In June of 2016, the good citizens of England voted to exit the European Union, of which the nation had been a member since 1973 — when it was better known as the European Economic Community. Now, following the nationalistic cry, "England Prevails," Brits have been led down a primrose path, under the misguided idea that somehow things were better decades ago. In fact, things were remarkably the same.
First, it’s really tough for me to take it very seriously when so much of the media describes the event using the term, "Brexit," short for British Exit. It’s much like the way they trivialized the relationship between Brad Pitt and Angelina Jolie with "Brangelina." (Then again, should their divorce rumors be true, here’s my gift to the media that will cover the story: Use "Brexitgelina.")
Second, though, it is now impossible to read any media outlet’s website without being swamped under endless stories about the potential end of England’s economic society, or the complete downfall of the European Union, or some combination.
Certainly stock markets fell on the news, but they’ve done that many times before. The British pound sank like a rock, down to a 31-year low, at the first of this week, but that’s more a blessing in disguise than bad news for England’s resurgent automotive industry. That’s where the business media went off course on this story; over a year ago they did the same thing after the ruble collapsed during the fall-off in oil prices. A reminder: Weak currencies in any given country benefit their exporters of goods. As I pointed out some time ago, the ruble’s collapse played to the benefit of Russia’s oil and natural gas industry. Similarly, a weaker pound means that Tata Motors will make even more money off the Jaguars and Land Rovers it exports to countries worldwide.
Now, that situation may not last, but it seems silly for numerous pundits to suggest that assumed new tariffs, which England may have to pay on exported automobiles, would be disastrous. The reality is that, to hurt the British automakers, any new tariff would have to be much higher than the additional monies they’re earning as a result of the pound’s collapse.
Of course, when it comes to purchasing imported luxury vehicles, we’ve seen the exact opposite happen with currency fluctuations in the past. When the Mercedes-Benz 300SD was first introduced in 1978, it had a list price of $26,995. But just four years later the next generation of that same car cost $42,500. Which one do you think sold better with the American public? Of course: It was the far more expensive second generation.
A resurgent German Mark in that period caused that runaway inflationary effect on window sticker pricing, but those prices held long after Germany’s currency subsided. And it was that effect that allowed the Japanese to bring in their luxury franchises, starting in 1986 with Acura. After all, when the Mercedes-Benz 190 was selling in the mid-thirty-thousand range here due to currency exchange differences, one could purchase a new 1986 Acura Legend L for ten thousand less. And the Acura more closely mirrored the midsized Mercedes E Class.
But when Bill Clinton and his administration decided to play tough with the Japanese in 1995 over not purchasing enough American cars or American parts, they shifted the value of the yen from around 120 to 79 against the dollar. The result was that the second-generation Acura Legend’s price went from $32,500 to over $40,000 — and the Infiniti J30’s price jumped by an identical amount.
And guess what? The Japanese survived the Clinton years, as the German luxury makes did in the Reagan years. It should also be pointed out that by the early Nineties BMW and Mercedes sales were finally devastated. And Audi was technically knocked out, thanks to hysteria over an unintended acceleration issue that didn’t even exist. But that was a function of Acura, Lexus and Infiniti’s introductions in the U. S.
If you go back to 1969 you find the same xenophobia and nationalistic pride erupt in England, almost identical to what just took place in the U. K. and seems to have some real support here too.
His name was Enoch Powell, and he was gravely concerned about immigrants pouring into Great Britain. Like some today, he was a right-wing populist who believed he was watching his beloved country decline into Third World status. One might even say his public pronouncements were something like, "Make England Great (Britain) Again." Powell made his "Rivers of Blood" speech on April 20th of 1968, claiming to have spoken to a citizen who’d told him that, if he had the money, he would flee England with his family for somewhere better.
Now, the idea was that far too many immigrants had flooded into England in the previous decade. Meanwhile, anti-discrimination laws were infuriating a noticeable proportion of the country’s population; they felt their rights were being destroyed because they couldn’t walk all over other peoples’ rights. Powell wrapped up his fiery speech with the line, "As I look ahead I am filled with foreboding. Like the Roman, I seem to see the River Tiber foaming with much blood."
Powell was a Greek scholar. Formerly a high-ranking member of the British military, he had lived through the end of the British Empire. He also believed that it was destroyed intentionally by our government. And it was through the prism of that uniquely British viewpoint that he tried to move the nation to his position. But even the very conservative London Times called his speech evil, and Edward Heath fired Powell from his position as Shadow Defence Secretary.
The Beatles set out to make an album making fun of Powell and his political positions. Their song, the original version of "Get Back," now known as "No, Pakistanis," had the line, "Don’t dig no Pakistanis taking other people’s jobs." That line became the one about Jo Jo from Tucson, Arizona, off to California. (The original take can be found at YouTube.) But other Beatles songs from what started out being their most searing and political album included "Commonwealth" and "White Power." In the end, apparently because someone feared their sarcasm would be misunderstood, "White Power" and "Commonwealth" were never fully developed. And "Get Back" with new and less offensive lyrics became just another fun and fluffy Beatles hit.
Assuming that England does go through with leaving the EU, new trade agreements will likely be created to take the place of EU membership rules — at least, as soon as the anger over this vote from the EU side subsides. (Or, as this was just a referendum, it might not ever happen.) As a less hysterical individual pointed out, the British can simply negotiate new agreements that mirror all of the rules of the European Union. That means that nothing really changes, other than telling the public, "England Prevails!"
Aston Martin, Honda, Nissan, Jaguar and Land Rover executives will all be hitting up the British Trade Ministry about what will happen if reasonable contractual negotiations do not succeed. But London is the world’s largest financial center; and Deutsche Bank has already said that London may be weakened but its position and power will remain immense.
We have all seen things worse than this. The Financial Meltdown of 2008 was infinitely worse. This is a good time to remind everyone that we don’t belong to the EU, and we’re doing just fine. If we can sell computers, aircraft and loads of other goods to them without having EU membership, England will find a way to do the same thing. Smarter and more pragmatic heads will prevail, if not quickly then in the mid-term.
But watch how automakers doing business in England respond to this issue. They’ll be among the first to give away how this turmoil will conclude.
© Ed Wallace 2016
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: email@example.com