What Brexit Really Means for the Motorcycle Industry

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Coverage of Brexit, the United Kingdom’s referendum whether to continue as a member of the European Union, has largely been ignored in the United States, and it certainly hasn’t been a blip on the radar recently within our microcosm of the motorcycle industry.

But of course, the United Kingdom’s place in the European Union will have far-reaching consequences, even in our beloved little two-wheeled world.

If you check the timestamp on the most recent Paddock Pass Podcast posting, you will see that I was up late enough into the evening to get word that the United Kingdom will leave the European Union, with the “Leave” supporters edging out the “Remains” by the narrow margin of 1.3 million votes.

There is a lot of politics at play here, and I don’t care to rehash it, other than to say that it could be a foreshadow of what could come soon in the United States as well. What I do have to say though is an examination of how the United Kingdom leaving the European Union can and will affect the world of motorcycling.

The Long View

First, I should remind readers that many of the effects that Brexit will have on the British, European, and world economy will be felt gradually, and over a much longer time period than people seem to think.

What passed today is simply a referendum to leave. The United Kingdom, as of this writing, is still part of the European Union, and it will take quite some time for the island nation to divest itself from the mainland.

Speaking to my American readers, we need to understand that the European Union is not like the United States, which is a group of states united through a single document, The Constitution of United States of America.

Instead, the European Union is a held together by a series of treaties and agreements that bind its members on issues like trade, currency, joint-defense, and so forth – all of which culminated somewhere between the Maastricht Treaty and the Treaty of Lisbon, but that’s well outside the scope of our discussion here.

The big takeaway is that the United Kingdom is going to take quite some time to actually leave the European Union. Conservative estimates peg the departure as possibly taking up to a decade to fully process.

This is important to consider, because much of what we will read today, and in the coming weeks, will take the short view, processing what is happening right now, in front of us – all of which will actually be inconsequential.

The Short View

So what is this myopic understanding of the situation? Right now, the stock markets around the world are reacting to the news of Brexit, and the United Kingdom leaving the European Union.

The response is a unanimous drop in stock prices, with the Dow Jones Industrial Average (DJIA) down roughly 3.2%, at the time I type this. The currency market is down as well, with the pound weakening against the euro by 6%, again at the time of this writing.

These are both short-term adjustments, however.

Free market financial markets can be understood by two frameworks: market efficiency and market confidence. Long-term movements in currency, stocks, and bonds markets are governed by market efficiency.

This is to say that financial market prices reflect the economic outlook and factors that exist in the market today, or can at least be reasonable perceived in the long-term.

If we subscribed to the idea that things like the stock market are perfectly efficient, then there would be no point in investing beyond an index stock, since the market reacted and reflected changes like Brexit, well before the events actually occurred.

As we can see from today’s prices, this theory works better in the classroom than in reality, and it is the reason why economic professors work at universities and not companies on Wall Street.

This is because market uncertainty and speculation play a huge role in the actions of our financial institutions. Again, today’s stock and currency prices being a prime example of this idea.

The reality is, nothing has changed today.

The United Kingdom is still part of the European Union, and effectively will be for many months still to come. The British economy isn’t actually weaker now than it was yesterday, but the perception and uncertainty is there.

If there is one thing investors hate, it is uncertainty, and that is what is driving the current economic changes we have witnessed today. Will the pound’s value change against the euro over the long-haul? Almost certainly.

Will it still be devalued by 6% a month from now, enough time to actually affect long-term trade? No. In fact, the pound has already seen a 2% rebound in the past 24hs. Chew on that.

Currency Exchange, A Very Sexy Topic

The drivers behind a currency’s value are varied and complex, but you can roughly boil them down to trade and economic power. Whether a country has an import or export deficit, and how its economy compares to another’s is dictated greatly by how much buying power one currency has when converted to another.

This has obvious effects in the motorcycle industry, where individual parts are produced in a plethora of countries (some of which are in the EU and UK), are transported to other countries for assembly (also, some of which are in the EU and UK), and shipped to yet another country for sale (yet again, some of which are in the EU and UK).

My colleague Mark Gardiner does a great job looking at the currency implications involved within the motorcycle industry. You can read his article here on that subject, since there’s no reason for me to rehash it.

The only temperance I would give to his words is again the reiteration of the differences between the long and short views I described above.

Mark envisions a future economic climate that looks much like ours today, hours after the United Kingdom announced its intent to leave the European Union, whereas my view is that today is the anomaly over the time-period that is relevant.

In order for the changes in currency to truly affect the motorcycle industry, they need to remain in place long enough for them to affect the purchasing, production, and sales cycles in the motorcycle industry, which operate on an annual cycle, if not longer.

Visa Problems, And No I Don’t Mean Like MasterCard

The more likely immediate problem that Brexit will create for the motorcycle industry comes down to the movement of people, as one of the main benefits that the European Union created for British residents was the opening of borders on continental Europe.

