The results of the historic vote battered shares of suppliers and dealership groups with significant exposure to the U.K., as well as Fiat Chrysler Automobiles, which has its headquarters in London and could be particularly vulnerable in a European downturn. PSA Peugeot Citroen indicated it likely would raise sticker prices in response to the falling pound.
"This is not a good day for Europe -- and in my view, certainly not for the U.K.," Daimler CEO Dieter Zetsche said in a statement on Friday, June 24. "Geographically, the country may be an island; politically and economically, it is not."
The U.K., Europe's second-largest automotive market after Germany, accounted for about 20 percent of European sales for Daimler's Mercedes-Benz brand in 2015.
LMC Automotive predicted that the vote to leave would wipe out 120,000 sales in the U.K. this year and about 400,000 in each of the next two years, reducing its forecast over that period by 10 percent. "Uncertainty will likely hold back investment and hiring decisions, as businesses consider their options and wait for greater clarity, something which is unlikely to come quickly," LMC said in a report Friday.
Analyst firm Evercore ISI cut its U.K. sales forecast through 2017 by 14 percent and said the vote for British exit, known colloquially as Brexit, could impact automaker earnings by more than 8 billion euros ($8.9 billion) in the next two years.
At Jaguar Land Rover, which is based in England's West Midlands, company insiders had said prior to the vote that a victory for the "leave" camp could sap £1 billion ($1.38 billion as of Friday, a $105 million decline from the previous day) from its earnings by the end of the decade.
Suppliers whose stocks plunged at least 9 percent Friday include Delphi Automotive, Lear, BorgWarner, Tenneco, Meritor and Dana Holding Corp. Shares of Penske Automotive Group, which generated a third of its 2015 revenue in the U.K., fell 10 percent.
Delicate time
The U.K. auto market has surged in recent years to hit a record high of 2.6 million cars in 2015. Ninety percent of those vehicles are imported, mostly from other parts of Europe. It built 1.6 million vehicles last year, exporting 80 percent of them.
It is the third-largest market globally for Ford Motor Co. and fourth-largest for General Motors. Ford hasn't built any cars or trucks in the U.K. since 2012, but it has 14,000 employees at two engine plants, a joint-venture transmission plant, a research center and a sales office. The engine plants supply 59 percent of Ford's European light-vehicle production, LMC said.
The vote came at a delicate time financially for the European businesses of both automakers. Ford ended its streak of losses in Europe last year, and GM is targeting its first European profit in 15 years.
"It is important for GM's local operations that negotiations on the U.K.'s future relationship with the EU are concluded in a timely manner," GM, which has about 5,000 employees at two U.K. assembly plants, said in a statement. "It is also important that business continues to benefit from the free movement of goods and people during this period. Communication on the development of the future relationship with the EU should also be clear and transparent."
Ford CFO Bob Shanks, during an April conference call, said Ford would ensure its businesses in Europe and elsewhere remain "globally competitive," no matter the outcome. In a statement on Friday, Ford said its priority is maintaining "a stable trading environment" to keep its U.K. operations "strong and sustainably profitable." Ford said its concerns "mirror those of the majority of the U.K. and European auto industry."
Analysts attributed their lower sales forecasts for the U.K. to weakening of the pound, slower economic growth and a hit to consumer confidence. The pound sank to its lowest level against the dollar since 1985 after the Brexit results were announced.
"We believe that PSA Peugeot-Citroen, VW and Ford would be hardest hit," Evercore ISI's Arndt Ellinghorst said in a note, adding that the U.K. is one of the EU's most profitable markets for new cars.
No guarantees
A split from Europe means that companies building in the U.K. would no longer be guaranteed tariff-free access to its biggest export market, unless that is specifically negotiated in the departure terms. Last year, more than 900,000 vehicles made in the U.K. were sold into Europe, according to the Society of Motor Manufacturers and Traders.
In a letter sent to employees ahead of the referendum, Toyota Motor Corp. warned that a U.K. withdrawal from the EU could result in levies of 10 percent imposed on the cars it builds in Britain, Bloomberg reported. Toyota Europe CEO Johan van Zyl told the Automotive News Europe Congress in June that the company could rethink investments in the U.K. if Britain voted to leave.
GM said it supports the U.K. remaining part of the European Economic Area, a broader free-trade bloc, to avoid any potential tariffs on cars and vans it makes in the U.K.
Jaguar Land Rover could be forced to drastically improve the fuel economy of its cars if the EU voids a special agreement negotiated by U.K. officials that loosens the carbon-dioxide targets its heavier cars need to reach by 2021.
"Once the U.K. is outside the EU, why wouldn't the French and Germans get rid of that amendment? There would be no one left inside the EU benefiting from that," John Leech, head of the U.K. automotive practice at accounting firm KPMG, told Automotive News last year.
JLR declined to comment on that possibility, saying in a statement that "it would work hard with all parties to ensure that the importance of the British automotive industry is fully understood at every level of the negotiation process." The company sells 20 percent of the cars in makes in the U.K. in Europe, it said.
The U.K.'s biggest vehicle exporter to Europe, Nissan, didn't comment on the result of the vote, but CEO Carlos Ghosn previously said he favored the U.K. staying in the EU.
BMW, which owns six British companies including Mini and Rolls-Royce, said it was too soon to know the full effect on its operations.
"While it is clear there will now be a period of uncertainty, there will be no immediate change to our operations in the U.K.," BMW said in a statement, adding that it "respects the British electorate's decision to leave the EU."
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