How Vulnerable Is Germany?

The shock of Britain’s vote to leave the European Union has German carmakers scrambling. Not only is Britain their number one export market, last year, British buyers spent €22 billion on over 800,000 BMWs, Mercedes, Volkswagens and other German cars. What’s more, Britain is also deeply embedded in the German automakers’ complex supply chains. The car companies and their German suppliers operate more than 100 factories in Britain. No two European countries’ auto industries have closer links.

All these investments were of course predicated on Britain being part of the EU’s single market where goods flow fast and freely, without tariffs, border checks, or customs declarations. Now, there is a very real danger that Britain will lose its unfettered access to Europe’s mainland – and Europe to Britain. Carmakers are therefore working fast on Plan B. Already, auto industry analysts have lowered their forecasts for German car sales in Britain, mainly because a nearly 10 percent post-Brexit plunge of the British pound against the euro means fewer Brits will be able to afford German cars. If trade barriers go back up, as some analysts say is now likely to happen, the changes would be much more wrenching. BMW, which ships the iconic Mini from its factory in Oxford to all of mainland Europe, may have to shift production to a plant in the Netherlands. Opel could make more Astras at its Gliwice plant in Poland instead of Liverpool. The suppliers and their factories would of course follow suit.

The article originally appeared in Handelsblatt Global Edition on August 8, 2016. Continue reading here.

Stefan Theil is the managing editor of Handelsblatt Global Edition Magazine.