Coronavirus has shaken up the whole world so dramatically that many of us have almost forgotten about Brexit. Yet, ever since the referendum in 2016, the motor trade has been anxiously hoping for a deal to be struck with the EU.
Big motor manufacturers have been especially concerned. Fewer new cars have been built in the UK recently, and manufacturers such as Nissan are considering moving operations outside the UK.
54% of all vehicles manufactured in the UK are exported to the EU, so the multi-billion pound industry stands to lose out if tariffs are imposed. Without a trade deal, manufacturers including Ford, Peugeot, Mercedes-Benz and Vauxhall have all warned that they will need to increase new car prices.
All of this has had a knock-on effect on the used car business, with demand down and prices falling. What will be the impact for most motor traders? Will there be supply issues? Are car plants closing? Will we have to pay higher prices for vehicles in future?
How Brexit has already impacted the motor industry
The years since the Brexit vote have seen UK new car sales stagnating. The whole industry is waiting to see the outcome of talks between the UK and EU, but some significant impacts have already taken place:
- Production scaled back: Honda is closing its plant in Wiltshire in 2021, and Nissan stated that the UK’s largest car factory – employing 7,000 people – may not have a future without a trade deal.
- Investment cut: The Society of Motor Manufacturers and Traders (SMMT) reports investment in the industry was estimated as an average of £4bn a year between 2012-2015, but only £1.1bn between 2016-2019.
- Diminishing demand: new registrations have fallen, at least in part due to Brexit uncertainty.
No deal Brexit: the impact on car production and the motor industry
Over an extended period, the UK motor industry has relied on the free flow of parts, vehicles and people within the EU. Iconic brands have only survived because of the involvement of EU carmakers – think BMW and the MINI, for example.
A no deal Brexit could be extremely damaging to this trade in many ways:
- Significant tariffs may be imposed on goods exported to the EU, or imported into the UK
- World Trade Organisation (WTO) tariffs of up to 10% on cars and 22% on commercial vehicles would apply
- Tariffs of up to 4% on car parts would be imposed
- 70% of UK cars are imported from the EU, so most cars would be subject to these tariffs
- The list price of many new vehicles could increase by hundreds or even thousands of pounds, accounting for these increased costs
- Company car drivers will pay more ‘benefit in kind’ tax due to increased prices on fleet vehicles.
Even before a no deal Brexit has happened, we have seen how currency swings and lower investment from manufacturers can impact car prices. As additional issues arise, cars could become unaffordable for some people.
Could car manufacturers pull out of the UK?
While car marques still want to sell their vehicles in the UK, they are less likely to be produced here, with plant closures mooted.
Honda have already stated they will be closing their Swindon plant in 2021, with 3,500 jobs on the line. However, that may not be all down to Brexit – Honda has seen a decline in sales across Europe in recent years.
In 2020, Ford closed its Bridgend site in Wales, adding to the job losses in the sector, as its contract with Jaguar Land Rover ended.
Against this backdrop, Nissan decided to stop building the X-Trail in Sunderland, and there are industry rumours that other car factories could close or scale back production, including:
- Vauxhall’s Ellesmere Port plant, where the Astra is made
- Jaguar Land Rover’s Castle Bromwich plant
While Brexit is not specifically mentioned by manufacturers when plants close, it has an impact on production, sales and forward planning. Manufacturers see Europe as a key market and will want to ensure the costs of building and transporting cars are kept to a minimum. Many industry observers are concerned that there will be UK job losses in car manufacturing.
Car prices after Brexit
Will car prices will rise or not? Much depends on whether a deal can be struck.
Manufacturers differ on whether any increased costs (in the form of tariffs) will be passed on to their customers directly after 31st December 2020. BMW, MINI and Jaguar Land Rover have promised not to pass on tariffs for vehicles already on order. However, PSA Group (the parent company of Citroen, DS, Peugeot and Vauxhall) have said they will pass tariffs onto customers from the start.
Volkswagen and other companies have said they will not pass on additional costs if the vehicle is already in the UK before 31st December 2020, as it will not be subject to tariffs. However, pre-ordered vehicles yet to enter the UK will be subject to tariffs.
For motor traders, the rise in prices could put people off purchasing a new vehicle right now. In all cases, it is worth keeping a close eye on the situation with the EU, as any price rises will undoubtedly have a knock-on effect on second-hand prices. There could be further demand in this market, which has already seen increased prices due to high demand during the coronavirus pandemic.
Exporting cars to the EU and importing cars from the EU
In the event of a no deal Brexit, 10%tariffs will be imposed on new cars imported from and exported to the EU.
However, even if a deal is struck, additional costs and time delays are still likely in transporting vehicles to and from the EU, with increased customs checks in place. It has been estimated by the SMMT that costs of planning ahead alone amount to £500m.
Used cars are not subject to tariffs as they have already been built – good news for second-hand car dealers.
Will my motor trade business be successful after Brexit?
There are reasons to be positive for motor traders:
- Fewer new car sales means increased second-hand sales. Used car prices could increase with additional demand, with tariffs on new cars elevating prices across the board. This means existing stock that traders hold could increase in value in the short-term.
- Used cars staying on the road longer will require additional maintenance – good news for service and repair garages.
- Cheap finance deals, with low interest rates, should help to prop up new and used car sales for the foreseeable future.
On the flipside:
- Fewer new cars sold will limit the supply of quality used vehicles in the immediate future.
- The government will struggle to meet environmental targets, such as reducing air pollution, with an ageing vehicle population using older technology. It may not be Cuba, but the warning signs are there!
- Supply of parts for vehicles may be affected, increasing the cost of service and repairs.
Unfortunately, as of mid-December 2020, there remains uncertainty about how the industry will operate in the post-Brexit era. This has been compounded by the coronavirus pandemic.
However, the motor trade has always been resilient, and there is no reason to think the industry will implode. It makes sense for the UK and EU to work closely together in future, to protect jobs and access to new cars across the whole continent. Even if Britain leaves the EU without a deal, a deal can be negotiated afterwards.
What are the best cars to buy and sell after Brexit?
This is a tricky question to answer, given the uncertainty. We don’t know whether there will be a deal between the UK and EU or not.
Our advice is to keep an eye on any price increases and their impact on new car sales. There will always be popular vehicles such as the Ford Fiesta and Focus, BMW 3-series or Vauxhall Corsa that should continue to sell well, even if costs increase. However, if some models escape higher tariffs, they may increase in popularity if the list price remains lower than their rivals. Models imported to the UK from Japan might bypass EU tariffs, for example – although there will be increased transportation costs if the likes of Honda and Nissan do not transport the vehicles through the EU.
Watch this space! We will review the most popular vehicles over the months ahead, to help provide a longer-term view for motor traders.