The UK carmaker that defies Brexit

Carmakers are falling over themselves to warn Theresa May about Brexit. Except the maker of James Bond’s favourite car.

One of the industries that kept popping up in the Brexit debate was the car industry.

It’s easy to see why. People know cars. They cost a lot but we still need them to get around.

Leaving the EU would make these expensive goods more expensive and hang hundreds of thousands of jobs in the balance. It was the ideal poster boy for Remain.

Alas, it was no use. Brits voted to leave the European trading bloc anyway.

Since then British car exporters have sounded the alarm on many an occasion. They now face tariffs of 10% if the UK leaves the EU without a trade deal.

Jobs will be lost…

Investments could be delayed or abandoned all together as long as uncertainty about the UK’s future persists…

The UK car industry could even “face death by a thousand cuts” as an industry leader warned a couple of months after the vote.

That’s the kind of gloomy talk that’s dominated the Brexit debate vis-à-vis cars.

But a “British to our core” carmaker is having none of that.

It’s defying Brexit by floating on the stock market precisely at the moment the talks hit its “make or break” phase.

Brexit? What Brexit?

Obviously, carmakers are right to be worried.

The car industry is likely to be affected in a big way if the UK government and the EU27 fail to reach an exit agreement.

Most UK car manufacturers import about half of their parts from the EU.

Tariffs on auto parts would mean higher costs for building a car, while tariffs on the end product would also make cars more expensive to customers abroad.

It’s why various big carmakers in the UK have turned up the pressure on Prime Minister Theresa May.

Jaguar Land Rover CEO Ralf Speth warned that an unhappy divorce from the EU would cost his company £1.2bn a year and put tens of thousands of jobs at risk.

Unobstructed access to the EU’s single market he considered “as important a part to our business as wheels are to our cars”.

BMW similarly claimed it would have to close its UK plants if its production were to suffer from Brexit.

But not every UK carmaker is as troubled.

Who else should shrug off Brexit fears but James Bond’s favourite car brand, Aston Martin?

“We’ve done a lot of thinking about Brexit but it doesn’t materially impact our plans. We’ve considered it very deeply,” said Mark Wilson, chief financial officer at Aston Martin, last month.

Aston Martin is so nonplussed about the outcome of the UK-EU negotiations that it’s scheduled an Initial Public Offering (IPO) for next month.

The company will float 25% of its stock on the London Stock Exchange on or around 8 October.

It’s hoping to emulate or surpass the stock market success of another luxury sports car maker, Ferrari. Its Italian rival has done well since it got listed on the New York Stock Exchange in 2015.

Initially Aston Martin shares will be offered at between £17.50 and £22.50 per share.

In the most optimistic scenario, Aston Martin could immediately storm the “Footsie” 100.

It would make it the first car company to be included in the index since Jaguar de-listed three decades ago.

No ordinary car

What makes Aston Martin so different from other car manufacturers in the UK?

Why is it so bold to go public in these anxious times for the UK car industry?

One of the reasons the company may be more relaxed about Brexit is because it doesn’t import as many parts from the EU as other UK carmakers.

That matters a great deal. If the lorry with car parts is stuck at the border, the whole production process could come to a halt.

Having all (or most) of your parts produced in the same country could therefore be a big benefit and at least take away one worry for carmakers.

Another reason Aston Martin might not be as concerned about the likely impact of Brexit on the UK car industry is because it doesn’t see itself as a “carmaker”.

The company prefers to see itself as a luxury brand à la French luxury goods group Hermès or Italian sports car manufacturer Ferrari.

“The 99% car industry is all about production efficiency,” says Sean Keyes, editor of Technology Profits Confidential.

“Making sweet-ass cars is secondary. Which is why Brexit is so serious.

“Aston Martin is in the 1% — it’s not trying to make a good-enough car at the right cost. It’s trying to make the best possible car almost regardless of cost.”

This is probably the biggest reason why Aston Martin bosses can afford to shrug off Brexit.

Nobody buys an Aston Martin because they need one. People buy them because they want (and can afford) them.

In other words, if you’re willing to pay north of £100,000 for a car, you’re not likely to fuss over a tariff…

And, CEO Andy Palmer points out, tariffs are a two-way street:

“If there are tariffs … for every car we lose because of a 10 per cent tariff into Europe, we presumably pick up from Ferrari and Lamborghini in the other direction because obviously their cars become more expensive in the UK.”

You win some, you lose some.

Whether the company’s right to be so mellow about a potential no deal Brexit is impossible to say at this point.

But at least its directors are keeping their cool in public. James Bond would be proud.

There are enough reasons for Aston Martin to be optimistic about its IPO.

Even in difficult times for the UK car industry amid all the Brexit uncertainty, it doesn’t look like it will drive into a dead-end street with its public listing.

The company stands apart because its product is more “luxury” than “car”.

Still, investors might first want to wait and see if Aston Martin can, as its bosses expect, race itself into the FTSE 100.

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