Thursday, 25 May 2017

Another Brexit delusion

I must apologise for the nature of this blog. Picking on the Spectator is like pulling the wings off flies. One knows one shouldn't do it, it's picking on the helpless, yet strangely satisfying.

Matthew Lynn muses that "It remains to be seen whether EU tariffs or other barriers are imposed on British-made cars. But even if they are, there are still many ways in which the industry can play to its strengths. It can break free of Brussels regulation to take a lead in new technologies such as hydrogen, electric and driverless cars. And it can focus on selling upmarket vehicles to global rather than European customers".

Firstly one might remark that we already do sell upmarket vehicles globally, to those few places that can afford them, and that most definitely should not be at the expense of European trade. But actually what is significant here is the mindset of "Brussels regulation".

When it comes to alternative fuels and driverless cars, we are in fact talking about a number of technical standards. In this instance, UNECE, Geneva. The specific regulation will need to be uniform across the world and will depend on a number of other dependent technical standards, not least internet connectivity. This is one of the main areas where the EU is a subordinate to international organisations, adopting their work wholesale as the basis of their regulation. In that regard, there is no question of dumping "Brussels regulation" because we adopt it one way or the other. If not through the middle man then directly from source.

This blog has argued that Brexit gives us an enhanced voice in these such bodies having acquired the right of proposal and an independent vote. That though is only useful insofar as we have the wit to play the game well. As yet, there is little acknowledgement that these forums even exist.

Lynn muses that in order for the UK motor industry to reinvent itself we must deregulate. He says "First, access to the EU comes at the cost of compliance with rules set by Brussels. Even when it’s not actively hostile to radical ideas, as it is with the gig economy, the EU is slow to permit anything new. And yet, after a century in which the internal combustion engine has not fundamentally changed, a revolution looms. Electric and hydrogen power promise a complete step change; the driverless car will transform the way vehicles are used and owned. If the UK is flexible and fast to deregulate, it can steal a lead in those technologies".

Straight off the bat, all but the London Toryboy set will have worked out that without conformity to standards then there is no exporting to the EU. Asserting that we must deregulate is effectively to say we must jettison all of our motor vehicle exports to the EU. I don't know what that is as a number but we can safely say it's a big one we cannot afford to lose.

But then again, as automotive standards are increasingly global, deregulating is likely to impact all of our trade, not least since countries with comprehensive FTAs with the EU are moving toward complete alignment with UNECE and EU requirements.

Lynn argues that "we need to diversify away from stagnant EU markets. Greek car sales, not surprisingly, have fallen almost 90 per cent in the past decade. Italian sales are down by half. GM’s recent decision to pull out of Europe (by selling its Vauxhall and Opel marques and factories to Peugeot) implied that American bosses think Europe’s overcrowded market hardly worth bothering with any more".

Both brands' share of the European market has been shrinking for some time. In 1990, they held a combined 11.5%, but by 2016 this had fallen to 6.5%, according to There might well be a reason for this. It's only very recently has Vauxhall shed its reputation for poor build quality compared with German brands. Vauxhalls are notorious stinkers and let's face it, ugly as sin.

What we are seeing in the UK is a move away from the ownership model where there is a much higher turnover of new stock. The profit comes not from the car itself but from the financial products and leasing deals. Owners are now wary of cars since they can be mechanically sound but rendered worthless by an expensive computer fault. If you have a credit rating and you have a stable job, owning a car makes very little since since you get stung for bills. Vauxhall has to compete in a new business environment. The market no longer wants cheap and cheerful.

Whether this model remains intact after Brexit is anybody's guess. Brexit is going to hurt and the Tories look like they're going to make it hurt more than it has to. It is unlikely that we will get a sector specific deal and the question of rules of origin still remain a huge concern. We might see a reversion to the norm where more people take the risk of owning in which case Vauxhall has a shot at survival. There might well be a market for more basic cars since we will all be considerably less well off for a decade at least. To me that sounds like a reversion to the pre-EU norm of driving badly made British cars, where Mercedes is once again a bosses car - and not for us plebs.

Lynn says that "manufacturers need to concentrate on countries that are growing. The Chinese market for vehicles is exploding; so is that in Vietnam, now the 35th biggest market in the world, and, closer to home, Poland, now the 25th". In this we might note that Poland is in fact a member of the EU and the EU has a comprehensive FTA with Vietnam. It remains to be seen whether we can replicate that, but that certainly won't happen if we are moving away from the EU regulatory standard. As to China, forget it. China, despite perceptions, does not do free trade. Placing a product on Chinese markets is expensive and deliberately bureaucratic.

If there ever was an economic argument for Brexit it is that we can use our freedom to trade to augment, not substitute, our existing trade. Deregulation hasn't been a serious proposition in any sector for a long time, especially not now that we are increasingly moving to global models of regulation. The only way we can possibly deregulate is if we are intent on becoming an internal market with few imports or exports of cars. This is the very opposite of what Brexiteers promised.

As ever, we have cleverdick London hacks prating on about things they know next to nothing about. Though this is the norm for the Spectator, you would think with something so pivotal, upon which much depends, they would bother to look beyond their own bubble for information. But then, as I keep having to remind myself, London Tory media has nothing to do with imparting information. It's about reinforcing narratives and upholding the tribal scriptures.

The truth of the matter is that outside of the single market UK car exports are going to suffer. Without some kind of customs agreement we are going to be hit with rules of origin and a number of other tariff concerns where components are imported from outside the EU. We're going to have to work hard just to maintain the exports we have. There are ways and means to make Brexit pay off but we'll have to play a far more sophisticated game through the international regulatory organisations. It is not going to be an easy hit - and not by any means guaranteed. One thing's for sure though; if our politicians are getting their information from The Spectator, we really are in trouble.

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