Ralf Speth was distinctly thoughtful when the topic of Brexit cropped up at the Delhi Auto Expo earlier this year. The CEO of Jaguar Land Rover was clearly concerned about the possibilities of a British exit (or Brexit) from the EU as this could have grave implications for his company’s business.

At that point in time, this did not even seem a remote possibility but the present public mood in the UK seems to suggest that this could actually happen.

The vote for/against Brexit will happen next Thursday by which time Speth and his auto CEO counterparts will know what their next course of action will be.

JLR is, of course, the UK’s largest carmaker and ended 2015 with 4.9 lakh units. In the process, it overtook Nissan which reported sales of 4.77 lakh cars in a year where the country’s total tally of cars sold was 1.59 million units. BMW, Honda and Toyota are the other prominent brands in the British landscape and account for the balance one-third sales.

Apart from its top status, JLR becomes especially relevant to India since its owner is Tata Motors which bought the two brands from Ford in 2008.

The price paid was a hefty $2.3 billion and the investment seemed particularly gigantic when the world nosedived following the Lehman crisis.

Like other carmakers, JLR also wilted in the global slowdown even as Tata Motors pulled out all stops to get things back on track by further investments in products and R&D. Today, the company is the most important lifeline for its Indian owner even as it has spread its global footprint to China and, more recently, Brazil.

Wait and watch

In this backdrop, Brexit is not the best piece of news since it has the potential to jeopardise business plans especially when this involves exports to Europe. The fear now is that if Thursday’s referendum is in favour of an UK exit, it could result in duties being slapped on cars being imported to Europe (from Britain).

Similarly, auto components shipped into the UK could also become expensive as a result of fresh levies. How this will affect Indian suppliers which have acquired businesses in Europe remains to be seen.

In addition, exiting the EU could also mean denying carmakers based in the UK the privilege of accessing free trade agreements with a host of other countries.

Should this happen, there will really be no big growth engine to create jobs back home in the UK which, in turn, could spawn labour problems at plants. Interestingly, Nissan had transferred its Micra production line from the UK to India way back in 2009 at the time of commissioning its Chennai plant with global ally, Renault. The move was clearly prompted by reasons of costs where India had caught the fancy of its CEO, Carlos Ghosn, for its strengths in frugal engineering.

In hindsight, this was a sensible move given that Brexit could just end up becoming a reality. The Nissan CEO is, in any case, believed to be opposed to the idea for the very same reasons of business being impacted as a result in addition to the threat of jobs being at stake.

In a way, JLR has a fallback option in place with its decision to set up a plant in Slovakia, central Europe. While its actual commissioning is still more than a couple of years away, it will still help offset any setback of a possible Brexit.

Backup plans

Europe is a big market for JLR, as is the case with other carmakers with operations in the UK, and it just cannot afford to let it slip through its fingers.

“There is really no other choice but to go global. Europe is a big market for us and it makes sense to have a base in Slovakia from the viewpoint of a supplier network and so on,” Speth had said at the Auto Expo interaction.

According to him, these were particularly volatile times for the automobile industry.

Beyond Brexit, there were other issues to contend with like terrorism and crashing oil prices which were taking its toll on economies across the world. One of the worst hit was Brazil where, ironically, JLR commissioned its plant in Rio de Janeiro earlier this week.

Yet, as Speth said, it was one of the fastest growing economies until last year which was the reason for JLR to set up shop in Brazil. The idea is to make this the mother plant for South America where the likes of Venezuela, Ecuador and Uruguay are struggling thanks to the sharp fall in oil prices. While China is potentially its most attractive market, JLR had had its share of setbacks last year though Speth was reasonably confident that things would look up.

“China is the biggest car market in the world and the outlook for us is positive though growth has slowed down. I am cautiously optimistic that things will look up,” he said.

JLR’s problems in China largely had to do with the Tianjin port fire which destroyed nearly 6,000 cars.

Apart from this, there were supply-related problems with some models which did not make it to the market on time. During FY’16, JLR’s market share in China had slumped to 19 per cent from the previous year’s 25 per cent.

Staying rational

Europe, which is the core of the Brexit debate, was its biggest market accounting for 24 per cent of its numbers.

The UK was next with 20 per cent which is perhaps an indication of what the Britain-EU means not only to JLR but Nissan too.

Amidst this grim global scenario, Speth said there were other issues affecting millions of people who were facing huge problems, a clear reference to the refugee crisis which is posing a challenge across Europe.

“I hope people become more rational in trying to do their best for their countries. This will make the world a better place to live in,” he said.

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