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Auto stocks fall on news of Brexit

Melissa Burden, Michael Martinez, and Michael Wayland

Automotive stocks took a bigger hit than the market as a whole Friday, after the surprise upset by British voters to leave the European Union. The development could cause carmakers and auto suppliers to potentially lose billions of dollars in profits and lead to cuts in jobs and production, analysts say.

Shares of Fiat Chrysler Automobiles NV, which runs many operations out of Italy, plunged 12.2 percent. Ford Motor Co. fell 6.6 percent and General Motors Co. closed down 4.9 percent. In comparison, the S&P 500 lost 3.6 percent, the Dow lost 3.4 percent and the Nasdaq lost 4.1 percent.

Industry forecaster LMC Automotive expects car sales in England will decline this year and next, culminating in a 15 percent fall in 2018. Adding to their woes, automakers face currency fluctuations as the pound fell to a 30-year-plus low vs. the U.S. dollar. And free-trade policies could change, adding costly tariffs on vehicles built in England and exported to other countries.

Automakers, including GM and Ford, that produce vehicles and parts in Britain are going to have to watch what happens over the next two years “very closely” and potentially create contingency plans, said Patrick Anderson, principal and CEO of East Lansing-based analyst group Anderson Economic Group LLC.

“You don’t know what effect this will have on British labor policy, taxes in the EU, and if there will be a rocky exit that propitiate between Britain and other countries,” he said.

Ford said Friday it expects the exit decision will have an “adverse impact” on its operations long-term and said it will take “whatever action is needed” to stay competitive. Anderson said United Kingdom-based Jaguar Land Rover could be among companies to see more significant impacts compared to those like Fiat Chrysler, which have their headquarters in London but operate heavily elsewhere.

Other companies in the auto industry took costly hits Friday: Delphi Automotive, which is headquartered in England but has a large presence in Troy, suffered a 12.2 percent drop. Southfield-based Lear Corp. fell 9.6 percent and Bloomfield Hills-based Penske Automotive was down 10.35 percent. Auburn Hills-based BorgWarner Inc. fell 9.5 percent and Detroit-based American Axle & Manufacturing Holdings Inc. was off 6.3 percent.

Automakers’ plans

David Sowerby, portfolio manager for the Loomis, Sayles & Co. investment management firm in Bloomfield Hills, said the Brexit vote raises economic concerns for automakers.

“(It) naturally has a larger influence on a cyclical company such as the autos,” he said. “It’s a simple, but near-term challenging event for the autos.”

GM’s Opel Group, which runs the automaker’s European operations, in a statement Friday said it seeks to have free trade continue in Britain. GM has a plant in Ellesmere Port that employs about 1,900. GM makes the Opel Astra in the plant and says 88 percent of what’s built there is exported. It also has a plant in Luton that makes Vauxhall vans, more than 60 percent of which are exported. That plant employs more than 1,300.

GM has a goal to be profitable in Europe this year for the first time in more than 15 years. GM’s European operations have shed billions of dollars in losses over the past several years.

Chief Financial Officer Chuck Stevens said in an April call with analysts that the currency environment was the biggest headwind it faced for GM’s European business: “And what’s driving that is the weaker pound sterling, which obviously isn’t being helped by the Brexit situation. And I’d say that’s the biggest risk that we have amongst many.”

Ford, in a statement Friday, said keeping a stable trading environment is important. It has two engine plants and a transmission plant in the U.K. Ford said it plans to offer revised guidance on its European business during its second-quarter earnings on July 28; it returned to profitability there for the first time in years in 2015.

“Ford’s priority has always been the need to maintain a stable trading environment so that we can continue building a strong and sustainably profitable business in the U.K. and Europe, and thereby provide a more secure future for our nearly 14,000 direct employees in the U.K.,” the Dearborn automaker said. “While Ford will take whatever action is needed to ensure that our European business remains competitive and keeps to the path toward sustainable profitability, we have made no changes to our current investment plans and will not do so unless there is clear evidence that action is needed.”

A Fiat Chrysler official said Friday the decision to leave the European Union “is not expected to have significant impact on FCA, either in industrial or other terms, although the result of the referendum raises questions about the future of Europe. Particularly the fact that FCA NV is a tax resident in the U.K. is not expected to have financial consequences or require changes in the group’s governance, given the worldwide global distribution of FCA’s operating activities and locations.”

Delphi said it would continue to monitor developments.

“Delphi generates approximately 5 percent of its global revenues in the U.K.,” the supplier said in a statement. “Given the volatility created by the Brexit vote, we will continue to monitor the potential impacts on our business, including the impact from foreign exchange movements.”

Auto sales forecast

Forecaster IHS predicts auto sales in the U.K. next year will fall 7.5 percent to 8.5 percent, or 220,000 to 260,000 vehicles.

“Major economic and political uncertainty is expected to be a fact of life for some considerable time, likely weighing down markedly on business and household confidence and behavior, so dampening corporate investment, employment, and consumer spending,” IHS principal analyst Ian Fletcher said in a statement.

LMC Automotive said its forecast for the U.K. light vehicle market is down 15 percent, or about 410,000 vehicles. The region imports almost 90 percent of its light vehicles, of which 80 percent are from the European Union.

“Uncertainty will likely hold back investment and hiring decisions, as businesses consider their options and wait for greater clarity, something which is unlikely to come quickly,” the forecaster said.