THE surprise vote for Britain to leave the European Union (EU) has sent shockwaves through the corridors of the world’s major car-makers as they try to piece together the potential for damage to the smooth plying of cars and car parts across the English Channel.

The UK and the EU have two years to unravel the tangled web of agreements that have built up since the UK entered the “Common Market” in 1973, leaving plenty of discussion to take place before the final trade scene unfolds.

However, this does not mean there will be no panic in the short term as industry leaders attempt to add up the potential costs of a UK-less EU.

What everyone fears is that borders and customs checks, as well as tariffs, will appear on auto parts and cars coming and going between the UK and Europe. This will be disruptive and potentially add cost to cars made both in the UK and Europe because, in many cases, parts made in Europe wind up in UK-built cars and parts made in the UK wind up in European-built cars.

For the car industry, the outcome will rest on just how temperamental the political elites of Europe will be from the vote to leave and for how long they remain resentful. If they choose to punish the UK then there are likely to be all sorts of barriers put in the way of the smooth carriage of auto products to-and-fro across the channel.

The degree to which the political elite can get away with this sniffy attitude will depend on the level of political influence the various car-makers can bring to bear, because domestic European car-makers will have a lot to lose as well – not just the UK.

But the picture of political power changes when coming the other way, especially with the Germans.

BMW, whose total Mini and Rolls Royce production is based in the UK, will be hugely upset to see discrimination against those brands coming into the EU.

On top of that, it is not generally recognised that the UK is the biggest export market for Germany’s car-makers. Of the 2.6 million cars sold in the UK a year, half of them are made by German car-makers and, of that, 810,000 cars are shipped directly from Germany into the UK.

Any thought of barriers to that trade would see massive pressure applied to the policy-makers in the EU, not only from Germany, but from France, which has a vested interest in Nissan through Renault.

If sanity were to prevail, the most obvious outcome would be for Britain to re-enter the European Free Trade Association (EFTA) from which it departed when it joined the EU in 1973.

The EFTA is a trade organisation which allows its members free trade access to the EU and its current member states include Norway, Iceland, Liechtenstein and Switzerland.

It was started in the 1960s for countries that were not willing to commit to full membership of the EU, with countries such as Austria, Finland, Sweden and Denmark as members before being admitted to the EU.

If Britain were able to resume its membership of this trade group, a great deal of angst for car-makers will be avoided and they should push for that solution ASAP.

In addition, Britain would be free to negotiate a whole series of free trade agreements with a host of countries it was barred from doing so while it was a member of the EU.

Indeed, Australian prime minister Malcolm Turnbull and New Zealand prime minister John Key are already discussing the potential for Australasia to set up free trade between Britain, which the New Zealanders will especially relish given the shafting that was doled out to its farm exports back in the early 1970s when Britain joined the EU.

In the meantime we should all enjoy the low Pound. London anyone?

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Here is the area of risk/reward:

 

Jaguar Land Rover makes about 500,000 cars a year and is the UK’s biggest car-maker.  About 20 per cent of its sales are in Europe, leaving 80 per cent outside Europe, and if the Pound stays low this can only make the Tata-owned company’s vehicles more competitive in these other markets.

 

Nissan is the second biggest car producer in the UK with 475,000 units made in Sunderland and most of them are destined for Europe. Again, the value of the Pound could offset increased costs associated with the exit and help build volume in markets outside the EU.

 

Toyota makes 190,000 cars a year in the UK, of which only 10 per cent are sold locally and 75 per cent sold in Europe.

 

Honda makes 140,000 cars a year in the UK, about half of which go to Europe.

By John Mellor