Reflection of uncertainty that face the country and the wider European region

As the fallout from the UK's decision to vote to exit the European Union (EU) continues, the local automotive trade association and automakers have spoken out in response to the vote. Many of them have said that the negotiation of trade and tariff deals will be the key factor in governing their plans.  

In a statement, the Society of Motor Manufacturers and Traders' (SMMT) chief executive officer Mike Hawes said that the "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."

However, Daimler's chief executive officer (CEO) Dieter Zetsche told Automotive News that he believed that the Mercedes-Benz brand would not be heavily affected, but he voiced his concern about the impact on the rest of the region. He said, "This is not a good day for Europe and in my view, certainly not for the UK... Geographically, the country may be an island; politically and economically, it is not. It is now even more essential that Europe does not continue to drift further apart."

BMW Group has also said that it will be business as usual for its UK operations. The company was quoted as saying that "while it is clear there will now be a period of uncertainty, there will be no immediate change to our operations in the UK". However, it added, "Today, we know that many of the relevant conditions for supplying the European market will have to be re-negotiated, but of course we cannot say what this means for our UK operations until those future regulatory and legislative arrangements are agreed". On this note, it said that it would "not speculate" on these negotiations nor the impact that it would have on its UK operations.

In addition the German VDA also released a statement on Friday stressing the importance of maintaining free movement of goods and services between the UK and the other EU countries.  VDA president Matthias Wissmann highlighted that the German automotive industry exported more to Britain than to any other country in the world. Last year 810,000 passenger cars built in Germany were exported to the UK. German vehicle makers produced around 216,000 passenger cars in Britain in 2015 the VDA said. German automotive companies – including a very large number of suppliers – have around 100 facilities in the UK. Since 2010 their number has increased by 30 percent. “We should do everything we can to ensure that this success story will be continued. Now it is up to Brussels to take action,” Wissmann said.

General Motors' (GM) Opel arm − which sells vehicles branded as Vauxhall in the UK as well as manufacturing light vehicles at two sites − has called on free access to continue. It stated, "It is also important that business continues to benefit from the free movement of goods and people during this period." The company went on to say, "We fully support the UK remaining part of the European Economic Area [EEA]."

The chief executive officer (CEO) of Aston Martin, Andy Palmer, suggested that the automaker may need to enact changes. The senior executive was quoted by Reuters as saying, "We acknowledge the decision and the rule of democracy... Aston Martin will now orientate its business to deliver our mid-term plan in the context of the exit and the market volatility that may exist during the period of transition." Nevertheless, he said that a weaker pound should "partially offset" the increased instability. Even so, Palmer went on to say, "As the UK could now be subject to new trade tariff barriers, we also anticipate the need for additional productivity and efficiency in the medium term" and that the UK 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."

Outlook and implications

The initial response by OEMs reflects the wide range of uncertainties that have been created by this decision. IHS's view on the macroeconomic impact to the country from this situation, put together by its chief UK and European economist, Howard Archer, is that the vote to leave the EU is bad news for the UK economy, certainly in the near and medium term. Even supporters of the 'Leave' campaign have acknowledged that there will be a near-term hit to the economy from heightened uncertainty affecting business and consumer activity, as well as from financial market turmoil. The financial markets have certainly taken the view in the near term at least. Sterling has plunged to a 30-year low against the dollar, while the FTSE share price index is suffering substantial losses.

Following the UK's decision to leave the EU, IHS is substantially cutting its GDP growth forecasts to 1.5% (from 2%) for 2016, 0.2% (from 2.4%) for 2017, and 1.3% (from 2.3%) for 2018. Major economic and political uncertainty is expected to be a fact of life for some considerable time, likely weighing down markedly on business and household confidence, so dampening corporate investment, employment, and consumer spending.

From an automotive perspective, IHS Automotive anticipates that this will lead to a reduction in our current light-vehicle sales forecast in relation to the factors above. This would be on top of an already forecasted decline for the market in 2017 after a tremendous run of growth. We also see production being hit in response to the reduction in UK sales, while the potential for slower growth in the Eurozone could cause a secondary effect on light vehicle sales in Europe, resulting in an additional pull back in production levels during 2017. IHS Automotive will bring further updates to our forecast as the situation develops.

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