Trade Dependency

Brexit Could Hurt German Car Exports

vauxhall
Employees load a Vauxhall car chassis onto the production line at the company's plant in Ellesmere Port.
  • Why it matters

    Why it matters

    German car companies rely on the UK market for a significant portion of their sales, and worry that a Brexit could destabilize their business.

  • Facts

    Facts

    • A recent poll for Handelsblatt found that executives of many large companies worry that a UK exit from the European Union will have a damaging effect on German businesses.
    • The UK is the largest export market worldwide for German cars, according to the  German Association of the Automotive Industry.
    • Almost one in three cars, or 810,000 cars, come from Germany. That’s around a fifth of the total number it exports worldwide.
  • Audio

    Audio

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If Britain decides to leave the European Union, it will create a period of uncertainty that could impact trade between the country and the European continent. That is especially true when it comes to German car sales in Britain, a major market for VW, Mercedes and BMW.

A Brexit could trigger price hikes due to a depreciation of the pound versus other currencies and a decline in economic output that would ultimately pressure the car industry as well.

Germany’s export market could also take a hit, but “the German auto industry above all,” Andreas Meyer-Schwickerath, head of the British chamber British Chamber of Commerce in Germany, told news agency DPA earlier this week.

Almost one in three cars, or 810,000 cars sold in Britain, come from Germany, making the British island the biggest export destination for German car producers. It is around a fifth of the total number the industry exports worldwide, according to the German car association, VDA. Britain reached a new market high of 2.6 million car registrations in 2015 – 86 percent of which were not produced in the UK.

“We surely expect negative consequences for the GDP. This means both changes on the sales market and higher export costs for products for the UK.”

August Joas, Car Expert, Consultancy Oliver Wyman

“We definitely expect negative consequences for the GDP. This means both changes on the sales market and higher export costs for products for the UK,” said August Joas, a partner at the Global Automotive and Manufacturing Practice with the consultancy Oliver Wyman in Munich.

“All of this will only be temporary, and after around two years, things will be renegotiated and settled and business can go back to normal, though more slowly than today,” he added.

Matthias Wissman, president of the German car association VDA, also warned of the negative effects of a British exit from the European Union. “For British citizens, buying cars will not become cheaper after a Brexit,” Mr. Wissman said.

Britain’s departure from the union could also impact German carmakers which have operations in the United Kingdom. German producers have increasingly set up operations in Britain in recent years.

German manufacturers produced 216,000 cars in Britain in 2015, 11 percent more than the previous year, according to the VDA. There are more than 100 locations where German companies build cars or car parts in Britain – an increase of 30 percent since 2010. BMW has four operations with 8,000 employees in the country, where it produces the Mini brand.

 

Biggest Car Brands in Britain-01

 

Denis Chick, spokesperson for Vauxhall, the British brand of General Motors’ European subsidiary Opel, said there are many benefits to being located within the European Union. The company has two operations in Britain with a total of 3,400 employees.

“Vauxhall is part of a fully integrated European company, benefiting from the free movement of goods and people within the E.U.,” he said.

But if a Brexit resulted in the loss of these benefits, Vauxhaull and other car manufactures could suffer. The UK’s economy is currently closely tied up to the European Union with Britain importing 53 percent of goods from the union in 2014. The European Union, on the other hand, accounted for 44 percent of UK exports of goods and services, according to the UK’s Office of National Statistics.

The mutual economic dependence and trade agreements between the European Union and Great Britain would be damaged on both sides in the event of a Brexit, Mr. Wissmann of the VDA said.

“The European Union would be weaker without Britain, especially when talking to China and the United States,” Mr. Wissmann said. “At the same time, Great Britain would be standing alone, facing a much larger European Union.”

Some industry experts, however, said fears were overblown and the impact on German carmakers will not be as strong as some expect.

“Trade will continue one way or the other,” said Ferdinand Dudenhöffer, a business professor at the Center of Automotive Research of the University of Duisburg-Essen. “I don’t believe in these economic horror scenarios. They are made for politicians but not for businesses.”

“There were trade agreements between the two before the European Union came into being, such as the European Economic Community. Things will just default to those agreements again in case of a Brexit,” added Mr. Dudenhöffer.

 

Franziska Scheven is an editor with Handelsblatt Global Edition. To reach the author: scheven@handelsblatt.com

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