The soon to be Ex Prime Minister faces a tough challenge in July of 2013 from London Mayor Boris Johnson whose popularity for defending the fading middle class outstripped that of the elite Conservative Party. It was a forerunner of the nationalism arising today.
The United Kingdom’s European Union membership referendum voted yesterday to leave the EU, with 52% for so-called “Brexit,” for leaving the union. Nobody knows how this leave movement will play out, but it could give a new meaning to Royal Flush as one of Europe’s largest economies goes down the drain.
It could take months or years to the UK’s exit from EU membership, but the immediate effect was a sell off in the financial markets, with Central Bankers – the ones who presided over the Great Recession – making unconvincing statements that it will work itself out. Recession in the UK is likely unavoidable, with dire, cascading negative effects on other EU economies. For Americans, with Pound Sterling looking like an ounce, it’s a good time to jet across the Atlantic and have a pint.
Besides hitting automakers hard, elite establishments while ignoring the middle class while rewarding the super-rich are once again major themes in American and European politics. Ethnic nationalism, ala Chancellor Trump, is on the rise. The precedent for European stability, given the history of the causes of WW1 and WW2, is extremely disturbing. Dislocated workers sent fascist governments into power. You know the devastating social and economic results from the wars that ensued.
For automakers this unexpected turn of the political lathe has many aspects – all of them cuttingly bad. Consumer sentiment plays a large part in all auto sales. Respected forecaster LMC Automotive, relied on by many automakers and suppliers, predicted the opposite outcome to the EU out vote.
There is a technical process – the so-called Article 50 of the Lisbon Treaty of the EU – if it is invoked – that triggers the legal way to leave the EU. It would start a two-year negotiation between the UK and the European Council (EC). So far, no politician seems eager to do so, given the disaster that is underway. However the people have spoken and the Prime (prim?) Minister David Cameron of the UK has resigned because of the vote.
The uncertainty here does not bode well for Ford Motor Company or General Motors, both with long-struggling European operations. They were ashen silent today. If the exit sentiment spreads to France or the Netherlands or wherever – in fact, even if it doesn’t – things are complicated for all automakers. We are talking about roughly one-third of the global vehicle market that could be recession bound.
The latest forecast for the UK Light Vehicle market is for demand to fall 15% to 2.55 million units in 2018, versus 3.0 million units in 2015. This represents a reduction in volume of 410,000 units in 2018 versus the previous LMC forecast.
LMC Automotive, in conjunction with Oxford Economics, points out that almost half of all automotive components used in UK-built new cars are imported from the EU. The UK uses an EU supply base for capital goods, finished components and skilled labor. Their conclusion is that the UK auto-industry is effectively “foreign owned.” This means “risks of investment blight and long-run atrophy of UK automotive capacity.”
For consumers, the UK imports almost 90% of its new light vehicles, of which 80% are from the EU, if you exclude UK production. The depreciation of sterling will most assuredly lead to higher prices of imported vehicles, not good for automakers.
LMC Exec Summary
In the UK light vehicle market, key factors following the leave vote will dampen demand:
- a weaker pound,
- slower GDP growth,
- and a decline in consumer confidence.
- Slower economic growth for the UK is expected, with Oxford Economics estimating that 1.3% will be knocked off GDP in the next two years.
- Business and consumer confidence are likely to be hit through uncertainty and a weaker growth forecast.
Remarks by Treasury Secretary Lew at Joint Press Availability with French Finance Minister Michel Sapin
PARIS – I would like to thank Minister Sapin for hosting me here today. The United States and France have long maintained a strong friendship and important economic partnership and the European Union remains an indispensable partner for the United States in stimulating economic growth and addressing regional and global challenges. That will remain so for many years to come.
Minister Sapin and I just finished a productive conversation regarding this period of change following the UK’s vote to leave the European Union. I expressed to Minister Sapin our strong commitment to continue to work with France and our other counterparts in the EU and the UK as they manage through this period, to ensure continued economic stability, and advance shared economic growth and prosperity in Europe and beyond.
