Assignment On Effect of Brexit

Running head: EFFECT OF BREXIT
EFFECT OF BREXIT
Name of the Student
Name of the University
Author Note

1EFFECT OF BREXIT
Table of Contents
First section................................................................................................................................2
Second section............................................................................................................................4
Third section...............................................................................................................................5

2EFFECT OF BREXIT
First section
The automobile industry in United Kingdom is going through a critical situation, due
to the slowdown of the economy, the volume of car sales fall down by 6.6% in the last five
years. Beside the economic slowdown, the environmental aspects also play a major role in the
downfall of the business in the automotive industry. In addition to these problems Brexit
make the situation more difficult for the automotive sector and creates a adverse impact on
doing business as well as on the profit generating capacity of the companies in the long run.
Brexit creates an adverse effect on the automobile industry and that happens due to
several factors which are explained in details
Economy
 Brexit will slow down the economy of united kingdom which will decrease the
demand of the vehicles, it also create impact on the spending of the government in the
development of new infrastructure for which the companies of the automotive
industry have to suffer1.
 This economic uncertainty results in to enhancement of risk in the entire business
environment in United Kingdom and the automotive industry is also suffering from
the same2.
Finance/tax
 Due to the slow growth rate the need of cost control increases
 The companies in the automobile industry has to revise the market assumptions as the
demand for cars decreases due to lack of liquidity in the economy.
1 Peck, Frank. "Beyond Brexit: we need an industrial strategy." In Cumbria (2019): 58-59.
2 Zhang, Aimin, and Ran An. "The Impact of Brexit on Motor Industry in UK." International Conference
on Transformations and Innovations in Management (ICTIM 2017). Atlantis Press, 2017.

3EFFECT OF BREXIT
 The tariff barriers imposed by the government on sales of car to the European union
make direct impact on the profit generating capacity as well as on the cost of
production of the automobile companies3.
 As it has been observed that more than 50% of the cars that are exported from UK
went to the European unions. The brexit crates a barrier in this market.
Supply chain
 Obstruction on the transportation of the goods will create an impact on the
relationship with the suppliers of raw materials which is very essential for the
automobile industry, this hindrance in the movement of goods create barrier in the
production process and reduces the volume of production.
 The hard rules of brext will affect the local rules of content which will impact directly
on trading with other market players less than half of the car parts are produced in the
United Kingdom.
 The barriers to restore auto parts will results in to the lower lead times which will
generate potential supply chain issues.
Labour problems
 Access to skilled international labour will become difficult and that will increase the
production cost as well as it will create a problem in producing high quality cars4.
 By getting obstacles to move freely the workers in the auto sector may try to get job
in some other countries of the European Union for which the automobile companies
in the UK are suffering from acute problem of skilled and professional labour.
3 Ramiah, Vikash, Huy NA Pham, and Imad Moosa. "The sectoral effects of Brexit on the British
economy: early evidence from the reaction of the stock market." Applied Economics 49.26 (2017):
2508-2514.
4 Driffield, Nigel, and Michail Karoglou. "Brexit and foreign investment in the UK." Journal of the Royal
Statistical Society: Series A (Statistics in Society) 182.2 (2019): 559-582.

4EFFECT OF BREXIT
 Getting work permit and visas become a major challenge for the workers5.
Legal compliance
 Due to changes in the rule for getting access in the single market of United Kingdom
the companies have to restructure their contracts which increases the legal costs.
 The new rules of compliances become stricter and create obstacle in doing business
easily.
 The franchises of the foreign companies that carrying operation in united kingdom
have to make changes in their legal agreements.
Exchange rates
 As soon as the Brexit vote is conducted the rate of the pound sterling fall by 20%
which increases the cost of material that are to be imported from the European
nations.
 Due to heavy fluctuation in the currency rate effects the profitability of the auto sector
as many parts of car that are to be imported from various other nations become more
expensive.
Second section
With the increasing demand of the electric car in the global market BMW launched its
electronic car named mini which creates a significant impact on the automobile industry.
BMW has long-term relation with the united kingdom as the company has large production
unit in the united kingdom from which several products are manufactured and it make a large
contribution in the total automobile industry in UK.
5 Hancké, B. (2018). Made in the UK: Brexit and manufacturing revisited. LSE European Politics and
Policy (EUROPP) Blog.

5EFFECT OF BREXIT
The production of an electric car is different from that of the contemporary engine car
and for that reason BMW has to rethink its entire production process and the infrastructure.
The main assembly line in Cowley is the obvious choice of BMW as in this unit the company
has already made an investment of 500 million, but after the Brexit the scenario has
completely changed and BMW is now thinking about changing the location6.
The decision of the change in the location of the production also impact the marketing
strategy of BMW. The electric car is specifically designed for driving shorter distances within
a city, the target customers of the car is the young people of the population who have fond of
keeping unique cars that can make them distinct from others. It spends huge amount in
advertisement by arranging super bowl advertisement in which several celebrities like Serena
Williams actor Harvey Keitel take part which indicates that the company mainly focus on
capturing the urban market and the young aged peoples. Due to Brexit the economy will slow
down and people will not spend money in buying luxurious items like electronic cars.
Third section
In the case BMW has many options regarding the opening of the manufacturing units
of the electric car MINI. The options are either to carry on the production in the Cowley
manufacturing unit in united kingdom or to open a new unit in the central European nation, or
to make production in Germany . the details and the pros and cons odf all the options are
given bleow:
If the manufacturing unit in Cowley or born is up graded and electronic car is
produced in these units then the cost will be 50 million and it will take 12 months
Pros
6 Sampson, Thomas. "Brexit: the economics of international disintegration." Journal of Economic
perspectives 31.4 (2017): 163-84.

6EFFECT OF BREXIT
This will be most economic and will save more time for BMW in launching the
electronic car in the European market.
Cons
The effect of brexit may create a long term effect on the sales figures and also
increases the total cost of production7.
If the mini is produced in the existing plant of BMW in Regensburg in Germany then
the cost will be 250 million and the entire process will take 18 months
Pros
As the head office of BMW is in Germany so it will get all the benefit from the local
market as well as from the government of Germany.
Cons
The cost of upgrading the unit of Rosenberg is more costly and time consuming in
comparison to the unit of Cowley in UK8.
If the organisation make a new plant in Slovakia it has to incur 1 billion and will take
four years for completing the project.
Pros
As the cost of labour is low in Slovakia is low and the raw materials can also be
achieved easily so it will give benefits in long term.
7 Gasiorek, M. I. C. H. A. E. L., I. L. O. N. A. Serwicka, and A. L. A. S. D. A. I. R. Smith. "Which
manufacturing sectors are most vulnerable to Brexit." UK trade policy observatory. Briefing paper 16
(2018).
8 Bartkowiak, Marcin, and Anna Ratajczak. "Brexit and the effects on Germany from an economic and
social perspective." (2019).

7EFFECT OF BREXIT
Cons
The initial cost is too high and setting of an entirely new plant is risky and time
consuming which will not be beneficial for ‘MINI’ project of BMW.