Plants in UK to be Closed by Ford to Combat $1 Billion Brexit Blow

Ford has forecast a $1 billion hit to its business over the next two years and is considering closing plants in the UK and across Europe in response to Britain’s vote to leave the EU.

Before the end of the year, the prices of its cars that are sold in Britain would also be enhanced by the U.S. motor company which is the biggest car brand in the UK. A rise was needed to claw back money lost through foreign exchange movements, said Bob Shanks, chief financial officer.

Companies that sell into the UK face lower revenues in the months ahead as the sterling has fallen by 11 per cent against the dollar since the vote on June 23.

With currency swings and weaknesses in the U.S. and Chinese markets adding to headwinds caused by Brexit, Ford warned of a difficult second half of the year for carmakers. The shares of company went down more than 9 per cent to $12.52 in late-morning trading in New York following the warning which tallied with Ford missing expectations in the second quarter due to weaker sales in China and the U.S.

Ford would be hit by $200 million this year and another $400 million to $500 million each year over the next two years due to a combination of sterling’s devaluation and an expected hit to the UK car market, Mr Shanks said.

“We’re going to have to look more at cost,” he said. The company would find a way to “claw that back”, he added.

With analysts questioning whether the plants can win fresh work during a period of uncertainty over trade and the country’s position in the single European market, questions have been raised over prospects for the UK’s car industry in the wake of the Brexit ballot.

Engines of Ford that are exported to other EU countries for final assembly  are manufactured at the two remaining UK plants of the company situated at Bridgend and Dagenham. Many of these engines in completed vehicles are then reimported by Ford and sold in the UK.

If UK faces trade barriers with the rest of Europe after Brexit, some carmakers would be forced to close plants in the country, analysts have warned.

Resulting in a loss of 5,700 jobs, all the remaining UK carmaking plants in the UK  as well as one in Belgium have been closed by Ford in the past five years.

“Everything is going to be on the table across Europe”, Mr Shanks said when asked if the group would shut its remaining UK manufacturing operations.

He added that a margin target of between 6 and 8 per cent is desired to be achieved by the group.

Higher prices in the UK would be the result of this strategy in part.

“There’s no question that there will be price increases,” said Mr Shanks. He would expect rises “this year” and indicated the company would move first “as the market leader”.

To offset foreign exchange movements, “everybody is now waiting for somebody to make the first step” in raising prices in the UK, said Carlos Tavares, the chief executive of PSA Peugeot Citroen on Wednesday.

(Adapted from CNBC)

Categories: Economy & Finance

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