As the discussions between the EU and the UK continue, I believe that an outcome that produces a highly integrated relationship between the EU and the UK is in the best interests of Europe, the United States and the global economy. Such a relationship has been and will remain a vital part of the Western alliance and will continue to help support global economic growth, stability, and security. It is important that both sides demonstrate flexibility in order to produce an amicable and mutually-acceptable outcome. It is also critical that negotiations take place in a smooth, pragmatic, and transparent manner. Throughout, we must maintain the strength and unity of the transatlantic community and alliance.
That is why we are committed to continuing to work together on the Transatlantic Trade and Investment Partnership to enhance trade, job creation and growth.
While I noted that financial markets have experienced some volatility in the period since the referendum, it has been notable that they have remained orderly and well-functioning. This is a testament to the financial reforms put in place following the financial crisis, which have made our economy and financial system safer and more resilient. Our financial systems remain stronger and better prepared to weather turbulent events
I also had the opportunity to meet with business leaders here in Paris to hear their assessment of the current economic climate and outlook moving forward. While it is clear that the environment presents ongoing challenges, I heard a shared focus on growing the global economy and ensuring financial stability.
The U.S. economy continues to perform in a stable, steady way in the face of headwinds from the global economy. But as we look forward to the upcoming meeting of G-20 Finance Ministers and Central Bank Governors and beyond, it is important that we work together to promote shared growth using all tools available – including monetary, structural and fiscal. Shared growth means ensuring that the benefits that flow from global economic integration also run to working and middle class families. And it is incumbent upon all of us who believe in the benefits of cooperation in the international economic system to do a better job of explaining why this cooperation is important to the lives of our citizens in terms of jobs, economic growth and stability.
Given current weaknesses in the global economy, it is also important to maintain our focus on the recommitment made at the last G-20 to consult closely with one another on exchange rate policy, and to refrain from competitive devaluation.
Finally, Minister Sapin and I discussed the situation in Ukraine and I congratulated him on the EU’s successful rollover of its sectoral sanctions against Russia. We reaffirmed our shared view that full implementation of the Minsk agreements is critically important, as well as the need for Ukraine to continue its economic reforms.
People here actually get the reality of Brexit. Paul lends some great insight as a resident, and what he says lines up perfectly what the economists are saying. The pound has decreased so travel to the UK, purchase of their products, etc., can be done at a “discount” these days. Also watch commercial real estate boom across the world as companies no longer consider the UK a global market, and don’t want to invest in locating there any longer. There will be a mass exodus of the tax base there.
And Jyrki brought up poor Jo Cox, who paid for this debacle with her life – even though Nigel Farage (head of Independent Party) proudly stated that they “won without a bullet being fired.” I am sure MS Cox’s family begs to differ.
The whole Boris Johnson thing is a mirror to what we are going through with Trump. At least Johnson realized he went too far with no end game, and backed out “somewhat” gracefully (although he contributed largely to this mess). Trump’s ego will never allow him to do the same.
You got some nice feedback there.
Honestly, I’m at a complete loss. I’ve worked in “Europe” as you know, and holidayed there for many years – and freedom of movement has been a plus, though the Brits always wanted to be an exception by not being part of the border-free Schengen agreement and refusing to accept the Euro as currency. I can understand why we did that – we’re a small, relatively crowded island with a free health system and state benefits that mean if you’re lazy you can get paid for having loads of kids and doing f**k all work so no wonder everyone wants to come here – and I saw first-hand how the intro of the Euro raised the cost of living in Germany: my kids used to eat ice cream cones that cost a deutschmark – then conveniently they became a Euro – almost doubling the price (as 1 euro was approx. 1.95 dm!).
All that said, I can’t help feeling sad that just over half of our nation voted to leave, while almost half voted to remain – so we leave… Mmmm. Maybe that’s what I need to do!
