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IHS Automotive analyses industry's response to Brexit vote

Automotive industry analysts at IHS have predicted a reduction in vehicle sales and manufacturing for the UK and Europe as OEMs respond with caution to last week’s Brexit vote.

Following analysis carried out by its chief UK and European economist, Howard Archer, it has cut the UK’s GDP growth forecasts to 1.5% (from 2.0%) for 2016, 0.2% (from 2.4%) for 2017, and 1.3% (from 2.3%) for 2018.

A statement issued by IHS principal analyst, Ian Fletcher, stated: “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 and behaviour, so dampening corporate investment, employment, and consumer spending.”

IHS also stated that the stock exchange would be hit hard, along with the UK housing market and that, while the weaker pound would benefit export, it could cause interest rates to rise – limiting consumer spending.

Its comments came after gauging the mood of the automotive industry in the immediate aftermath of last Thursday’s vote to leave the EU.

Jaguar Land Rover said that it will remain committed to all its manufacturing sites and investment decisions. A spokeswoman for the company was quoted by Reuters as saying, "Europe is a key strategic market for our business... we remain absolutely committed to our customers in the EU."

BMW Group has also said that it will be business as usual for its UK operations.

The company was quoted as saying that "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".

The chief executive officer (CEO) of Aston Martin, Andy Palmer, suggested that the automaker may need to enact changes.

Reuters quoted Palmer 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.

Palmer said that the British government must now work hard to ensure “tariff-free access to European and other global markets."

General Motors' (GM) Opel arm has called on free access to continue.

It stated: "We fully support the UK remaining part of the European Economic Area."

Groupe PSA has told Reuters that it is now looking at changes to its UK pricing following a currency market reaction to the decision.

A spokesman for the manufacturer said: "Our teams are looking at different scenarios for price adjustments to our brands' models to respond swiftly to the markets' reaction.”

The HIS said that reports from car makers in Japan suggested that OEMs would exercise greater caution before committing to UK-based investments in light of the Brexit vote.

Toyota has said that it "will closely monitor and analyse the impact on our business operations in the UK, and how we can maintain competitiveness and secure sustainable growth together with the U.K. automotive industry and other stakeholders."

Furthermore, the Korea Automobile Manufacturers Association (KAMA) also voiced its concern about import tariffs in to the country.

Kim Tae-nyen, vice-president of the organisation, said: "This could inevitably undermine the price competitiveness of South Korean automakers in UK, as opposed to Japanese and German rivals which have production bases there."

HIS said that much now hinges on the progress of negotiations with the EU, with the nation’s official departure under Article 50 of the Lisbon Treaty set to take place in October .

Fletcher stated: “The more messy and antagonistic the negotiations with the EU prove to be (particularly over new trade agreements and access to the European single market), the more the UK economy is likely to suffer during 2016−18.

“IHS suspects that UK negotiations with the EU will prove difficult, given that EU leaders will not want to set the precedent of an easy withdrawal for other countries that could reconsider their status, such as Denmark.”

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