Factories will close. Prices will rise. Profits will suffer. Another day, another warning of disaster from one of the major car manufacturers about the catastrophic cost of a no-deal Brexit. But hold on. Before anyone’s eyes start to glaze over, there is a twist to this one. It is a German company that is starting to worry about the hit to its bottom line. And, in truth, it is hardly likely to be the last.
Yesterday, BMW, which used to be the most formidable manufacturer of upmarket automobiles until Tesla came along, went public for the first time about the financial impact of Britain leaving the EU without a deal. According to Nicolas Peter, the group’s chief financial officer, BMW would adapt to the logistical challenges very quickly, but the imposition of tariffs in the UK – of up to 10 per cent as permitted under World Trade Organisation rules – would mean inevitable price rises for customers and a fall in profits ‘in the mid-three-digit-million-euro range per year’. With overall profits of around £7 billion last year that won’t destroy the company. Still with revenues already falling as its big gas-guzzling diesels go out of fashion this could hardly come at a worse time. Three or four hundred million euros is not to be sniffed at.
In truth, BMW is probably under-estimating the costs of the December deadline expiring with no agreement between the UK and the EU. Peter argues that the cost of tariffs will be passed on to consumers. But there is no evidence that in a competitive market – such as cars – costs can just be shuffled on to the customer without any consequence. British buyers could, for example, just get a Jaguar instead: the UK won’t be imposing tariffs on its own manufacturers, even if Michel Barnier asks us to. Or they might buy a Lexus, given the UK already has a free-trade deal with Japan, and they will be tariff free by 2026 (and let’s keep in mind that it is pretty hard for even the most discerning South London drugs dealer, always the Bavarian manufacturer’s most loyal customer base, to tell the difference between a BMW and a Lexus anyway). Come to think of it, if there is a trade deal with the US instead all those BMW drivers might switch to Teslas in even bigger numbers than they already are.
It won’t just be BMW. German exports to the UK are already falling surprisingly rapidly. Tariffs and quotas are only going to accelerate that. Of course Germany is completely entitled to put the unity of the EU over the interests of its car manufacturers. Fish and level playing fields are arguably bigger issues. But the cost of that for the country is starting to become clear – and BMW’s warnings about profits are just the start.
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