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On Thursday, June 23, citizens of the United Kingdom were asked by referendum if they wanted the nation to stay a part of, or leave, the European Union. With a high turnout of around 72 per cent, and by a margin of 52 to 48 per cent, the UK voted to leave.

With the so-called ‘Brexit’ looming in the future, what does this mean for car makers either based in or operating manufacturing facilities in the UK?

Which car makers operate in the UK?

Car makers with production plants located in the UK include Aston Martin, BMW (Mini and Rolls-Royce), Ford, GM (Vauxhall), Honda, Jaguar Land Rover, Lotus, Nissan, McLaren, Morgan, PSA Group (Peugeot), Toyota and the Volkswagen Group (Bentley).

According to the industry body, the Society of Motor Manufacturers and Traders (SMMT), UK factories churned out 1,587,677 vehicles in 2015, a 10-year high. British car factories are highly dependent on exports, with 77.3 percent or 1,227,881 of last year’s output shipped overseas.

706,032 cars or 57.5 percent of all exported cars were sent off to Europe. In 2015, Britain also produced 2,368,477 engines, of which 64 percent were exported.

Last year, only 32,084 cars sold in Australia hailed from the UK. That equates to 2.8 percent of the 1,155,408 vehicles sold down under in 2015.

How are car makers going to be affected?

As with the entire Brexit process, no-one’s entirely certain how it’s going to all play out, as the UK is the first major country to declare its intention to leave the union.

In statements to the media, many car makers operating plants in the UK have stated that the result of the referendum will see no change in their current plans.

Some have confirmed however that their position may change if, as some economists predict, the uncertainty caused by the Brexit induces a recession in Britain that spreads to the Continent. This may force car makers to halt or scale back their investment plans in the country.

The SMMT, which, along with most car makers, actively advocated staying in the EU, stated: “The British public has chosen a new future out of Europe. Government must now maintain economic stability and secure a deal with the EU which safeguards UK automotive interests.

“This includes securing tariff-free access to European and other global markets, ensuring we can recruit talent from the EU and the rest of the world and making the UK the most competitive place in Europe for automotive investment.”

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What’s going to happen now?

At present, Britain is part of the EU’s common market. This allows for unrestricted tariff-free trade between all 28 member states, as well as Norway, Switzerland, Iceland and Liechtenstein. While the latter four countries aren’t members of the EU, they have all negotiated individual agreements with the EU.

The UK will now need to nut out new economic and social frameworks with the European Union, with Britain’s negotiators likely to use Norway as its template. It’s not known what stance the EU will take, with some commentators saying that it might take a hard line with Britain in order to deter other countries from leaving.

While Norway is able to keep its currency, it has to pay similar levels of membership dues as EU states, enact many pieces of EU legislation, and allow for the free movement of people between itself and the EU. All of this without having a say in how its money is spent or how EU legislation is crafted.

What are the best- and worst-case scenarios?

It’s hard to predict how this will all pan out, as the only precedent for quitting the EU is Greenland, which is an independent country of around 50,000 people within the Kingdom of Denmark.

Greenland left the European Economic Community, as it was then known, in 1985 in a dispute over fishing and hunting laws, while Denmark remained a member of the EEC.

It could very well be that the UK gains a Norway-style deal with unfettered access to the European market, in exchange for cash payments, the free movement of people, and the harmonisation of regulations.

While this would seem to undermine the idea behind leaving in the first place, it would mean the least disruption to car manufacturing and industry in general.

Getting to back to the current status quo, though, may take a long time, with some EU officials stating that negotiations may take up to seven years to complete.

With so much uncertainty over the final outcome, it could force some car makers and suppliers to cut back on investment, close plants, move factories to the mainland or, in the case of smaller firms, go bankrupt or be bought out.

In an armageddon-style scenario, the EU and UK engage in a tit-for-tat tariff war, and the economy goes pear-shaped, bringing the UK and Europe into prolonged economic recession.

Regardless of how the talks go, automotive standards are likely to remain harmonised between Britain and the EU in the immediate years after a Brexit. But, over time, these rules may begin to diverge, causing headaches for engineers and production staff.

What about Australia?

If you’re in the market for a new made-in-Britain vehicle, you might be in luck. The English pound has dropped since the country voted to leave and, depending on what happens in the coming months, it could remain depressed.

