A Rolls-Royce Motor Cars Ltd. Dawn luxury vehicle sits on display during the 2018 North American International Auto Show. (Photographer: Andrew Harrer/Bloomberg)

Rolls Royce Warning, Merkel's Cool Leave May Nowhere on Brexit

(Bloomberg) -- Prime Minister Theresa May got the cold shoulder in Berlin to her latest plans for Brexit, while Rolls Royce joined the list of household names firing warning shots over the economic damage they’re facing.

On the eve of a Friday cabinet meeting where she aims to broker a proposal that at least her own government can agree on, the one-two shots underscored how far from a workable arrangement she is, as the clock ticks toward the separation date in nine months.

The pound erased gains after Bloomberg reported that Chancellor Angela Merkel’s government was unconvinced by May’s latest attempt at a compromise arrangement for customs after Brexit, seeing it as impractical. Sterling was little changed at $1.3217 at 3 p.m. in London, slipping from as high as $1.3275.

“The negotiations are reaching a decisive phase,” Merkel said in a statement welcoming May to her office. “Time is growing short and the political framework has to be declared already in October, so the British government’s decisions over the next few days will be important.”

Rolls Royce is but the latest company turning the heat on May, who is struggling to deliver a road map to a future economic relationship with the European Union.

The aerospace giant said that it’s moving the design approval for large jet engines to Germany to ensure it can continue operating whatever the Brexit outcome. While it said the action is “precautionary and reversible” and won’t involve jobs moving, the move shows how U.K. businesses and their allies are losing patience.

Jaguar Land Rover on Wednesday warned the government against further bungling. Compounding the premier’s woes, Stephen Phipson, chief executive officer of the EEF manufacturing lobby group, said the U.K.’s industrial giants are all preparing for a no-deal Brexit that causes increased bureaucracy and border delays. Those concerns were echoed in a letter sent to May by a group of Conservative Party lawmakers.

“People are starting to plan for the worst-case scenario,” Phipson said in an interview. “Just about everyone I’ve spoken to is starting to now go through this process.”

May is struggling to unify her divided cabinet and devise a negotiating position that can advance stalled talks in Brussels. The premier convened a cabinet meeting on Friday at her Chequers country retreat to take another stab at agreeing to a proposal on trade with the EU.

Investment Woes

Get it wrong, the message from manufacturers is, and Britain will hemorrhage jobs and investment.

A bad deal would jeopardize as much as 80 billion pounds ($106 billion) of spending over the next five years, JLR Chief Executive Officer Ralf Speth said late Wednesday. Extra costs and parts-delivery delays due to new trade barriers would cut profit by 1.2 billion pounds a year, according to the automaker. Industrywide, the figure would top 4.5 billion pounds, according to automotive consultancy AutoAnalysis.

Rolls Royce Warning, Merkel's Cool Leave May Nowhere on Brexit

Until now, large manufacturers have limited their pronouncements on Brexit, but with key decision deadlines approaching, they are increasingly going public with their worries.

Airbus SE was the first major company to break cover last month, saying it may have to pull its U.K. investments in the event of a no-deal Brexit, which May refuses to rule out. The aerospace giant employs 14,000 people at 25 sites in Britain, and supports more than 100,000 jobs in its British supply chain. BMW then said it would be forced to rethink production at its four U.K. plants if products are stopped at the border after Brexit.

Some 46 Conservative lawmakers, including former ministers under May, have written to May urging her to listen to business.

“A Brexit deal without our trading, enterprising and innovative businesses and their employees at its heart will miss the point,” the lawmakers wrote. “We also urge the Cabinet to recognize that the time for debating is over and that a model must be found which supports your ambition for a future partnership with the EU which allows for frictionless trade to continue.”

The plan that the premier brought to Berlin, which the Germans indicated was impracticable, involved a complicated customs setup that would leave the U.K. collecting tariffs on behalf of the EU on goods crossing its border.

May in March gave a speech outlining her vision, but has made little headway since then to unify both her party and her cabinet, which are split between pro-Europeans who want to maintain as close ties as possible with the EU, and Brexiteers who are calling for a clean break that frees Britain from the bloc’s laws and allows it to strike its own trade deals.

“A few months ago, manufacturers were rather hoping we’d be in a place now where it would all be clear,” said Phipson. “It’s really important we get some clear messages coming out of Chequers this week, and in the White Paper. What we do not want to see is just another set of aspirational objectives here. It needs to be quite detailed in order for people to use it for planning.”

©2018 Bloomberg L.P.