Exclusive: No-deal Brexit puts Bentley's return to profit at risk

CREWE, England (Reuters) - Loss-making carmaker Bentley is on track to be profitable this year but a no-deal Brexit puts that at “fundamental risk”, its boss told Reuters, adding that the chance of Britain leaving the EU on March 29 with a deal now seemed “fairly low.”

Raindrops are seen on the bonnet of a Bentley car outside their factory in Crewe, Britain January 22, 2019. REUTERS/Phil Noble

Britain, the world’s fifth largest economy, is due to leave the European Union, the globe’s biggest trading bloc, in 66 days but the government’s negotiated deal was rejected by lawmakers, leaving open the possibility of a disorderly Brexit.

The car industry, which employs over 850,000 people in the country, has warned that any tariffs and customs checks would hit firms such as Bentley's parent company Volkswagen VOWG_p.DE as it both exports from Britain and imports vehicles and components.

Bentley, which made a 137 million-euro ($156 million) loss in the first nine months of last year, is undergoing a turnaround under new boss Adrian Hallmark, who said the group is on course to return to the black, but that plan could be undone depending on the form Brexit takes.

“It’s Brexit that’s the killer,” he told Reuters.

“If we ended up with a hard Brexit... that would hit us this year because we do have a potential to get beyond break-even to do the turnaround.”

“It would put at fundamental risk our chance of becoming profitable.”

Like other carmakers, the high-end brand is taking steps to prepare, including building up stocks of imported parts from two days to 10 days and building a higher proportion of cars for some non-European markets in the next few months.

“We will build more cars for China or the U.S. than we would normally do in the six-month period,” Hallmark said.

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Hallmark said he believed the company was prepared and did not plan to temporarily halt output after Britain leaves the bloc on March 29, as planned by fellow automakers Mini and Honda.

“Carry more stock, and it’s a few million (pounds) per year ... If we had to stop production, then that would be a similar value per day,” he said.

Hallmark said were three possible outcomes on Brexit: a deal by March 29 which has a “fairly low” probability, no deal with “a degree of unrest and chaos” or an extension to Britain’s EU membership.

German automakers BMW BMWG.DE, Daimler DAIGn.DE and Volkswagen made around 40 percent of the 2.37 million cars sold in Britain last year, with less than 10 percent of the total built in the country.

In 2016, Britain was the largest single export market for German automakers, which sold 800,000 new cars there, or 20 percent of their overall global exports.

Of the top 10 automotive plants which export the highest proportions of their output to Britain, seven are in Germany, including Ford F.N in Cologne, PSA PEUP.PA in Eisenach, Volkswagen in Ingolstadt and Mercedes in Bremen, according to data compiled by LMC Automotive.

Britain’s Brexit negotiators have pointed to the car industry as an example of where the EU would lose out if there were new trade barriers, a source close to the matter told Reuters last year.

VW-owned Bentley, based in the northern English town of Crewe, recorded a 5 percent decline in 2018 sales to 10,494 vehicles, hit by a delay in the arrival of its Continental GT model. In China, sales rose 19 percent.

Asked whether the company might move some Bentley production out of Britain to overcome any Brexit hit, Hallmark said he did not see that happening in the medium term.

“You can never say never but there’s no intention of moving what we have to other facilities because of Brexit,” he said.

“When we look at new products, are they under question? Of course they are like every product that is in there was under question ... We have to be competitive and we are.”

Reporting by Costas Pitas; editing by Guy Faulconbridge and Jane Merriman