As for the auto makers, interesting. Great time to buy an Aston or Jag if you live in France or the US…. Great time for me to sell my remaining paltry amount of Ford stock and have the proceeds in pounds…. but if you were Ford, would you still build diesel engines in the UK and ship them to plants in Europe when you have capacity and empty production facilities in the plants where you build the cars? Would you still have your engineers, marketers etc. split between two locations such that, suddenly, you can’t move them freely between the UK and Germany or Spain? I guess there will be a lot of thinking going on inside FMC and GM Europe about all of this.
Either way, I’m on the edge of being too old for it to make much of a difference. But as my daughter just graduates (next week) with a first class degree in History and goes out into the world, and my son is still at the start of his career as an automotive journalist, I worry for them that the familiarity they have with Europe under the EU which has been a part of their growing up until now will become a thing of the past with the danger that as Britain is isolated in Europe, nobody wants to base themselves here or do business from here, and the European attitude towards the UK becomes increasingly hostile and prejudiced
We’ll see. The biggest issue at the moment is that all of the politicians are running around like headless chickens, resigning, insulting each other, washing their hands of the whole mess. Cameron got us into this mess, and had no plan to deal with the outcome he didn’t expect – and because it wasn’t the outcome he wanted, he decided to chuck in the towel and leave it for everyone (anyone?) else to figure out. As for Boris Johnson and Nigel Farage, I can only apologise sincerely on behalf of the majority of sensible and intelligent Brits that these people have ever been allowed out in public to behave so appallingly.
What a heartfelt, intelligent response.Thank you for bringing some perspective, some personal scope, some nuance to this issue. As countries we have had some political differences – say in 1776 and 1812. That said, since then we have stood by each other for good reasons.
I, too, am dumbfounded by Brexit. But as a man living in the USA world of Trump, I have scant, nay, no grounds to criticize British politics. To use some American slang – Boris Johnson, mad dog running, caught the car and then realized once it was in his teeth that he had no plan for next move.
Yes, I am well, but feeling older, much older, and no longer able to shape the world. This is probably an illusion carried over from when I was younger that things could be changed by me. I now have two daughters that are sailing their own courses in rough seas without my constant (overbearing?) plotting of the route. This doesn’t stop me from watching the barometer ashore.
The campaign to leave the EU was deplorable in its dishonesty, casual racism and nationalist hubris, reaching its low point when Labor MP Jo Cox, an internationalist and a humanitarian, was murdered.
Economic crisis has led to austerity and worsening conditions for working people in Britain, as in many other countries. Immigrants and the EU were an easy scapegoat for the failure of corporate globalization to deliver dignity and security.
The same dynamic is at work across the world, with the cheap and dangerous populism distracting people from the real causes of the crisis.
This vote is a political earthquake, and a major shattering of the globalization consensus. It is a political consequence of the 2008 financial crisis, and must serve as a wake-up call for world and European political leaders. People feel alienated and disempowered by a system that puts corporate interests first.
Obviously leaving the EU would not solve the problems the UK faces, and the far right will make the most of the disruption. Financial speculation has led to the collapse of the pound, and there are threats of damage to the real economy. Furthermore, there has already been a disturbing rise in racist attacks in the UK.
The consequences of the vote are far from certain, but a political vacuum has been created that must be occupied by progressive voices. There are opportunities to step into the breach to demand an alternative.
Unions are leading the call for change, to show that another Europe, and another world, is possible. Unions in the UK and across Europe have pledged their commitment to fight for workers’ rights, whatever the outcome.
People need to have hope for a better life, otherwise we risk exclusion and radicalization as we have seen in the suburbs of Paris, Brussels and elsewhere. People need to feel that society cares for them and is fair. That is why it’s so important to reduce inequality by making sure rich individuals and corporations pay their fair share of taxes, and for everybody to earn a living wage.
A more social and human world and Europe also makes economic sense. Europe has the potential to create good jobs and well-being for its citizens, including immigrants, but it needs to change. Otherwise it will remain a scapegoat for the populists, and little by little fall apart.
… We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability…
(These are the same people who presided over the Great Recession – editor)