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June 25, 2016

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Asian carmakers warn of less investment in UK after Brexit

EXECUTIVES at Asian automakers with factories in Britain, largely set up to export to the European Union, say they could slow investments in Britain or even put them on ice for now, after the country voted to leave the 28-nation bloc.

Automakers, including Toyota and Nissan, had been among the manufacturers that have warned that a period of uncertainty would follow a Brexit vote, as trade and labor deals with Europe are renegotiated. Most yesterday said it could take around two years.

Toyota and Nissan had said in the run-up to the vote that continued membership of the European Union was preferable for their operations: a vote to leave would create new challenges for an industry that employs some 800,000 people in Britain.

Even so, Sunderland in northern England, where Nissan has its operations, was among the constituencies that surprised pundits by the extent to which voters supported an exit.

Shares in all Asian automakers tumbled.

“We don’t have any choice but to be more cautious with our investment decisions, including moves like whether to produce a new or significantly redesigned vehicle model in the UK,” said one official at a global automaker with manufacturing capacity in Britain, speaking on condition of anonymity.

Tata Motors’ Jaguar Land Rover is Britain’s largest carmaker, followed by Nissan, which has been in Britain for three decades and makes 475,000 cars a year in the country, most of them for export inside the EU and beyond.

Sources familiar with the company said JLR has estimated its annual profit could be cut by 1 billion pounds (US$1.47 billion) by the end of the decade as a result of Brexit. It said yesterday that it remained committed to Europe.

But the carmaker also warned yesterday of a “significant negotiating period” to follow the vote.

“The big question for automakers ... is what kind of trade deals with the EU would be negotiated. That is the big unknown,” a second executive at a global automaker said.

Exports from Britain to the EU are free of tariffs and duties. Toyota has said duties under new trading deals could be as much as 10 percent, hitting either prices or margins, and denting sales.

Toyota produced about 190,000 cars in Britain last year. Of that, 75 percent went to the EU. Only 10 percent was shipped and sold within Britain.

South Korea’s auto association said it was worried a departure could revive a 10 percent tariff on exports of passenger vehicles to UK, unless a separate deal is negotiated.

“This could inevitably undermine the price competitiveness of South Korean automakers in UK, as opposed to Japanese and German rivals which have production bases there,” said Kim Tae-nyen, vice president at the Korea Automobile Manufacturers Association.

At least one country saw a silver lining in Brexit. India’s auto industry body, the Society of Indian Automobile Manufacturers, said it could presage a better trade deal for India with Britain. India has made futile attempts to enter into a free trade deal with the EU.

But others raised the prospect of moving UK-based output capacity to Europe.




 

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