Brexit impact still uncertain

WASHINGTON—Executives of the tire, auto and auto parts industries—like the rest of the world—are still trying to determine how the United Kingdom leaving the European Union will affect their businesses, two weeks after the Brexit vote occurred.

“The U.K. is an important market for Goodyear,” the tire maker said June 27, four days after 17.4 million British voters, representing 51.9 percent of the votes cast, decided that their nation should get out of the EU. “Like all global companies, we shall continue to assess the situation as it evolves.”

Bridgestone Americas also said it was in a watchful mode over Brexit.

“Obviously these are important markets to Bridgestone,” a company spokeswoman said. “But it is too early to tell what this will mean to Bridgestone going forward.”

Continental A.G. CEO Elmar Degenhart called Brexit “a cause of great concern” to the EU in a written statement to European Rubber Journal, a London-based sister publication to RPN.

Brexit will have a limited financial effect on Conti, which sells less than 3 percent of its worldwide products in Britain, Degenhart told ERJ. However, the prospect of the U.K. leaving the EU is “not the answer to the challenges we face from global competition with America and Asia.”

Cooper Tire & Rubber Co., a tire maker with more ties to the U.K than perhaps any other, said it is monitoring the market reaction and other repercussions of the Brexit vote.

“We are currently assessing what impacts, if any, Brexit will have on our business,” Cooper said. “Cooper's footprint in Europe, with operations in the U.K. and continental Europe, positions us well to meet customer demand and respond to any charges.”

Cooper will address the effects of Brexit, along with other issues related to its business, when it releases its second-quarter results Aug. 4, the company said.

Freudenberg Sealing Technologies GmbH & Co. K.G., the Weinheim, Germany-based global sealing technology firm serving the automotive, industrial and other markets, said it was analyzing the potential effects of Brexit on its business.

“Overall, the global economic situation is also dependent on the consequences of a Brexit,” Freudenberg said in a written statement.

The short-term effects for Freudenberg depend on the performance of the British pound, the company said. Terms of the exit agreement England will negotiate with the EU over the next two years largely will determine the longer-term effects of Brexit, it said.

“Provided a Brexit does not lead to a global economic downturn, the effects for Freudenberg will be negligible,” the company said.

U.S. tire retailers expressed little concern about Brexit. There have been no calls to Tire Industry Association headquarters about the vote, and the subject did not come up during a TIA Board of Directors meeting the weekend after the Brexit vote, said TIA Executive Vice President Roy Littlefield.

However, the European auto industry is bracing for a rough ride, as reported by Automotive News Europe, another sister publication of RPN.

France's PSA Group, which includes Renault and Peugeot, said it probably would have to raise prices for its cars because of Brexit, stated a June 27 Auto News Europe article. The same article noted that the U.K. would no longer be guaranteed tariff-free access to European auto markets unless it could negotiate that as part of its departure agreement with the EU.

“This is not a good day for Europe—and, in my view, certainly not for the U.K.,” said Daimler A.G. CEO Dieter Zetsche in the article. “Geographically, the country may be an island; politically and economically, it is not.”

As of July 6, the pound stood at about $1.30, a 31-year low, whereas it stood in the $1.50 range just before the Brexit vote.

Meanwhile, world stock markets suffered steep declines triggered by Brexit, then began an equally sharp if unsteady rise. The Dow Jones Industrial Average, which fell by nearly 900 points to 17,140 in the two days after the vote, enjoyed a four-day rise which brought the DJIA back above 17,900. However, continued nervousness over the effects of Brexit sent the average down more than 100 points on July 5, to 17,840.

Average gas prices in the U.S. inched down to $2.294 per gallon June 29, compared with $2.321 June 22, and fell further to $2.264 on July 6, according to AAA. However, it would be erroneous to attribute the lower prices to Brexit, according to Avery Ash, AAA director of federal relations.

“Generally, it takes one or two weeks for a decrease in the price of crude oil to have an effect at the pump,” he said.

Crude oil prices remained unstable because of Brexit concerns. News reports on June 29 showed the price of Brent crude above $49 per barrel and U.S. crude near the $49 mark.

However, U.S. crude prices fell 4.9 percent on July 5 to $46.60 per barrel, while Brent crude fell 4.3 percent to $47.96.

The potential effects of Brexit on the U.S. economy are still unclear, but are unlikely to be devastating, according to Alan Tonelson, founder of the economic and trade blog RealityChek.

Although Britain is one of the few countries with which the U.S. runs a trade surplus, there is relatively small potential for a substantial blow to U.S. trade, Tonelson said in a telephone interview.

“We have an enormous, continent-sized trade structure, and we are still largely self-sufficient,” he said. “Since the U.S. is so insulated from global economic downturns, it's hard to believe that Brexit will deal the U.S. a significant blow.”

On the other hand, there are some potential points of damage, according to Tonelson. One is that a stronger dollar against the pound and Euro will give Britain and Europe opportunities to increase the percentage of their goods in the U.S. market, he said.

Another is that Brexit may magnify the efforts of China—a major customer of the U.K. as well as the U.S.—to devalue its currency, Tonelson said.

“The yuan has already been devalued substantially this year,” he said. “There was a move by the Chinese central bank that brought the yuan to a 51/2-year low.”

Brexit also will complicate efforts to complete the Trans-Atlantic Trade and Investment Partnership, a major trade agreement between the U.S. and the EU, according to Tonelson.

In his June 24 RealityChek article on Brexit, he noted that the possibility of Brexit was a factor in Federal Reserve Chair Janet Yellen's June 15 decision to keep interest rates at current levels.

“Until business-as-usual in the world economy resumes, don't expect any rate hikes,” Tonelson wrote. “Good news if you believe that the U.S. desperately needs super-easy credit to sustain its current feeble recovery, and bad if you believe that prolonged near-zero rates have prevented the post-financial crisis adjustments needed to restore real health to the economy.”