October 2, 2018 - Carmakers are pulling few punches about the costs of a hard Brexit as talks between the U.K. and the European Union fail to find common ground.
That’s looking likelier as the U.K. fights over its negotiating stance, stalling progress toward a potential agreement that would soften its departure from the European Union next year.
BMW AG “would be forced to build in the Netherlands,” Chief Executive Officer Harald Krueger told reporters Tuesday at the Paris Motor Show. “If there is no solution, then there will only be losers on both sides.”
The stark warnings from the car industry come as Prime Minister Theresa May tries to reach an agreement before November and handle vocal opposition within her government. While risks of crashing out on March 29 without a deal are mounting, the Confederation of British Industry has estimated that the costs for businesses in the lead up have already run into the billions of pounds.
A hard Brexit would worsen the situation, car executives warned. Weekly revenue of about 60 million pounds ($78 million) that Toyota Motor Corp. generates from its England plant risks being disrupted, the Japanese carmaker’s president for Europe, Johan van Zyl, said in an interview in Paris. The company would temporarily halt its plant in Burnaston, England.
BMW has said it would bring forward a four-week stoppage for routine maintenance at its Oxford factory from the summer to April 1, the date the U.K. is slated to leave the EU, while Jaguar Land Rover, the country’s biggest automaker, is weighing a similar move.
Disorderly Brexit scenarios are worrying and “extraordinarily sad,” said Daimler AG Chief CEO Dieter Zetsche.
Just-in-Time
Automakers and their U.K. industry group, the Society of Motor Manufacturers and Traders, have been warning since shortly after the June 2016 vote that any Brexit scenario involving customs checks or import duties would be a disaster for the industry. The SMMT estimates 186,000 people are employed directly in automotive manufacturing across the U.K., and 80 percent of the cars made in the country are exported—most of those to the EU.
One problem for carmakers stems from their just-in-time supply chains to move parts between sites. On Monday, van Zyl said that Toyota’s Burnaston plant only has four hours of parts on hand and must constantly restock those in sequence, with an average of 50 trucks carrying components into the U.K. from the EU each day. Holding more components to offset logistics delays would increase costs, he said.
Carmakers still haven’t given up hope that a deal on Brexit will be struck. PSA Group CEO Carlos Tavares pleaded for politicians to reach an accord or business could face dire consequences. “There needs to be a deal,” he told reporters.
In the event of a hard Brexit, the maker of Peugeot, Citroen and DS vehicles would enter into talks with unions in the U.K. before taking any tough decisions on production, Tavares said. While acknowledging the real prospect of bottlenecks at border crossings, he said it’s “too early” to start worrying. That time could come in in January.
PSA has factories on both sides of the English Channel after acquiring the Opel and Vauxhall brands from General Motors Co. last year. Vauxhall makes vehicles in Luton and Ellesmere Port in England.
Contingency Plans
For now, Jaguar Land Rover said it’s working hard on contingency plans. The company has spent in the low double-digit millions of pounds on measures like training staff to fill in customs declaration forms. That includes the development of artificial intelligence systems.
“We’ve been leaving no stone unturned to prepare for various scenarios,” Hanno Kirner, head of strategy for the maker of the electric I-Pace, told reporters at the show. “But in the end, it’s a situation that’s very tough to prepare for.”
Source: Bloomberg
