Emergency measures

German companies prepare for hard Brexit

Final Assembly Of BMW AG Mini Automobiles At Oxford Plant
The wheels have come off Britain's plans. Source: Bloomberg

Will the world end if Britain leaves the European Union without an agreement next year? Theresa May, the country’s prime minister, said with some confidence last week that it won’t. But German businesses are taking no chances.

The rising probability of a hard Brexit has put them on red alert. Preparations are in full swing, with industries from aviation to big pharma already taking emergency action. “In our planning, ‘no deal’ is the primary scenario, and we are preparing for it,” says chemicals giant Bayer.

Britain is likely to suffer most. Some 2,500 German companies employing 400,000 people operate in the country, including BMW, Eon, Thyssen-Krupp and Siemens. But the damage will not be confined to loss of access to the EU’s largest economy. In total, British firms export goods and services worth €187 billion ($218 billion) to continental Europe. “If the British were to leave the EU without a deal, the economic and political damage would be enormous,” said Clemens Fuest, head of the Ifo research institute.

Germany would also be hurt: Its exports to Britain last year amounted to €84 billion. A no-deal scenario would mean stricter border controls, higher duties, more bureaucracy and higher costs. According to projections by business consultants Oliver Wyman, Brexit could cost German companies around €9 billion. So what preparations are the Germans making?

Ready or not

Most companies already have teams reviewing their processes and supply chains. Planning is especially complex in the aviation industry. Airbus, one of the UK’s largest employers, produces wings in Britain, which are then delivered to assembly lines in Toulouse and Hamburg. This supply chain could grind to a halt if no deal is reached.

To address this, the firm says it is currently in “intensive talks” with the British government. “We need the free movement of goods, people and services,” it says. Airbus also needs a deal to align British and EU air safety standards, something that is also hugely important to the airline Condor, owned by the British tour operator Thomas Cook. It, like all British airlines, faces losing the right to fly between the EU and UK, and wants legally binging regulations put in place to prevent such a rupture.

The manufacturing industry is also mobilizing. Steelmaker Thyssen-Krupp says that a hard Brexit will have a “negative impact,” and adversely affect its tie-up with Tata, which owns a huge steel mill in Wales. Meanwhile, Juergen Maier, head of Siemens UK, has noted that a delay of only two minutes for every truck at the port of Dover will lead to a 27-kilometer tailback – every day. To prevent bottlenecks, firms are building up storage capacities, with Düsseldorf-based real estate agent Anteon noticing “an increased interest in warehouse real estate, especially from the manufacturing sector.”

Impossible tasks

Stockpiling is also underway in the pharmaceutical industry. The UK is a leading location for testing and manufacturing medicines, with around 80 million drug packages moving between the country and the bloc every month. A hard Brexit will make this impossible. Bayer and several U.S. pharmaceutical companies have therefore begun to build supplies on both sides of the Channel. Firms are also hastily arranging the EU-wide approval of new and old drugs in countries other than the UK, with a 900% increase in applications since April.

Among carmakers, BMW bears the greatest risk. Its Mini and Rolls-Royce brands are based in Britain, while the firm operates four plants there. Last year, 230,000 Minis rolled off British production lines – 10 percent of group sales. Without the customs advantages of the EU, there is a risk of a considerable drop in sales. To mitigate risks, BMW has had a task force intensively checking supply chains and advising suppliers.

The financial sector is also bracing itself. According to Felix Hufeld, president of the German financial regulator Bafin, larger institutions are “very well prepared… for different scenarios,” but little has been done by smaller banks. Wolfgang Fink, head of Goldman Sach’s German business, says the bank will be ready for business as usual come April, but is worried about smaller rivals.

Whatever the outcome of the negotiations, it seems few German businesses are leaving Brexit to chance. But how effective their preparations will be remains to be seen.

Handelsblatt correspondents and editors contributing to this article included Marcus Fasse, Jürgen Flauger, Bert Fröndhoff, Kevin Knitterscheidt, Moritz Koch, Jens Koenen, Kerstin Leitel, Jens Münchrath, Yasmin Osman and Carsten Volkery.

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