What does Brexit mean for world’s auto industry?

Referenda are not always the best way to go about making certain decisions. Placing the onus of deciding society’s fate might not always be best left to society to decide itself, and that is why we have leaders.

The same way children cannot necessarily be consulted on grave family matters is the same way the hoi polloi is sometimes best left undisturbed on heavy issues, such as whether or not to have a new constitution, whether or not to abolish the death penalty, or whether or not to join or quit a powerful trading bloc.

Britain has decided to exit the European Union in a showy fashion, labelled “Brexit” (Britain’s Exit) in that annoying manner of compounding words, usually nouns, that gossip rags and tabloida tend to use whenever a scandal is at hand.

I’m not one to judge. Perhaps they know exactly what they are doing; but then again, perhaps they don’t.

Brexit is not a trifling matter: that one of the world’s leading military and economic powers chooses to say goodbye to one of the world’s most influential economic entities is a big deal, and one that is bound to have consequences.

That is why, much as the referendum result was along the lines of see-ya-later-alligator, it will still be a while, crocodile, before the matter is finalised. The far-reaching effects of this development, of course, touch on one aspect that is dear to us, and that is the motoring industry.

A LITTLE BACKGROUND

Here is a little background: depending on how you see it, the British auto industry is something of a comedy, drama, tragedy and soap opera all wrapped up in one noteworthy package.

Once supported by a strong home market that probably didn’t have much choice, England was home to the notorious British Leyland, employer of communist slackers and purveyor of motor vehicles that were nothing to write home about.

They didn’t need to be impressive, Britain’s isolated status, both geographically and economically, meant that those substandard cars would still find owners at the end of the day, and there was little in the way of competition from the world around.

The United States was as myopic and focused on home markets (and produced mediocre cars too) as England was, Japan’s rapidly developing manufacturing industry, along with their impossibly high standards, were safely maintained at arm’s length, and Germany was still too busy trying to shed its nasty Nazi image from the previous two world wars to care much about penetrating the UK car market.

JOINED EUROPEAN UNION

Then, in 1973, Britain joined the European Union and all hell broke loose. The communist slacker workforce, a strange breed of employees who took pride in subversion and unproductiveness, continued churning out terrible vehicles like the Morris Marina.

However, membership of the European Union meant a lot of trade tariffs and import taxes were done away with, meaning that foreign metal was now as cheap to buy in Britain as their own products were, if not cheaper.

And by foreign metal I mean the likes of insanely high-quality standards found at BMW and Volkswagen. Germany has always wanted to dominate the world, and if it can’t do it militarily, its cars will do it on the roads. Japan too, friendly with Europe, was free to run amok along the motorways of the UK. Thus began the decline of the British motor industry, a victim of its own politically skewed workforce.

It was difficult to keep up with the Japanese and the Germans. Sure, it could be done, but it would take money, money that either wasn’t there or wasn’t ready to be dished out. The result was that British cars, while full of “charm” and “character”, lagged behind the competition in terms of reliability and quality.

In an attempt to raise the necessary funding to improve quality, they were priced “non-competitively”, meaning they cost too much for what they were. This had the unintended effect of driving the motorised population deeper into the arms of what were once known as the Axis powers.

It should come as no surprise, then, that by the close of the 20th Century, the most iconic British car brands were no longer British. As we “speak”, the MINI, Rolls-Royce and Bentley are now German, bought out by BMW and Volkswagen.

Jaguar and Land Rover are Indian, currently serving as assets to the giant TATA conglomerate. Vauxhall is American, as it has always been for the longest time. Most of the other car makers either closed shop or sold themselves to other Germans.

With the collapse of the industry, the floodgates opened for the Japanese and the Germans. Toyota, Honda and Nissan all have dedicated manufacturing plants in the UK. Britain is the second biggest market for new BMWs after Germany itself.

Italian cars also find generous sales figures on what Jeremy Clarkson once tried to prove “is not a bankrupt rock in the North Atlantic”. The EU card was played deftly by both Europeans and non-Europeans alike in harnessing the widely available purchasing power parity of the British public, who had by this point been shaken from their communistic indolence by Margaret Thatcher in one way or the other, and were now a hardworking people.