That’s good news for us here in Australia as it will make it cheaper for companies to import British cars. It’s unlikely, though, that these savings will passed on through significantly lower prices for UK-made cars.

As with falls in the yen and won, importers are likely to pass the benefit onto consumers through improved specification levels.

Don’t expect any changes in pricing or specifications to happen overnight. Importers typically buy their foreign currency in advance and will most likely wait for markets to settle down before making any adjustment to their local lineups.

Parallel imports

It is unclear at this stage exactly what impact Brexit would have on the parallel imports scheme proposed in February. But, like Brexit, it is also not know just how the parallel imports scheme will play out or – with a federal election now underway – whether it will even pass through to law at all.

On the surface, however, it would seem that any significant drop in the pound would improve the case for private imports from the UK.

Cost aside, the big issue for many industry figures remains the matter of safety and warranties.

For more on parallel imports and industry statements, see below.

Fuel prices

According to the NRMA, while much of Brexit’s impact is still to be determined, lower fuel prices could be one standout benefit for Australian motorists.

The organisation claims that a roughly US$5 fall in world oil prices, and USD$3 on Asian markets – even though likely only a temporary dip – should offer some relief at the bowser over the coming week.

“With the Australian Dollar remaining relatively stable, these factors should work in the favour of motorists here at home, with price relief of up to four cents per litre possible the next week to 10 days,” NRMA spokesperson Peter Khoury said this week.

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So when will the Brexit happen?

Not tomorrow, that’s for sure. Before anything concrete takes place, the British government needs to invoke Article 50 of the Lisbon Treaty, which formally begins the divorce process between the United Kingdom and the EU.

At that point, the EU and UK will engage diplomats and experts in a protracted set of negotiations regarding the treaties that will govern the relationship between the island nation and its continental neighbours.

On the second anniversary of the Article 50’s activation, the UK will officially leave the EU, regardless of the state of those negotiations.

Conservative Party leader and Prime Minister David Cameron has promised to resign from his post before his party’s annual conference in October. He has stated that the government won’t invoke Article 50 until he is gone, despite earlier promising to do so right after the referendum’s result is declared.

Boris Johnson, a prominent Brexit campaigner, former mayor of London and possibly the next British PM, has also walked back his earlier statements, and stated that the country is in “no great rush” to leave. That said, many EU officials are keen for proceedings to start sooner rather than later.

Can this be stopped?

There’s a small chance that Britain could remain in the EU as the referendum’s result is non-binding, and a solid majority of MPs are in favour of remaining within the EU. That said, going against the will of the people may not be in the political class’s long-term interests.

Other spanners might be thrown into the works, too. Scotland’s first minister, Nicola Sturgeon, has hinted that the country could negotiate with the EU for Scotland to remain within the union.

Alternatively, she has stated that Scotland could attempt to veto any Brexit moves, or call for a second referendum on independence from the UK.

Who voted for this, and why did they vote to leave?

Regionally speaking, Scotland, Northern Ireland, and large English cities, such as London, Liverpool, Manchester, and Newcastle, voted overwhelmingly in favour of staying. Wales, and the rural and industrial heart of England, including Birmingham, voted to leave.

In terms of demographics, a YouGov poll taken on referendum day indicates that those under 50-years-old voted to stay, while older people voted for a Brexit.

The Times of London, which supported the leave campaign, published data showing that high education areas voted to remain, while areas with lower education levels voted to leave.

The leave campaign was built on three main pillars: halting immigration via the EU’s edict on the free movement of citizens between member nations, removing “unnecessary” EU regulation on everything from pillows to condoms, and ending payments, claimed to be as high as 350 million pounds ($670 million) per day, from the UK government to the EU.

On the other side of the debate, the remain camp wheeled out economists and experts, as well as politicians old and new of all stripes, debunking most, if not all, of the leave campaign’s claims. They also warned that a successful Brexit vote would send the pound falling, and cause all manner of short to medium term damage to the UK’s economy.

TL;DR

In the short term, nothing changes. Uncertainty about the future may stall investment plans, but on the plus side, a sliding pound could make British car exports cheaper.

Looking further out, no-one’s really sure what’s going to happen, because no major country has left the EU before. Maybe, nothing much will change, but getting there might be a painful and drawn out affair.

 




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