Head of Gumtree Automotive, “We don’t yet know the influence that Brexit will have on the motor industry.While auto stocks were battered when the news broke, this is likely due to investors exercising caution and opting to observe the market before making any rash decisions. The effect will be a marked decline in the short term.” He further explains that in a free trade zone, there are no tariffs between countries and that ‘a car manufactured in Britain, for example, can be sold in Germany without any necessary change in price. But without those agreements, a car made in Britain might have its sales taxed in Germany, which could potentially double the cost for the consumer.’

Since the likes of Mercedes-Benz, Volkswagen, BMW, Toyota and Ford exported a combined total of 48,669 passenger and light commercial vehicles to the United Kingdom in the last financial year, Britain remains a significant market for vehicle exports from South Africa. Osborne said, “Vehicle and component exports have been on the rise consistently over the last few years – in some instances by 50% – bolstered by the weak rand and the financial recovery from northern hemisphere markets. It is crucial that trade agreements with Britain are renegotiated to minimize economic impact.”

Noting that major African markets are increasingly moving away from South African imports, he added, “As countries such as Algeria’s policies on vehicle imports tighten and Nigeria focuses on its own budding manufacturing industry, South Africa is dependent on Europe, while Angola’s loss of oil revenue also cut government spending on imports significantly.” Thus, only time will tell what the gamble of the Brexit vote holds for the auto economy of Africa and the world.

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