Audi prepares for ‘no-deal’ Brexit as businesses warn of risks

19 December 2018

19 December 2018

German vehicle manufacturer Audi is preparing itself for a no-deal Brexit if the UK leaves the European Union without a trade agreement in place.

The UK Government is currently debating a deal submitted by Prime Minister Theresa May, and agreed by the EU Commission. However, the country’s parliament has seen much in-fighting since the paper was introduced, with the PM surviving a vote of no confidence last week.

Audi’s chief financial officer Alexander Seitz said the automaker was minimising risks relating to its foreign exchange exposure, supply chain and logistics in the event that Britain leaves the EU on March 29 without a trade agreement with the EU.

′We are taking all precautionary measures for a hard Brexit,’ he told reporters. ′On the finance side, our currency hedges for 2019 are already at a very high level to safeguard our proceeds, and we have secured warehousing space to store parts. I doubt however that we will be able to offset all the effects.’

Carmakers are wary of a plunge in the pound and a breakdown in the supply chain should the UK crash out of the EU without a deal. Parts supplied on a ′just-in-time’ basis, which a majority of manufacturers work to, could be held up for customs clearance at UK ports that are not prepared for the massive increase in workload. Every part will also be subject to tariffs for import and export based on World Trade Organisation (WTO) rates.

Heightening uncertainty among manufacturers, the PM postponed last week’s planned vote in the House of Commons on her negotiated Withdrawal Agreement to mid-January after the internal party rebellion. This would leave the UK too little time to choose a viable alternative, whether that means a Norway-style soft Brexit preferred by some, a general election or even a second referendum. If MPs vote down May’s deal next month, the likelihood of a hard Brexit could be considerable. 

Business uncertainty

The Society of Motor Manufacturers and Traders (SMMT) has led calls from manufacturers to highlight the impact a hard-Brexit would have. Three-quarters of businesses fear that such a scenario will threaten their future viability. 74.1% of companies with UK operations responding to an SMMT survey said that a ′no-deal’ scenario would damage their business, with fewer than 9% foreseeing any positive impact. More than half said their operations have already suffered as a result of uncertainty about future trading arrangements. Almost a third said they had postponed or cancelled UK investment decisions because of Brexit, with one in five having already lost business as a direct consequence.

With less than 100 days until Brexit, the UK’s five leading business groups, representing hundreds of thousands of businesses across the UK, have united in a call on politicians to prevent a no-deal.

′Businesses have been watching in horror as politicians have focused on factional disputes rather than practical steps that business needs to move forward. The lack of progress in Westminster means that the risk of a ′no-deal’ Brexit is rising,’ the five groups, including the British Chambers of Commerce, Confederation of British Industry, EEF, Federation of Small Businesses and the Institute of Directors, said in a statement.

′Businesses of all sizes are reaching the point of no return, with many now putting in place contingency plans that are a significant drain of time and money. Firms are pausing or diverting investment that should be boosting productivity, innovation, jobs and pay, into stockpiling goods or materials, diverting cross-border trade and moving offices, factories and therefore jobs and tax revenues out of the UK.  While many companies are actively preparing for a ′no deal’ scenario, there are also hundreds of thousands who have yet to start – and cannot be expected to be ready in such a short space of time.’