Ah, are you there, 007?

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In Transforming Aston Martin, I suggested that to convert its extraordinary co-branding into long-run above industry-average returns, Aston Martin would need to navigate populist and other hazards with the precision, performance and style of 007 himself.

Well, looking ahead to a not too distant horizon, it seems the luxury sports car marque may need Bond in a hurry, and here's why.

Aston Martin's unique British heritage is so unique, partly because all of its luxury sports cars are manufactured in the UK. This is great for branding, great for the UK and essential for 007's purposes.

However, it is a requirement that all new cars manufactured in the UK must gain Vehicle Certification Agency (VCA) type approval, which is recognised in the EU. This is important given that more than 50% of UK manufactured cars are sold in the EU. In addition, car manufacturers are not allowed to hold simultaneous type approval from two authorities - and that's a big problem in the event of a Brexit no-deal. 

If there is a Brexit no-deal, under current rules UK car manufacturers would be forced to apply for new vehicle certification that would be valid in Europe (post-March 2019), and they would need to stop UK production while doing so.

This would create regulatory and production imposts for most, but because it only manufactures in the UK, the implications for Aston Martin are stark - it would need to stop its entire production.

Blimey!

Aston Martin's CFO has stated that a stop in production (with no other alternatives, in their case) would be a semi-catastrophic event. Only semi? That's a rather courageous caveat.

Nonetheless, this highlights how a competitive edge can quickly turn into a competitive wedge as a result of unpredictable external factors (in this case, UK populist/sovereign risk).

Still, how agile can Aston Martin be without removing UK DNA from its genome? Would a car manufacturing JV (not unlike what it does with its boats, condos and the soon to be released personal sub) be acceptable, or even viable? If a transitional deal is not struck, will this force it to consider offshoring? Will Q be happy to shift his skunkworks to Slovenia? I must be dreaming, Holmes...

Steady the bus! Only time will tell whether there will be a Brexit deal or no-deal, and if a no-deal, whether there will be a transitional arrangement that can assist Aston Martin and the other affected manufacturers.

Whatever the outcome, Brexit negotiations will expose many more strategic pot holes for a range of companies, but in the case of our favourite luxury car maker with a unique British heritage, it may be some time before we hear the pop of chilled 1961 Bollinger at Banbury Road.

Mike

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