The planned referendum on Britain’s membership of the European Union has triggered considerable debate. However, until the vote actually takes place on 23 June, the uncertainties surrounding the possible outcome and implications are likely to have the greatest immediate impact.
Over half of the respondents to our survey had not planned for a potential vote to leave. In fact, just one business had discussed formal measures. This is perhaps unsurprising, given the scale of uncertainty facing business.
While it is difficult for organisations to put concrete plans in place, it is important that they are discussing potential outcomes and preparing for various scenarios. With that in mind, here are a few possible effects that a vote to leave might have on the sector.
Currency risk is a key issue, with a weak sterling potentially disrupting global trading. Following the announcement of the referendum, sterling weakened against the euro and the US dollar. A weak pound is beneficial for companies that export, but will drive up the price of imported products, including key raw materials such as steel.
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The UK could find itself excluded from the EU-US trade agreement (TTIP) and existing EU FTAs with other markets.
New agreements would have to be created, which would take time and could undermine confidence. There’s also uncertainty around what deal would replace the UK’s current access to the EU single market.
UK car exporters could potentially face new barriers to trade. This would prove particularly relevant for volume manufacturers such as Honda, Nissan, Toyota and Vauxhall, which are more exposed to the EU than other brands in the UK.
That said, Brexit could also offer benefits; one being the freedom to negotiate trade agreements with high-growth markets. An example would be China, with which the EU has not yet reached an agreement.
Such deals would be massively beneficial to firms such as Jaguar Land Rover which, at present, faces a 25% import tariff, 17% sales tax and 9% consumption tax.
Britain is seen by many as the gateway to Europe. The ensuing uncertainty following a leave vote, around our trading relationship, could result in further delays to investment decisions.
While Brexit is unlikely to affect existing investments in the UK – this is a sunk cost and companies are unlikely to want to move production plants – it could put a brake on future investment in Britain’s automotive industry, as manufacturers and parts providers look for easier trading routes.
Supply chain ramifications
European firms with a presence in the UK could experience disruptions to their supply chain as trade agreements are renegotiated. Moreover, the additional administration and uncertainty could slow trading between automotive suppliers and manufacturers.
Taking this into account, uncertainty is likely to remain the prevailing mood across the entire automotive industry. Though a vote to leave will prolong and intensify this uncertainty, it’s worth remembering that businesses are pragmatic, and that they will adapt to any outcome.
During these uncertain times, it is critical that our clients understand their exposure and, if possible, formulate a plan to address any immediate risks while capitalising on any longer-term opportunities that may transpire.
Owen Edwards, associate director at Grant Thornton, said: "Our survey shows an appetite for remaining in the European Union. While the majority see Brexit as detrimental to their businesses’ growth prospects, there is an underlying belief that leaving would have little impact on areas such as vehicle registrations and consumer demand.
"Greater concerns exist around the impact on manufacturing of vehicles in the UK, trading relationships, and the negative impact on supply chains. This is likely caused by the uncertainty surrounding our ongoing relationship with the EU following a vote to leave.
In any event, Grant Thornton’s automotive team is well positioned to support our clients with relevant regulatory, business planning and risk services."