Carmakers assess Brexit cost as shares sink

Renaissance Global

24/06/2016 16:18

* Industry calls for EU-UK free trade post-Brexit 
    * Weaker pound shields UK-built cars, punishes importers 
    * Peugeot, Ford among those looking at adjustments 
 
    By Laurence Frost and Edward Taylor 
    PARIS/FRANKFURT, June 24 (Reuters) - Carmakers began to 
assess the cost of Britain's vote to leave the European Union, 
calling on politicians to protect free trade and warning they 
might have to raise prices and cut jobs. 
    The auto industry was at the forefront of efforts by big 
business to persuade voters in Thursday's referendum to choose 
to stay - arguing that Brexit posed serious threats to UK 
economic interests. 
    European and Asian automakers' shares fell sharply as 
investors weighed up the consequences. The European sector 
 .SXAP  sank 8 percent overall, with PSA Group  PEUP.PA  down 17 
percent and Renault  RENA.PA  13 percent lower. 
    PSA's sizeable UK sales are among the most vulnerable, 
analysts say, because it lacks any local production to offset 
the sliding value of sterling revenue. The pound fell as much as 
10 percent against the dollar to touch levels last seen in 1985. 
    The French carmaker said it would likely be forced to raise 
prices - bound to dent the competitiveness of its Peugeots and 
Citroens in a market now expected to shrink. 
    Managers are "looking at different scenarios for price 
adjustments to our brands' models to respond swiftly to the 
markets' reaction," a spokesman said, adding that it was "still 
too early to measure the real impact." 
    Of the Asian carmakers, Nissan  7201.T  is among the most 
exposed through its huge Sunderland assembly plant serving 
Europe and beyond. The company said it had nothing to add to 
Chief Executive Carlos Ghosn's recent warning that a leave vote 
could hit investment.  urn:newsml:reuters.com:*:nL4N19G3ME 
    "There are going to be a lot of questions about (whether) 
you want to continue to invest in the UK for Europe if the UK is 
outside Europe," Ghosn, who heads both Nissan and its alliance 
partner Renault, told CNBC last week. 
    Jaguar Land Rover  TAMO.NS , Britain's biggest carmaker with 
25,000 jobs in the country, tried to inject a note of calm on 
Friday, stressing that "nothing will change for us or the 
automotive industry overnight". But the Indian-owned firm fears 
Brexit will wipe 1 billion pounds ($1.37 billion) from annual 
profit within a few years, sources told Reuters this week, 
citing internal documents.  urn:newsml:reuters.com:*:nL8N19C2T7 
     
    JOB WARNINGS 
    The auto industry, which punches above its weight in 
politically sensitive manufacturing jobs and lobbying clout, 
employs 770,000 people in the UK, where car sales are expected 
to tumble 10 percent by the end of the year as consumers shun 
big-ticket purchases, according to brokerage Evercore ISI. 
    "Even the most ardent Brexit supporter is likely to harbour 
near-term concerns around job security and property values," 
analyst Arndt Ellinghorst said in a note reissued to clients 
after the vote. 
    Some manufacturers sounded new warnings about jobs and 
investment. Ford, which employs 14,000 British workers mainly in 
engine manufacturing, vowed to "take whatever action is needed 
to ensure that our European business remains competitive and 
keeps to the path toward sustainable profitability". 
    Sports car maker Aston Martin, with 1,800 UK jobs, may seek 
more "productivity and efficiency" gains to mitigate eventual 
repercussions, CEO Andy Palmer told Reuters.  urn:newsml:reuters.com:*:nE6N15J02C 
    But Aston, the supplier of James Bond cars and real-world 
models such as the Vantage two-seater, expects the weaker pound 
to soften the immediate blow by making its vehicles more 
price-competitive. 
    Sterling's weakness offers a temporary cost cushion to 
vehicles and parts manufactured in Britain for the likes of 
Nissan, JLR and BMW  BMWG.DE  - even as it punishes PSA, Nissan 
parent Renault  RENA.PA  and others heavily reliant on imports. 
That may upset some closely fought rivalries such as the 
imported Volkswagen  VOWG_p.DE  Golf's tussle with GM's  GM.N  
UK-built Opel/Vauxhall Astra. 
     
    FREE TRADE PLEA 
    Several manufacturers, including Opel and Aston, urged 
political leaders to safeguard EU-UK free trade as part of an 
eventual Brexit settlement. 
    "We fully support the UK remaining part of the European 
Economic Area," Germany-based Opel said in a statement, echoing 
comments made by Palmer. 
    London must now "secure a deal with the EU which safeguards 
UK automotive interests," the Aston CEO said. "This includes 
securing tariff-free access to European and other global 
markets." 
    In a statement by its VDA lobby group, Germany's powerful 
auto industry said "the core idea of a common market must be 
brought back into focus" as the EU reforms to restore its appeal 
to voters. Britain is the German carmakers' biggest export 
market, snapping up 810,000 German-made vehicles last year. 
    But Daimler  DAIGn.DE  boss Dieter Zetsche sounded a more 
circumspect note, saying that it was "certainly not" a good day 
for the UK. 
    The Mercedes maker expects to suffer no immediate impact, 
Zetsche added. "Geographically the country may be an island - 
politically and economically it is not." 
($1 = 0.7299 pounds) 
 
 (Additional reporting by Costas Pitas in London, Norihiko 
Shirouzu in Beijing and Naomi Tajitsu in Tokyo; editing by Anna 
Willard) 
 ((laurence.frost@thomsonreuters.com; +33 1 4949 5683; Reuters 
Messaging: laurence.frost.thomsonreuters.com@reuters.net)) 
 
Keywords: BRITAIN EU/AUTOS