This affects not only travel, but also work.

Off the top of my head, I can think of a number of high-ranking British expatriates who work in the motorcycle industry, within what will be the remaining 27 member states of the European Union.

These expats will have to apply either for work visas in the European Union, or become naturalized citizens of their country of residency, if they wish to keep their jobs.

This issue gets even more complex, when you think about the British citizens that live in European Union tax shelters like Monaco or Andorra – start picking at the names of riders in the WSBK and MotoGP paddock, and you will begin to have a list of people that this will affect.

The same is true for travel, as British citizens will no longer enjoy the benefit of easy egress through Europe.

This becomes a larger issue inside the motorcycle industry when you consider the British Superbike round at Assen each year, which will likely become a logistical headache for the national series, perhaps to the point where it is dropped.

British riders in European-centric race series, like WSBK and MotoGP, will have a little bit more trouble going through customs, but the bigger issue could again come down to visas.

Depending on the amount of reprisal that sweeps the European Union after today’s Brexit announcement, travel and trade from the United Kingdom to the European Union could become very messy, with work visas and travel permit requirements and criteria becoming more onerous for British applicants.

About Norway and Cutting in Line

Retribution is a huge unknown going forward, with the United Kingdom and the European Union.

Brexit was sold on the idea that the United Kingdom could take a page out of Norway’s playbook, as a non-member of the European Union that still enjoys many of its privileges and benefits because of the country’s proximity and connections to the EU.

This is again, another can of geo-political worms that is well beyond the scope of something that should ever appear on Asphalt & Rubber. I will say however, that the United Kingdom doesn’t have the oil reserves that Norway enjoys, nor the fishing exports.

In fact, the United Kingdom needs the European Union in many more ways than Norway ever will.

Imports from the United Kingdom account for 1.5% of the EU economy, whereas the UK pegs roughly a third of its economy on exports, nearly half of which go to the European mainland. For those doing the math, that is roughly 15% of the British economy relying on access to the European market.

Part of that economy is the motorcycle industry, with Triumph, Norton, et al relying on access to a market that is larger than the United Kingdom’s population of 64 million citizens.

I am, unfortunately, a student of GATT and WTO disputes, and history is rife with tariffs imposed solely out of retribution, and if there is one thing that universally hated around the world, it’s cutting in line.

The idea that the United Kingdom will still enjoy trade benefits with the European Union once it has left is a fantasy.

For the motorcycle industry, this means tariffs on motorcycles and parts that come out of the United Kingdom, and likely the same in reverse, because trade agreements are governed by principles that have been honed on the elementary school playground.

Regulators, Mount Up

While I foresee the motorcycle industry getting wrapped into a larger game of tit-for-tat, perhaps the larger issue in our two-wheeled world will be how ideas of regulation flow going forward.

I doubt the United Kingdom will exit the European Union in time to spare itself from Euro 4 emissions standards, but the even more stringent Euro 5 standard will likely not apply to motorcycles in the UK.

It will be up to the United Kingdom to decide on what kind of emission standards it wants to set for two and four-wheeled vehicles going forth. Logic would see the United Kingdom just copying whatever becomes the standard in the European Union, though I doubt we will be that lucky.

This means it will cost manufacturers even more time and resources to develop their motorcycles for yet another domestic emissions standard.

Eventually, there will come a point where OEMs look at the most stringent national emissions requirement, and just build a world model to that standard. The UK has the unit volume and influence to be that straw, which breaks the camel’s back.

Additionally, having the United Kingdom outside of the European Union also means that an important voice will be absent, right as nations begin tackling the idea of autonomous and interconnected vehicles.

These technologies are going to need a great deal of homogenization in order to be useful and successful with motorists, which is an element that plays into the strength of the European Union’s bureaucracy.

This could create a scenario where the United Kingdom and European Union have incompatible systems for these budding technologies, which will only create more confusion in the marketplace, and also create considerable hassle for manufacturers.

Closing Thoughts

Standing alone, independently if you will, is a romantic idea. It’s something that surely every American reader of A&R can appreciate, since it is a buzzword that’s rooted deep in the American ethos, but there is also the concept that no man is an island.

Those who argued for the United Kingdom to remain in the European Union based a great deal of their argument around the idea that it is better to be part of something, and have a voice in it, than to exclude yourself from the conversation, and still be subject to the will of others.

The same is true for the motorcycle industry, in this case.

The greatest obstacle going forward from Brexit for the motorcycle industry will be the increase in entropy in the industry, and for British motorcyclists, it means that they will be the second-class citizens of the European motorcycle market.

Hang on. It’s going to be a slow, but rough ride.

Jensen Beeler

Despite his best efforts, Jensen is called one of the most influential bloggers in the motorcycle industry, and sometimes consults for motorcycle companies, whether they've solicited his expertise or not.