Abu Dhabi, UAEThursday 20 June 2019

Ford spends millions on hard Brexit plan and may leave UK completely

US car maker voices concern at possible exit from EU without trade deal just as bloc orders UK to claw back illegal tax breaks designed to lure multinationals

The Ford Focus is one of the UK's best selling car but the company may quit the country in the event of a hard Brexit. Reuters
The Ford Focus is one of the UK's best selling car but the company may quit the country in the event of a hard Brexit. Reuters

Ford is spending tens of millions of euros preparing for a possible British exit from the European Union without a trade deal and has yet to decide on its longer-term plans for Britain, Ford Europe chairman Steven Armstrong said on Tuesday.

"We love being in Britain, but it has to be competitive and if it's not competitive then we'll have to take whatever actions we'll need to take to protect the business," Mr Armstrong told Reuters in the Netherlands.

Ford, which makes 1.3 million engines at two British locations, Bridgend in Wales and Dagenham in east London, and cars in Germany, has warned it could face $1 billion in tariff costs in case of a so-called hard Brexit.

While the company has announced 5,000 job cuts in Germany, its second-biggest European market, it has yet to make major decisions in Britain, which is its biggest.

Mr Armstrong said Ford was already spending tens of millions on euros on measures such as currency hedges and shifting inventory between countries. He said the best case scenario was that money spent preparing for Brexit would be "wasted".

Britain's departure from the EU has been pushed back from March 29 until at least April 12 or potentially much later, ruining some of the contingency plans of certain car makers.

BMW's Mini plant in Britain is closing for four weeks and Peugeot's Vauxhall car factory for two weeks in moves planned months ago to help deal with any disruption from Brexit.

"We've been clear with the government in the UK and also in Brussels, we have to maintain frictionless trade at the borders and tariff-free trade," said Mr Armstrong.

Britain's largely foreign-owned car industry has become increasingly incredulous as a stable and attractive investment environment descends into deep political crisis.

Ford's British-built engines, which are shipped for fitting in vehicles in Germany, Turkey, the United States and elsewhere, could face delays and extra costs from a no-deal Brexit.

"We've spent the last 40 years putting a business together that relies on cross-border trading," said Mr Armstrong, who is overseeing an overhaul of Ford in Europe to refocus on its strong position in commercial vehicles and on popular European lines such as Fiesta, Britain's top-selling passenger car.

"We can't radically reshape on day one so you'd have to live with [tariffs] for a period of time," he said.

Mr Armstrong said Ford has hedged against the possibility of a sharp fall in the value of the pound through the end of 2019, while stockpiling inventory would help bridge a one or two month period of potential chaos around Brexit.

"But it's impossible really to mitigate the financial impact in the longer term of no-deal," he said. Ford could try to pass on higher tariff costs, but that would be difficult in Britain, where a recession would mean falling sales, he added.

"We haven't really factored in completely the negative shock. There are a number of things that we would try to do but the reality is ... it would impact the whole of industry, not just Ford," Mr Armstrong said.

His comments come on the same day the EU ordered the UK to claw back illegal tax breaks designed to lure multinationals to the nation - in a timely reminder that the bloc still calls the shots on competition rules until Britain leaves.

The European Commission said the British gave certain multinationals a selective advantage by granting them an unjustified exemption from UK anti–tax avoidance rules.

“This is illegal under EU state aid rules,” said Margrethe Vestager, the EU’s anti-trust chief. “The UK must now recover the undue tax benefits."

While the commission said the exemption was partly justified and didn’t specify which firms unduly benefited from it, at least 52 companies have come forward since the probe started in 2017. They estimated their tax liabilities at about £1.19 billion (Dh5.69bn), according to data compiled by Bloomberg Tax. The final bills may now be much lower because the EU didn’t outlaw the entire programme.

The ruling from the EU comes as the potentially explosive option of delaying Brexit by months looms amid the UK parliament's struggles to find a plan for leaving the 28-nation bloc.

The UK’s group financing exemption, introduced in 2013, allowed companies active in the country to pay little or no tax on financing income received from a foreign unit via an offshore subsidiary. The EU regulator said it considered the derogation illegal when such financing income stemmed from UK activities.

The exemption to controlled foreign companies rules was modified at the end of last year in a way that no longer raises concerns, the EU said.

““We are clear that all multinationals operating in the UK must pay their fair share of tax,” the UK Treasury said. “Our Controlled Foreign Company rules are part of a robust package of anti-avoidance measures that prevents UK profits from being artificially diverted overseas.

"We will carefully consider the commission’s decision.”

Updated: April 2, 2019 09:40 PM

SHARE

SHARE