\u201cBrexit means Brexit\u201d[1] \u2013 What Theresa May once considered a major punchline is now infamous for its unclarity. This unclarity is symptomatic for the overall Brexit negotiations. 16 months have passed since the referendum, but there is no new trade treaty in sight for March 2019, the date the UK exits the EU.<\/p>\n
Britain\u2019s auto industry is highly exposed to risks from Brexit. Think tank Civitas estimated that car and components makers could face tariff duties of up to \u00a3 5.2 billion[2]. BMW\u2019s subsidiary in Britain, the MINI[3], serves as an illustration of how Brexit could severely affect BMW\u2019s supply chain operations. The MINI\u2019s crankshaft exemplifies the problem. The steel casting of the crankshaft is currently made in France, then shipped to the UK for further processing, from where it is send back to Munich in order to unite it with the car engine. The engine with the crankshaft is finally send across the Channel and the motor is \u201cmarried\u201d with the MINI in Oxford[4]. Border crossings of three to four times for auto parts are thus no exception, and the majority of MINIs is sold outside of the UK[5].<\/p>\n
If no new trade deal between the UK and the EU is reached by the deadline, inquiries by the British Parliament suggest that tariffs of 2.5 to 4.5% for car components could be applied each time a component crosses the border. In addition, a final tariff of 10% for finished cars could be applied[6]. As BMW is aiming for a target margin of 8-10%[7], multiple applications of tariffs threaten the competitiveness of its British operations.<\/p>\n
Besides pressure on margins, BMW could also face operational consequences. Car manufacturers have adopted Just-in-time (JIT) supply chains with minimized inventory. Competitor Jaguar Land Rover only holds 2 hours of inventory, for example[8]. Tim Lawrence, Partner at PA Consulting Group, fears that customs inspections could take up to a couple of days in a post-Brexit world[9]. BMW could thus be facing a breakdown of its JIT supply chain.<\/p>\n
Despite these distinct risks, BMW\u2019s reaction has not shown any signs of urgency so far. One month before the referendum, BMW\u2019s chairman Harald Krueger has publicly stated that BMW has no contingency plan for its UK operations[10]. He further explained that the company would use the 2-year negotiation period to assess its situation if the leave campaign would win. This reserved approach might reflect a larger sentiment across business about Brexit chances before the referendum. Surprisingly, BMW doubled down on the importance of its MINI plant post Brexit. Recently, the German car maker announced that it will build the electronic version of the MINI in its British plant[11].<\/p>\n
Nevertheless, BMW\u2019s CEO hinted to shareholders at the last general meeting, that BMW was able to shift production of the MINI away from the UK and increase the production of MINIs at an existing facility in the Netherlands, if Brexit delivers trade barriers[12]. In addition, negotiations about a joint venture between BMW and Chinese auto manufacturer Great Wall Motors have become public. The alleged aim of this partnership is to produce an electronic version of the MINI outside of Europe[13].<\/p>\n
But electronic cars do not just demand decisions about production locations. The dawning age of electronic cars might be a chance for BMW to decrease the risk of supply chain disintegration due to protectionist movements. Reverse engineering of electronic cars shows that far fewer individual components are needed, and that the complexity of components is reduced in electric cars. For instance, a study by UBS shows that a Chevrolet Bolt (electronic) only needs 35 moving parts in its engine and gearbox, which is contrasted by 167 parts for a comparable combustion engine car[14]. BMW could push for electrification of its entire fleet and thus drastically reduce component needs and complexity.<\/p>\n
