‘Catastrophic’ Brexit scenario looms larger

Detroit, Michigan – The UK’s auto industry has shifted its tone from quiet resignation to angry bellowing as the government once again failed to gain a consensus within parliament on its future relationship with the EU.

Automakers such as Jaguar Land Rover, Nissan and BMW have long opposed Brexit because it isolates the UK from its biggest trading partner but held out hope that a negotiated settlement would keep in place many of the benefits of the current trading partnership.

However, after parliament voted down prime minister Theresa May’s deal for an orderly separation last week, automakers are now bracing for their most feared outcome: leaving the EU on 29 March with no deal at all.

“I’ve done what any sane person would do: I’ve assumed the worst,” Aston Martin CEO Andy Palmer said at the Automotive News World Congress in Detroit held 15-17 Jan. “I’ve assumed that we’ll crash out of Europe.”

A departure without a deal means that all agreements the UK has with the EU are torn up, and the trading relationship reverts to basic, World Trade Organisation rules.

That means tariffs, border customs checks to ensure regulatory compliance and no transition period to ease in the changes.

It would inevitably cause queues at ports and serious damage to the delicate supply chain painstakingly built up over the years to ship parts daily to and from continental Europe.

“ ’No deal’ would be catastrophic for the automotive industry,” said Mike Hawes, head of the UK’s automotive lobby group, the SMMT. As with most lobbyists, their harshest words were usually saved for closed-door briefings. Not anymore.

Automakers are in advanced stages of planning to counter the disruption to parts supply after 29 March in a no-deal outcome. Honda is shutting down its UK plant for six days in April, while BMW is bringing forward its summer shutdown at its Mini plant. Aston Martin and Bentley have rerouted parts to avoid the key Dover access port, including in Aston’s case using planes.

“Fortunately, our business is small enough that we can contemplate flying parts from Europe,” Palmer said at the forum in Detroit, just as news of the no vote in London was flashing on attendees’ phone screens.

” We have a 12-week planning window for our production, so we order the parts 12 weeks ahead of the car being built. Obviously, that period of time now spans the 29 March and so it’s no longer academic for us. … It’s real.”

At Bentley, CEO Adrian Hallmark said the company had two scenarios to run production in April if there is ano-deal. “Either closing down for one day per week for five weeks, or closing down for a week.”

Ford has made its own no-deal preparations for its two engine plants. But the company still believes the UK will either strike a favourable deal with the EU or cancel Brexit altogether, possibly following a second referendum.

“Ford continues to view a no-deal exit as the least likely outcome given how damaging it will be,” CFO Bob Shanks told the Deutsche Bank conference in Detroit last week. “Such a situation would be catastrophic for the UK industry and for Ford’s operations in the country.”

As with JLR, Ford’s problems in Europe go way beyond Brexit, and both companies announced cost cuts this month involving significant job losses in the UK. Ford’s recovery strategy does not include shutting its UK plants, but that could change in a no-deal situation.

“Nothing would be off the table in a hard Brexit,” Ford of Europe CEO Steve Armstrong said.