Automakers Understandably Freaking Out Over 'No Deal' Brexit

With Britain’s parliament rejecting Prime Minister Theresa May’s latest Brexit deal, European automakers stand to face some strong headwinds in the near future. As of now, no clear path lies ahead. Many believe the European Union will continue playing hardball, punishing Britain for leaving. But, even if it doesn’t, loads of regulatory and trade issues must be resolved in short order to avoid problems.

There’s also no shortage of hyperbole surrounding the issue. Just this morning I heard cable news call it “the largest crisis in Britain’s history,” as if World War II never happened. A channel away, another outlet proclaimed how splendid it would be for trade between the United Kingdom and United States.

Regardless of which side of the fence you fall, there’s more at stake here than Theresa May’s job. Automakers, who like consistency above all else, worry a no deal plan for “British independence” could be tantamount to flipping the industry table. They don’t like being caught up in the uncertainty surrounding Brexit, and there appears to be an endless list of issues to contend with.

“I’ve done what any sane person would do: I’ve assumed the worst,” Aston Martin CEO Andy Palmer said onstage at the Automotive News World Congress in Detroit. “I’ve assumed we will crash out of Europe, and in consequence our supply chain will be disrupted.”

Last week, Aston Martin authorized contingency planning for Brexit, including hiring a new supply chain chief and shipping car components via air freight to avoid relying on Dover — a port which could be in serious trouble later this year. However, the Port of Dover recently said it was “prepared” for a no deal Brexit despite asking for government assistance to keep things operating smoothly.

Aston isn’t alone. According to Bloomberg, Volkswagen-owned Bentley began shipping some components via alternative ports in preparation for Brexit. “I may have to eat these words — we are prepared,” CEO Adrian Hallmark said.

“We took note of the results of the vote in Britain’s parliament with regret,” Volkswagen said in a statement. “It represents a further phase of uncertainty and hampers our ability to plan ahead. We and the entire industry need clarity about the nature of relations between Britain and the European Union. Every further delay in the Brexit decision-making process puts investment and jobs at risk.”

Daimler said it is doing everything it can to ensure product and parts continue moving freely between the United Kingdom and mainland Europe after Brexit. It also noted it could only do so much without formal agreements in place.

You might have noticed a theme here, one in which automakers tout their preparations in a manner that makes it hard to believe them. That’s the problem; nobody really knows what to expect. It’s Y2K all over again. Except, this time, something will actually happen when the clock strikes midnight on March 29th.

From Bloomberg:

Following Tuesday’s vote in Parliament, BMW AG and the German car industry group VDA issued grave warnings of the fallout from a so-called hard Brexit. BMW, which owns two iconic English brands — Rolls-Royce and Mini — said in an emailed statement that the uncertainty of U.K. and EU trade relations are “greater than ever” and that it has to prepare for the worst.

A no-deal Brexit looks increasingly likely and would have “severe consequences,” VDA President Bernhard Mattes said in an emailed statement.

The drag from the looming deadline is already coming through to weigh on the region. Last year, annual car sales in Europe dropped for the first time in five years, led by a sagging U.K. market where consumers spooked by Brexit delayed buying big-ticket items like cars. Registrations in the U.K. fell by 6.8 percent last year, the steepest annual decline since the financial crisis.

“The consequences of a ‘no deal’ would be fatal,” VDA said after the vote. “Without an orderly and practical solution for business, jobs in the car industry, particularly on the British side, are on the line.”

Britain would likely have it worse than the European Union. But virtually every automaker on the planet would find themselves affected to some degree. Supply chains are likely to become a mess without help, and no one has any sense of what will happen to vehicles exported into the EU from the United Kingdom. There’s also the possibility of vehicles being held up in customs or subjected to new tariffs — which would be awful news for high-volume vehicles with slimmer profit margins.

What’s the solution? Either Britain and the EU need to start making new deals immediately or there needs to be another referendum. However, asking the British population to vote again would be a colossal constitutional betrayal. The people already voted to leave; asking them again would cast serious doubt on the government’s intention to do their bidding. It looks like automakers might just have to sweat this one out and hope for the best.