In September, Jaguar Land Rover unveiled a new development facility near Coventry in central England, equipped with technologies like 3-D printing and dedicated to a futuristic vision dubbed “Destination Zero”: No emissions, accidents or congestion.
Early next month, Britain’s biggest auto manufacturer plans to add another goose egg: Zero production.
The maker of luxurious Jaguar sedans and rugged Range Rover SUVs is idling its U.K. factories for a week in order to guard against supply-chain disruption after the Oct. 31 deadline for leaving the European Union. The shutdown will go ahead whether the U.K. departs with a deal, crashes out without one or secures another delay.
After a weekend of political chaos that left Prime Minister Boris Johnson’s withdrawal agreement in tatters, the answer to that question remains as elusive as it was more than three years ago when the country voted to leave. U.K. Plc is nowhere nearer the clarity it craves.
“We need tariff free, frictionless and seamless conditions to do business,” Ralf Speth, chief executive officer of Jaguar Land Rover, said in an interview on Sunday.
While most business leaders want to avoid a no-deal departure, continued uncertainty is not much better. With the cliff edge looming, and the prospect of another one in three months if the EU grants Parliament’s request for a further delay, collateral damage is mounting.
“There will be a hangover into next year, regardless of what happens next,” said Suren Thiru, head of economics at the British Chambers of Commerce. “The political inaction has had serious economic consequences.”
After Johnson secured an 11th-hour agreement with Brussels last week, industry groups including the Federation of Small Businesses and the British Retail Consortium had allowed themselves a glimmer of hope, urging politicians to move swiftly to end the state of limbo.
The weekend brought a reality check. In a rare Saturday sitting of the House of Commons, lawmakers denied Johnson the chance of putting his deal to the test by voting in favor of an amendment that basically required him to ask the EU for a delay.
The government confirmed on Sunday it was triggering Operation Yellowhammer, its contingency plan to deal with the fallout from a chaotic departure from the EU.
Bonmarche, a womenswear retailer that has been struggling for years, late Friday went into administration, a British insolvency procedure, saying uncertainty over the departure from the EU delivered a knockout blow.
“The delay in Brexit has created negativities, both in the global markets towards Britain and damaged consumer sentiment,” CEO Helen Connolly said. “Without such a delay, it is feasible to believe that our issues would have been more manageable.”
Overall, the U.K. has weathered Brexit better than some had feared. The housing market has cooled but not collapsed. While the economy unexpectedly shrank in August, it’s on track to avoid a recession in the third quarter.
The cost for companies has been steep, though. Carmakers are particularly exposed to the vicissitudes of Brexit because of their just-in-time supply chains. They’ve spent more than 500 million pounds ($650 million) to prepare, according to the Society for Motor Manufacturers and Traders. Toyota Motor Corp. and BMW AG have also announced plans to halt production, while Nissan Motor Co. has warned that tariffs on auto exports to the EU are likely to render its U.K. operations unsustainable.
Drugmakers have had to build up supplies to ensure the U.K. doesn’t fall short of essential medicines, while adding plant capacity elsewhere in the EU to meet post-Brexit regulatory requirements. AstraZeneca Plc has estimated that it’s spending about 40 million pounds to 50 million pounds to make sure it can sell products overseas, while GlaxoSmithKline Plc sees its Brexit costs at almost double that amount.
In London’s financial district, equity issuance has dried up and about 1,000 investment banking jobs have been moved to other European hubs. Banks have also earmarked up to 1 trillion pounds in assets to move to the EU, according to consultancy EY, but many have been slow to make the shift.
“This rolling period of uncertainty does make it harder to plan around,” said James Wood-Collins, CEO at specialist currency manager Record Plc.
Farmers have been struggling to attract labor amid questions over EU nationals’ post-Brexit rights in the U.K. About 16% of agricultural jobs went unfilled in September, forcing farms to seek labor from more non-EU nations, raising employment costs.
Manufacturers have also been tapping the brakes. In the third quarter, U.K. factory owners reported a deterioration in sales, cash flow and investment, according to a survey by the British Chambers of Commerce.
All of this is a far cry from the “sunlit meadows” beyond the EU that Johnson promised during the referendum campaign.
Jaguar Land Rover’s planned shutdown shows the cost. The company makes about 450,000 Land Rover Discovery sport-utility vehicles, Jaguar XJ cars and other automobiles in the U.K.; one week’s production represents almost 9,000 vehicles.
Shares of JLR parent Tata Motors Ltd. surged late last week on prospects for an end to the uncertainty. Now the best that many business leaders can dare to hope for is a new delay.
“A majority of our members would rather have an extension than the reality of a no-deal Brexit,” said Rain Newton-Smith, chief economist at the Confederation of British Industry. “But it needs to be an extension with a purpose.”
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