Auto Industry Worried About Brexit Fallout
The world’s top automakers are warning of economic uncertainty if the U.K. cuts ties with the European Union, saying Thursday’s so-called Brexit vote could have significant ramifications for the industry.
Supporters of the Remain camp have argued that a win for Brexit would upend existing trade deals between the U.K., the EU and the rest of the world. The U.K. produced 1.59 million vehicles in 2015, its best performance in a decade. The region exported a record 1.2 million of those vehicles, or 77% of total volume. And of all cars exported by the U.K. last year, 58% were shipped to other European nations.
The Society of Motor Manufacturers and Traders, an industry group comprised of automakers and suppliers in the U.K., said 77% of its members believe it would be best for business if the U.K. stays in the EU, while 9% backed a vote for Leave. The survey, which was released in March, also found that 59% think a win for Leave would have a negative medium- to long-term impact.
The auto industry contributes £15.5 billion, roughly $22 billion, to the U.K. economy, according to the SMMT. Automakers and suppliers employ 160,000 people across the pond, and the SMMT estimates that a total of 800,000 U.K. jobs are supported by the industry. Ford (NYSE:F), Toyota (NYSE:TM), Honda (NYSE:HMC), BMW and Nissan all have plants in the U.K., in addition to 2,500 companies that make car components.
Toyota, which has recently butted heads with the Leave campaign, issued a letter to U.K. employees Monday to “put the record straight†regarding its position on the referendum. The company believes it will face “significant business challenges as a result of a decision to withdraw from the EU,†emphasizing that its two U.K. plants were built to make cars and engines for all of Europe.
“Therefore, open and free access to the European Market is of critical importance for our U.K. manufacturing business,†Toyota said, according to a copy of the letter obtained by FOXBusiness.com. The letter was co-signed by the union representing Toyota’s U.K. factory employees.
Toyota exports nearly 90% of its U.K.-made vehicles, and 75% of its production there supports sales in the EU. In the letter, Toyota predicted that a Brexit would likely force the U.K. to drop current trade agreements, which have no tariffs or duties attached. Executives warned that any cars it ships out of the U.K. could be hit with tariffs as high as 10% if the U.K. leaves.
Toyota has accused the Leave campaign of misrepresenting the company’s views. Earlier in June, Toyota threatened to file a legal complaint against the Leave campaign for unauthorized use of the company’s logo. “Toyota does not wish to enter the campaign and we fully respect that whether to remain or to leave the European Union (EU) is for the British people to decide,†the company said in a statement at the time. Toyota also reiterated its previously stated position that British membership in the EU is best for business.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GM | GENERAL MOTORS CO. | 28.89 | +0.38 | +1.33% |
| F | FORD MOTOR CO. | 10.38 | +0.05 | +0.47% |
| TM | TOYOTA MOTOR CORP. | 187.12 | +0.54 | +0.29% |
| TTM | n.a. | n.a. | n.a. | n.a. |
Another Japanese automaker, Nissan, said Monday it will pursue legal action against the Leave campaign for using the Nissan logo on campaign leaflets.
European car makers such as Jaguar Land Rover, the British manufacturer owned by Tata Motors (NYSE:TTM), and BMW have also warned against an EU exit.
“Our European supply chain has been fundamental in helping us to meet customer expectations worldwide and achieve sustainable, profitable growth,†Jaguar Land Rover CEO Ken Gregor said.
Detroit Weighs In
A General Motors (NYSE:GM) spokesperson told FOXBusiness.com the company will be “closely following the UK debate on the European Referendum,†adding that GM’s U.K. brand, Vauxhall, “is part of a fully integrated European company where it benefits from the free movement of goods and people.â€
The U.K. is the top European market and fourth-largest global market for GM, the top U.S. automaker. GM has 4,500 employees in the U.K. The company indirectly employs a total of 11,000 people when including its retail network and supply chain.
“The UK has a strong and growing automotive industry and trades freely within the world’s largest trading bloc, the EU. Not to be part of the EU would be undesirable for our business and the sector as a whole,†GM said.
Ford, which has 14,000 U.K. employees, also thinks the EU is the best bet for the U.K. A Ford spokesperson said the company hasn’t changed its current investment plans. However, if leaving the EU leads to a “significant deterioration†in the U.K.’s business and trade environment, the vote could impact Ford’s business decision-making, “including potential future investment.â€
“Our primary interest is in maintaining stability and avoiding uncertainty in the trading environment. We believe this is best achieved if the UK stays as a member of a reformed EU,†Ford said.
Speaking to reporters in Italy last week, Fiat Chrysler Automobiles (NYSE:FCAU) CEO Sergio Marchionne said the U.K.’s possible exit from the EU is “not that disastrous†for the company, given its limited business interests in the U.K. However, he added that Brexit is a “huge risk†for the European economy.
A spokesperson for FCA said the company had no additional comment beyond Marchionne’s remarks.
While car makers are hoping for a “Remain†victory, they also hope the U.K. gains additional influence in the EU to pursue reforms. When asked why the U.K. should hold onto its EU membership, 52% of the companies polled by the SMMT cited the U.K.’s ability to play a role in crafting industry standards and regulations.
On Monday, U.S. and European markets rallied amid possible momentum for “Remain.†A poll conducted by Survation showed a slight lead for the pro-EU side, 45% to 42%.