 

Jeremy Clarkson: But, we decided to show Chrysler…

James May: …In a factual, not entertaining way…

Jeremy Clarkson: Absolutely…. that Britain is not a bankrupt rock in the North Atlantic, and we will not be pushed around by a two-bit car company

– BBC, Top Gear, Series 12, Episode 2

 

So now they say they’ve had it with the European Union and they want out. It is not immediately clear why. Yes, you will find snippets of information in the media explaining why, but none of these really hold water.

It reeks more of nationalist pride, not entirely dissimilar to Clarkson’s cavalier sentiment to the Chrysler Corporation and it has now transpired that one of the rallying claims in favour of Brexit was nothing but a highly embellished declaration: that Britain

sends close to 350 million euros a week to the union, money it can save by ditching the bloc.

As stated earlier, this will have consequences, the most immediate of which has already been felt: the devaluation of the pound sterling. While this might not affect us as much as it does the English themselves, it still means a lot.

We import very many used vehicles from the UK, so with the value of the pound taking a pounding (pun intended), the long and short of it is that ex-UK cars are now cheaper. Hurry while stocks last, or before Britain recovers from the ramifications of Brexit and the pound recovers its footing.

ON A MORE GLOBAL SCALE

On a more global scale, all the gains made by foreign car makers might be undone. With Britain out of the EU, tariffs and taxes on cross-channel trade are sure to go up — maybe punitively— as the rest of the EU tries to show Britain the error of its ways. That means imports and exports will become intentionally difficult.

Now, it might not mean much to British car brands owned by non-British companies, but the fact that they are still made in Britain (just not by Britain) will definitely mean something.

This also includes non-British car brands enjoying British hospitality such as Toyota, Nissan, Honda and Ford. With free trade gone, it may become difficult to financially justify their presence on English soil as exportation becomes either costly, convoluted or both. In a worst-case scenario, they might be forced to pull out. Non-British owners of British brands may drop their charges and leave them to their own devices, again; a fatal proposition as these brands are still largely unable to stand up by themselves.

A source at Jaguar Land Rover, for instance, projects that the company expects to see losses of up to £1 billion (Sh135 billion) as a direct result of Brexit.

It is at this point that one thing needs to made clear.

This is nothing but speculation: probably no such thing will happen. In fact, most likely no such thing will happen. An occurrence like Britain leaving the EU has got to be a bureaucratic mess, the type of which takes years to sift through to unravel all the political and economic entanglements.

On the other hand, car manufacturers with a heavy presence in Britain refuse to speculate either, all of them will either not comment, or will insist that they are watching the situation closely and will react according to the way things develop.

That said, the unofficial stance from Nissan and Toyota is that Britain is better off bridging the channel with the mainland politically and economically, a stance that was made apparent given the wobbly these two companies threw upon discovery that their logos were being used on pro-Brexit campaign materials. They did not want anybody being “misled” into thinking they were endorsing Brexit. Sounds sensible, and it also hints that the paradigm shift I was gushing about earlier will never come to pass.

Anyway, here are some statistics for you to chew through as you mull over whether or not Britain should or should not leave the EU:

  • In the first two quarters of 2016, of all the cars sold in the United Kingdom, none of the top 10 best sellers was British.  Toyota builds its Avensis sedan, a sort of world market Premio, exclusively in the UK for global export.
  • Toyota built close to 200,000 cars in Britain in 2015. Three quarters of these were for sale in the EU, with less than 10 per cent  being sold within Britain itself.
  • Nissan is Britain’s second largest car maker, producing 480,000 British-made cars in 2015 for sales within the EU.

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FYI

  • Before it joined the European Union in 1973, Britain’s auto industry was closed to the rest of the world and produced vehicles that were nothing to write home about.
  • Its membership of the Union opened up its auto industry, but it could not keep up with the competition from Japan and Germany, so most of its car makers were bought out.
  • Toyota, Honda and Nissan all have dedicated manufacturing plants in the UK while Britain is the second biggest consumer of BMWs after Germany.
  • With Brexit, the gains made by foreign car makers might be undone, with tariffs and taxes on cross-channel trade sure to rise, perhaps even punitively

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