As the United States, or those that voted for him, prepared to say Hail to the New Chief at the inauguration today, an equally divisive issue got another airing this side of the Atlantic this week – Brexit. British prime minister Theresa May confirmed the UK would not remain a member of the EU trade bloc’s single market but would seek access to it through a free trade agreement which she said could see the automotive sector trading using single market “arrangements.” In a speech outlining 12 aspects of the intensely complex mechanism by which Britain would exit the European Union (EU), May also warned those opposed to the UK quitting the union: “This is not a game.” London did want some form of customs agreement, however.
The UK’s Society of Motor Manufacturers and Traders (SMMT) has long pushed for free and unfettered trade with Europe and chief executive, Mike Hawes, welcomed Theresa May’s recognition of the importance of single market arrangements for the automotive sector as “critical.” All of this provoked the usual restating of inflexible positions from grumpy Eurocrat politicians seeing cracks in their empire walls so we went in search of reaction from more reasoned players in the autobiz. One German supply group was concerned at what will be at least two years of uncertainty while the ‘Article 50’ negotiations take place and the possible domino effect should the single market be dismantled if other countries follow Britain and possible tariffs hike costs.
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Meanwhile, Germany’s powerful VDA automaker’s lobby urged that trading conditions with the UK and the European Union (EU) remain as they are as Britain starts to flesh out its wish list for leaving the Brussels body. Germany, of course, has a massive interest in securing the status quo between itself and us with its automotive industry exporting more to Britain than to any other country in the world, with 810,000 passenger cars built in 2015 shipped to the UK. The 2015 British passenger car market reached a record volume of 2.6m new cars, with half of them having a German group badge. Expect similar when the 2016 numbers are crunched.
The VDA talked of years of uncertainty as negotiations take place and how that could scare investors away. And that uncertainty clearly is on just-auto readers’ minds as our latest confidence survey shows. Remarks by survey respondents suggest the source of rising trade concerns is mainly two-fold: (1) Uncertainties regarding international trade policies that will be implemented by the incoming Trump administration in the US and possible responses from other countries; and (2) ongoing uncertainty over future trade arrangements between the UK and EU after the UK’s 2019 exit from the trade bloc. However, respondents gave an upbeat assessment of their own company’s prospects. There was also an upbeat mood throughout this (pre-May statement) comment from the Santander bank and manufacturers’ lobby EEF which reminded us that there are other export markets outside Europe. I was also particularly impressed with Toyota’s calm and unruffled reaction to May’s announcement. No Carlos Ghosn-style, ‘gimmee, gimmee or I’ll move the work’ style threats; instead chairman Takeshi Uchiyamada told Bloomberg (at Davos): “In every country in the world, we don’t tend to close or move factories when things like this happen and it will be the same in the UK.” However, the FT said he stressed Toyota had not taken any decisions yet and was waiting to see how the EU would respond to Britain’s demands.
You’ll recall Nissan CEO Ghosn received assurances from the UK government last year that the competitive position for its UK plant would not change as a result of Brexit. After the assurances the company confirmed new model investments for its UK plant at Sunderland. My early exposure to the Japanese auto industry, starting three decades ago, showed me they usually take the long-term view, rather than looking all the way to the next quarter, and will soldier stoically on, sometimes after being badly treated. In the market I am thinking of, after being hit by the costs of prematurely closing plants, they were ultimately rewarded with much more favourable operating conditions, and Toyota remains numero uno there in sales.
Trump, of course, did not help matters with his usual rhetoric – threatening German automakers (three of which build at least one model line in the southern United States) with a 35% tariff on imports. Imagine being Audi, with the paint still wet on a new Mexican plant built with full knowledge of the NAFTA FTA, and hearing that. Or Daimler as it climbs into the joint venture bed with Nissan’s Infiniti, also in Mexico. Hence GM – in The Donald’s crosshairs recently – announcing a US$1bn US plant spend, though most observers noted this would have been happening regardless. Toyota last night announced it had – again – built over 2m cars in North America, the bulk in the US, so clearly president incoming has everyone rattled. Again, as with Brexit, we’ll see. Anyway, it’s possible, based on this, the automakers might actually find they have at least one friend in the White House.
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By GlobalDataHave a nice weekend.
Graeme Roberts, Deputy Editor, just-auto.com
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