In addition, BMW could then also try to nationalize supply chains again. British components in cars produced in England have risen from 36% to 41% in the last 6 years[15]. Tariffs and uncertainty might force the German carmaker to increase this ratio even more for its MINI production.<\/p>\n
The question remains though, how many other countries might follow Britain\u2019s lead? And how could BMW ensure the transfer of knowledge and able employees in an environment of a rising backlash against globalization and free movement of goods and people?<\/p>\n
<\/p>\n
[793 words]<\/em><\/p>\n <\/p>\n [1] BBC. No second EU referendum if Theresa May becomes PM.<\/em> July 11, 2016. http:\/\/www.bbc.com\/news\/av\/uk-politics-36764525\/no-second-eu-referendum-if-theresa-may-becomes-pm (accessed November 13, 2017).<\/p>\n [2] Protts, Justin. Potential post-Brexit tariff costs for EU-UK trade.<\/em> Briefing Note, London: Civitas, 2016.<\/p>\n [3] BMW. Brands and Services.<\/em> 2017. https:\/\/www.bmwgroup.com\/en\/brands-and-services.html (accessed 11 12, 2017).<\/p>\n [4] Ruddick, Graham, and Philip Oltermann. The Guardian.<\/em> March 3, 2017. https:\/\/www.theguardian.com\/business\/2017\/mar\/03\/brexit-uk-car-industry-mini-britain-eu (accessed 11 12, 2017).<\/p>\n [5] SMMT. Five big facts about MINI.<\/em> September 26, 2014. https:\/\/www.smmt.co.uk\/2014\/09\/five-big-facts-mini\/ (accessed 11 10, 2017).<\/p>\n [6] House of Lords – European Union Committee. “Brexit: trade in goods.” House of Lords Paper 129, London, 2017.<\/p>\n [7] BMW Group. Investor Presentation.<\/em> Munich: BMW Group, 2017.<\/p>\n [8] Campbell, Peter. Financial Times.<\/em> October 16, 2016. https:\/\/www.ft.com\/content\/c397f174-9205-11e6-a72e-b428cb934b78 (accessed 11 12, 2017).<\/p>\n [9] Ruddick, Graham, and Philip Oltermann. The Guardian.<\/em> March 3, 2017. https:\/\/www.theguardian.com\/business\/2017\/mar\/03\/brexit-uk-car-industry-mini-britain-eu (accessed 11 12, 2017).<\/p>\n [10] \u2014. Reuters.<\/em> May 12, 2016. http:\/\/uk.reuters.com\/article\/uk-britain-eu-bmw\/bmws-ceo-says-too-early-for-a-brexit-contingency-plan-idUKKCN0Y31ZY (accessed 11 8, 2017).<\/p>\n [11] Reuters. BMW says electric version of Mini to be built in Oxford \u200b.<\/em> July 25, 2017. https:\/\/www.reuters.com\/article\/us-britain-eu-bmw-mini\/bmw-says-electric-version-of-mini-to-be-built-in-oxford-idUSKBN1AA1IJ (accessed 11 13, 2017).<\/p>\n [12] Kr\u00fcger, Harald. “BMW Group.” Statement Harald Kr\u00fcger, Chairman of the Board of Management of BMW AG, 97th Annual General Meeting of BMW AG at Olympiahalle in Munich on 11th May 2017.<\/em> May 11, 2017. https:\/\/www.press.bmwgroup.com\/global\/article\/detail\/T0270684EN\/statement-harald-krueger-chairman-of-the-board-of-management-of-bmw-ag-97th-annual-general-meeting-of-bmw-ag-at-olympiahalle-in-munich-on-11th-may-2017 (accessed 11 11, 2017).<\/p>\n [13] McGee, Patrick, and Charles Clover. Financial Times.<\/em> October 12, 2017. https:\/\/www.ft.com\/content\/b4aa06ea-af4e-11e7-aab9-abaa44b1e130 (accessed November 12, 2017).<\/p>\n [14] UBS Global Reserach. UBS Evidence Lab: Electric Car Teardown \u2013Disruption Ahead?<\/em> Zurich: UBS , 2017.<\/p>\n [15] Protts, Justin. Supporting Industry Post-Brexit: Supply chains and the automotive industry.<\/em> Briefing Note, London: Civitas, 2017.<\/p>\n","protected":false},"excerpt":{"rendered":" BMW\u2019s operations in the UK face severe challenges due to Brexit \u2013 Does the German carmaker\u2019s supply chain disintegrate because of a protectionist vote?<\/p>\n","protected":false},"author":9680,"featured_media":21855,"comment_status":"open","ping_status":"closed","template":"","categories":[3230,3222,3239,3266,1708],"class_list":["post-21850","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-brexit","category-global-supply-chain","category-isolationism","category-tariffs","category-trade","hck-taxonomy-organization-bmw","hck-taxonomy-industry-auto","hck-taxonomy-country-united-kingdom"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n