CITY 493August 2019 THE WEEKTalking pointsAston Martin looks like it is skidding
out of control, said Mark Sweney in The
Guardian. The luxury carmaker’s shares
took another whack this week after it
postedanear £80m half-year loss, citing
slumping demand for its vehicles “in the
UK and across Europe”. Having already
plunged byaquarter following “a shock
profits warning” last week, shares fell
by another fifth.Deeply uncertain about
its future as Brexitlooms, “the 106-year-
old company behind James Bond’s
favourite car marque” has shed almost
80% of its value since floating at an
inflated £19ashare last October. “In
the case ofadeal, we’re prepared and
relatively well-insulated, but not
immune,” said CEO Andy Palmer. “Obviously, we do not want a
no-deal [but] will live with it, if that is what it is. The car industry
is pretty resilient once it knows what it is dealing with.”Others in the industry are far less confident, said Peter Campbell
in the FT. Some warn of an “existential threat” to British car-
making, which employs hundreds of thousands and contributes
£18.6bn to the UK economy. Inaletter to the PM, the Society of
Motor Manufacturers and Traders noted that about 80% of cars
made in Britain are exported, with “two-thirds sold in countries
with which the EU hasatrade deal”. The onslaught of tariffs, it
said, could prove disastrous in “a highly competitive industry”with such fine margins. PSA, the French
carmaker which owns Vauxhall, says it
will “pull all productionfrom Ellesmere
Port and switch toaplantin mainland
Europe if Brexit renders the British
factory unprofitable”. The car industry
globally is in trouble, said Robert Lea
in The Times. Tata-owned Jaguar Land
Rover has just reported falling sales in
markets from South Korea to Brazil. But
the situation in Britain is particularly
acute. Ford is closing its engine-making
plant in Bridgend, Honda is quitting
Britain and closing its Swindon factory
(each with the loss of thousands of
jobs), and “the spectre of job cuts is also
hanging over Nissan”, which employs
7,000 people at its Sunderland plant.The big fear now, said Alan Tovey in The Daily Telegraph, is
acash crunch. Investment in Britain’s car industry “almost com-
pletely evaporated in the first half of the year”, with just £90m
“dribbling in” as manufacturers baulked at committing fresh
funding owing to Brexit fears. And £23m of that “pitiful figure”
came from the Government. That doesn’t bode well atatime of
“wrenching changes”, as the industry shifts to electric engines and
self-driving vehicles “that demand huge investment with unclear
returns”, said the FT. The road ahead for carmaking is looking
grim, and the destination, in Britain in particular, is “unknown”.Issueoftheweek: iscarmakingdoomedinBritain?Aston Martin’s production line in WarwickshireThefallingpound: whattheexpertsthink●Squeezed houses
“People who bet against
Britain are going to lose
their shirts,” asserted the
PM, Boris Johnson, last
week. But his
“willingness to risk a
no-deal Brexit” has sent
the pound reeling, said
Delphine Strauss in the
FT. Sterling fell by some
4% during July, hitting
atwo-year low of $1.21
against the dollar this week. It has also lost
considerable ground to the euro, falling to
s1.09. That looks like bad news all round.
According to Sir Nick Macpherson, former
permanent secretary to the Treasury,
“recent devaluations have done little for
exports, while unambiguously cutting
living standards” by pushing up the cost of
imported goods, raising shop prices and
“eroding the real value of earnings and
savings”. Every British household has been
squeezed. The London School of
Economics estimates that “the spike in
inflation following the 2016 referendum
will, by June 2017, have cost the average
household £7.74aweek –equivalent to
£404ayear.●Parity pain
The sharp fall “could not have come at a
worse moment” for holidaymakers, said
Alex Brummer in the Daily Mail. On
Tuesday, Heathrow’s exchange desks werequoting sterling at parity
with the dollar, and
belowaeuro. But wait,
Sir Nick–“the jury is
still out” on the
export advantages
of devaluation: “one
suspects that in highly
competitive global
markets, it ought to
be helpful”. What
this tumble really
demonstrates is “the
short-term naivety of
currency traders”. Theprospect of a
Johnson government has been around for
months, yet “only now are they taking out
positions onano-deal Brexit”.●FTSE silver lining
“If it is any comfort”, we are “nowhere
nearasterling crisis yet”, said Ambrose
Evans-Pritchard in The Daily Telegraph.
There is no telltale flight from UK
sovereign bonds and, as Hans Redeker
of Morgan Stanley notes, “we are not
seeing any of the signs of fundamental
de-anchoring that you see in emerging
markets when everything gets hit”. The
silver lining for savers and investors is
that the FTSE 100–home toarange
of multinationals with high exposure to
dollar earnings–has been “buoyant”.
Energised by the pound’s decline, it has
put on one of its biggest rallies of the year,
rising by 2%.Macpherson: too pessimistic?No-deal primer
How should you protect your finances
if it’s “no deal” on 31 October? David
Byers of The Times offers some tips.Buildasavings safety netTheOffice
forBudgetResponsibilityreckonsthat
ano-dealexitwouldplungetheUKinto
recession,shrinkingtheeconomyby
2%andpushingunemploymentabove
5%.It’simportant,then,tobuild“a
rainy-dayfundinaneasy-access
savingsaccount”.Aimforthreemonths
ofincome.Plan forafalling poundBaroness
Altmann,aformerpensionsminister,
suggestsbuyinggold“asahedge
againstmarketmeltdown”.Others
adviselockingcashintoapre-paid
currencycard,suchasRevolut,ifyou’re
planningtripsabroad.Beware,though:
“youcouldloseoutifaBrexitdealis
struckatthe11thhourandthepound
strengthensquickly”.Beware “domestic” investments
SmallerUKcompanieswithadomestic
focus“arelikelytobeplacedunder
evengreaterpressure”–particularly
thoserelyingon“foreignimports
coveredbydefuncttradeagreements”.
Makesure,therefore,thatyouhave
some“overseasdiversification”inyour
portfolio.Butbearinmindthatthe
presentuncertaintyhasmadeUK
stocks“unloved”,withbadnews
alreadypricedin.Thiscouldbe“agreat
buyingopportunityforthosewhocan
stomachrisk”.Brexit is threatening to knee-cap an industry already suffering global convulsions©ANNAGORDON/FT