Wednesday, 19 April 2017

The Real UK - An Overview

There is so much unfounded sensationalism in the media, which loves change as it gives them something to distort and then they can hook readers with unfounded rhetoric. Business hates change because it means they have to react and manage it with skill. Some leaders in the car industry that act more like drama queens than executives, others use change to justify negative results that would have occurred anyway. So what is really happening in the UK and the car industry? Here is an opinion from myself, an admitted layman.

Bear in mind even with experts there is disagreement. Get two experts together and you will get at least three differing opinions, such is the nature of human prediction.

Overview of the UK economy

We all know that Greece was living beyond its means until one day the lenders said enough. Terms were imposed - for any future assistance to be approved - that would involve belt tightening. That had some effect on the international economic scene, despite Greece's small size.

The UK is doing the same as Greece, not to the same degree but still borrowing to support a lifestyle that it isn't earning enough to pay for itself. Eventually the lenders will get worried about the ability to service the debt and insist on action. Imagine the global impact of the world's 5th largest economy going through that?

Balance of payments

Britain continues to buy too much and export too little. Successive governments have had muddled policies and done little to help. The UK has a currency that is overvalued, hampering exporting and rewarding importing. Most UK residents live in a fool's paradise, buying whatever they want with little or no regard for supporting locally made. Politicians don't want to tell them how things really are because no one likes the bringer of bad news. It's called 'shooting the messenger'.

The effect of Brexit

One effect has been a reduction of the Sterling's value. It was sudden, which wasn't helpful, but it is now valued closer to where it should be. That will make the cost of imports go up over time, provided the currency remains low. It also helps exports as they become cheaper overseas. Prices will go up within the UK as a consequence. So a lower valued currency is one step in improving the balance of trade deficit, but still just one step.

The effect on the UK car market

Car manufacturers who source little or nothing in from the UK with regard to car components will feel it the most. Imported car prices will have to increase, or car companies will have to absorb the difference.


Making cars in the UK just got a little better. The greater the local content, the better it is. It's not a huge difference, but car makers with slender margins will benefit the most. Locally made cars should be slightly better value in the UK than the importer counterpart but overall cars will cost slightly more.

Is it enough to save the UK economy?

On its own, no. The trade deficit will continue but be a little less extreme. I imagine that UK industry in general isn't prepared or able to take proper advantage. The British car industry should at least become more profitable. Whether it will affect the volume of cars made will depend on how they use the lower value of the currency. A depreciated currency buys time but more needs to be done.

The fly in the ointment

The imponderable at the moment is how the EU and the UK manage the split. If the EU wants to get spiteful and shortsighted, it will try to act punitively. Of course the UK can respond by doing the same but that sounds like no one has learned anything from history. Keeping trade open, even if population movement isn't, will take all the risk away. It comes down to politicians, and that's scary. 

Summary

The UK is not in a good way financially. Brexit should help the situation but politicians can quickly turn it into a mess. In that case everyone loses. Basically, the real UK isn't healthy but will anyone be able to fix things? I have my doubts.

Next how specific car brands will be affected.

I am apolitical so these thoughts are without political agenda.

James May & friends at the MINI plant. This interesting show was seen in NZ.
It should lift UK manufacturing awareness within Britain. I wouldn't want
to buy a car James had been anywhere near though. 

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