What to do about the EU?
Th morning we went to press we awoke to the news that David Cameron has almost negotiated an “emergency brake” deal. In other words, the British Prime Minister is working to control the number of migrants entering the country and the amount of benefits the state should have to pay them. Early indications suggest that Cameron will be able to pull the “emergency brake” for up to four years if the UK can prove Britain’s social and welfare system is under “excessive strain” from immigration. However, all this obscures the wider political debate that is going on within British politics and the conservative party itself. And it belies the fact that parties of all colours are positioning themselves politically ahead of the UK referendum on whether or not to remain a member of the European Union.
The referendum is expected to happen by the end of 2017, which means the clock is ticking. With this in mind, it was fascinating to read that the British automotive industry appears to be balancing the arguments of those that favour Brexit – a British-exit from the EU – by speaking out in support of EU membership. The same morning that we heard of the emergency brake plans, the Society of Motor Manufacturers and Traders (SMMT), which represents an industry that generates £69.5 billion in turnover and supports over 799,000 jobs, explained why it believes “EU membership is critical to the success of the British automotive industry”.
SMMT’s argument is based on where the automotive industry – one of the best-performing sectors of the UK economy – does business. The answer is Europe – the largest single vehicle market in the world. 57.5 per cent of vehicles manufactured in the UK in 2015 were sold in Europe, with exports to the continent growing 11.3 per cent overall. Post-recession recovery in Europe and challenges in some key global markets also led European exports to account for a much larger proportion of the total than in the previous year.
Furthermore, 92 per cent of respondents to a 2014 SMMT member survey said they believed staying in the EU would be best for business, while 75 per cent worried that leaving the EU would have a negative impact on the size and diversity of foreign investment into UK businesses. The point the SMMT is making here is that the automotive industry is relatively unified on this point.
To put this into context, it is worth considering consultancy firm Deloitte’s findings on the same subject. The July 2015 edition of its Chief Financial Officer (CFO) survey found that three-quarters of CFOs want the UK to stay in the EU. And that just two per cent favour a Brexit. While Deloitte, which sample all industries, is also strongly in favour of staying put, it worth noting that the automotive industry appears to be significantly more in favour of staying in the EU than British industry leaders in general.
SMMT’s argument then moves to the practicalities of being part of Europe. Unrestricted access to the single market, access to funding and Europe’s flexible labour market are all said to be benefits to the industry. “The UK’s EU membership also crucially provides the chance to help influence European legislation – in particular technical regulations affecting new vehicle design and development – that all companies must abide by, whether or not the country they manufacture in is a member of the EU,” SMMT said in its statement.
However, SMMT members also want EU reform. The want increased competitiveness, reduced regulation and trade deals with the rest of the world in order to secure the future of the UK automotive industry.
So what does this mean for the tyre industry? First, there is no indigenous British tyre industry anymore. I am not referring to the fact that something like 55 per cent of annual car market demand is imported from China, but rather that the remaining UK tyre factories are all owned by global firms. And the largest two (Michelin and Pirelli) are European.
Secondly, the tyre business is inextricably linked to the automotive industry. With the vehicle makers overwhelmingly in support of Europe, according to the SMMT, it is unlikely that any large tyre manufacturers are going to want to rock the boat and publically lobby against this position – whatever opinions various individuals may have.
As one UK tyre executive said recently, “As a business, my view is that we’re better off staying within Europe….It does make a lot of things easier for us, and more consistent being a European based company.” So-called “emergency brakes” aside, and without adopting any particular political point of view, it is fair to say that large sections of the business community – especially the automotive sector and by association the tyre business – would seem to agree.