Brexit’s Potential Impact on Automotive Manufacturing Industry – Leading to Cheaper Imported Cars

February 04, 2019

Brexit is a word that is used as a way of saying Britain leaving the European Union – merging the words Britain and exit to get Brexit, in the same way as a possible Greek exit from the euro was dubbed Grexit in the past. The European Union – often known as the EU – is an economic and political partnership involving 28 European countries.

Brexit has the automotive manufacturing industry concerned.

The CEO of car parts supplier Unipart, John Neill, said that if Britain were to leave the European Union without a deal the resulting disruption could cause a “cascade of failure” in the supply chain. As the prospect of a “no deal” Brexit inches closer, other automotive executives have voiced similar concerns, usually leading to cries of “Project Fear” by Brexit supporters. (Project Fear was the label given to pre-referendum warnings from industry and the U.K. government that Brexit would result in severe economic pain.)

During an interview with presenter Nick Ferrari on LBC radio, the former foreign secretary and Brexit leader Boris Johnson even suggested he knew more about car manufacturing than Ralf Speth, the boss of Jaguar Land Rover.

“I would suggest [Ralf Speth] knows more about car manufacturing than you do,” pointed out Ferrari.

“I’m not certain he does,” replied Johnson, a journalist.

The U.K. automotive industry employs 856,000 people and accounts for 12% of U.K. exports.

Much of the blind faith that Brexit will not destroy manufacturing industries is based on the thinking of economist Patrick Minford. However, in 2012 he told a parliamentary committee that the U.K. leaving the European Union would result in the automotive sector suffering a “big transitional loss.” He claimed that there would be more “gainers than losers” because cheaper imported cars would flood into the U.K. He agreed this would all but destroy U.K. car manufacturing.

Minford is professor of economics at Cardiff Business School, a former advisor to Margaret Thatcher and supporter of the U.K. poll tax introduced in 1989 and which led to riots in 1990. He heads the pro-Brexit campaign group Economists for Free Trade (EFT), formerly known as Economists for Brexit. This group denies climate change, preferring neoliberal-style environmental deregulation, and has been pushing for a “no deal” Brexit scenario.

Giving evidence in a Foreign Affairs Committee session in 2012, Minford agreed that the U.K. automotive manufacturing industry would be destroyed. “You are going to have to run it down,” he said, nonchalantly.

“It will be in your interests to do it, just as in the same way we ran down the coal and steel industries,” added Minford.

Leading Brexiter Jacob Rees-Mogg is an admirer of Professor Minford’s work, arguing that he “deserves to be listened to because of his remarkable track record.”

The great majority of economists disagree with Minford’s views. Analysis from the Bank of England to the OECD to academia all conclude that Brexit would make the U.K economically worse off.

Brexiters have taken to ignoring such mainstream findings, and now default to economists working for the EFT. However, most Brexiter politicians still claim that the future for the U.K. leaving the E.U. is one of “sunny uplands.”

It is not mentioned that the economists most in favor of Brexit believe almost all manufacturing in the U.K. will come to an end.

It would most certainly scare workers in the manufacturing sector, many of whom nevertheless voted for Brexit.

However, according to Minford these “losers” would be “compensated” and prices for all consumers would fall:

“The cost of a BMW or the price tag of an imported fridge would suddenly drop and our resources would shift from manufacturing to services — raising living standards for all of us.”

Of course, while cheaper cars would be welcomed by U.K. consumers it would lead to more cars on the road, increasing congestion and reducing the U.K.’s economic competitiveness.

Real-time traffic information provider INRIX worked with the Center for Economics and Business Research to estimate that traffic congestion will soon cost the U.K. economy 21.4 billion a year.

Still to be determined, how Brexit will impact the U.S. automotive manufacturing industry.

The day after the Brexit vote, the Dow fell 610.32 points. Currency markets were also in turmoil. The euro fell 2 percent to $1.11. The pound fell. Both increased the value of the dollar. That strength is not good for U.S. stock markets. It makes American shares more expensive for foreign investors. As a result, gold prices rose 6 percent from $1,255 to $1,330.

A weak pound also makes U.S. exports to the U.K. more expensive. The U.K. is America’s fourth-largest export market.

Brexit is a vote against globalization. It takes the United Kingdom off the main stage of the financial world. It creates uncertainty throughout the U.K. as The City seeks to keep its international clients.

Source:  Reid, Carlton. (2019). “Brexit To Destroy U.K. Car Manufacturing, Lead to Cheaper Imported Cars, Increase Traffic Congestion”.