More than half of fleets expect costs to increase post-Brexit

The majority of fleet operators believe leaving the EU will increase fleet costs.

A Fleet News online poll showed almost 60% of respondents believe Brexit will hurt fleet budgets with higher costs.

The conclusion contrasts with an earlier poll in March 2016 where close to the same number (61%) of respondents believed there would be no negative effect on fleet costs.

A further poll – before the referendum – suggested more than half of fleet operators wanted the UK to leave the EU, with the number backing Brexit significantly higher than the score for remain (51.6% vs 42.8%).

Fleet decision-makers say they lack clear guidance on how to best prepare for the consequences of Brexit, as current talks appear to show little sign of agreement over the UK’s future trade relationships with the EU.

Since Fleet News first guaged audience opinion, trade body Society of Motor Manufacturers and Traders (SMMT) has expressed concern at uncertainty over the future trading structure with the bloc, as well as the impact of tariffs on goods crossing EU borders with the UK post-Brexit should the Government walk away from talks without a deal.

Not only would this potentially increase the cost of new vehicles, especially those imported to the UK, it would also make UK-built vehicles more expensive for foreign customers, dramatically affecting the competitiveness, and therefore the viability, of UK car plants.

In a no-deal scenario, where trade would fall back to World Trade Organisation (WTO) rules, tariffs would also be applied to vehicle components that needed to be imported to the UK, which would push up service, maintenance and repair (SMR) costs.

Higher costs and supply delays

Concerns were echoed by Paul Hollick, chairman of the ICFM, who told Fleet News after the December poll that as well as the impact of higher costs through tariffs, there was potential for delays in new vehicle and spare parts deliveries due to border customs changes.

Brexit was listed as one of the major issues facing the contract hire industry in 2018, according to senior executives surveyed for the FN50 report in 2017.

A number of companies pointed out that the effects of the decision to leave the EU had been limited so far, but would doubtless have an impact on both the automotive and finance sectors.

While the devaluation of sterling since the referendum has stabilised to some extent in the meantime, the higher cost of imported goods has been offset to a degree by car manufacturers trying to reignite falling demand for new vehicles in 2017 with higher discounts and consumer incentives.

Sudden economic shifts can have a dramatic effect on consumer demand, and while businesses will follow a more stable, planned course, the appetite for used vehicles will have an effect on the value of fleet assets.

Difficulty in planning says VRA

Vehicle Remarketing Association (VRA) chairman Glenn Sturley warned the uncertainty of Brexit negotiations is hanging over the economy, creating the kind of uncertainty that makes business planning very difficult.

He said: “In 2018, it is very likely that the ‘B word’ is going to be unavoidable. The issue is that there remains such a wide range of potential scenarios – from a cliff edge departure from the EU through to abandoning Brexit altogether – and the outcome may not be known until the last minute.

“As the year progresses and we get closer to the deadline for leaving the EU, this uncertainty is likely to become more acute and the resulting impact on the overall economy is more difficult to predict. It is not difficult to foresee situations where the economic effects are quite severe and sudden, especially if they are accompanied by political instability.

“Against this backdrop, the remarketing industry must maximise values for used vehicles, realising them in the quickest time possible. It might not always be easy.”

The key, Sturley said, was to remain as flexible as possible and to ensure that businesses that face risks from Brexit sought expert advice to ensure they were able to make preparations, however limited.

“Our view is that this is a time when knowing what is happening on an almost daily basis is essential for everyone working in the sector,” said Sturley. “Factors that affect the remarketing outcomes achieved may change very quickly.

“Also, it will be important to not commit to any single remarketing method. There may well be arguments for quickly altering the disposal strategies that you are using in response to changing circumstances.”

Limbo leaves BVRLA unable to offer advice to fleets

The British Vehicle Rental and Leasing Association (BVRLA) told Fleet News that with nothing concrete from the negotiations between the UK and EU so far, it was unable to offer any advice.

ACFO, the organisation that represents fleet operators, was also reluctant to speculate on which actions fleets might find beneficial with the outcome of the Brexit negotiations still unknown.

It means frustration for fleet operators who, according to some, are wary of how Brexit will affect their businesses, and have no alternative to include in current business plans.

Geoffrey Bray, chairman of the Fleet Industry Advisory Group (FIAG), said: “Fleet decision-makers are fearful of the outcome of Brexit. But what a world will look like with the UK outside of the European Union and, specifically, the impact on vehicle pricing and in-life vehicle costs, is unknown.

“However, I am optimistic and, while I cannot predict the future, Brexit is already weighing on the decision-making process within some fleets.

“Nevertheless, fleet decision-makers must acknowledge the fact that the UK is not an isolated market as far as the automotive industry is concerned. The UK is a small market in a global economy and when the automotive industry is making marketing, including pricing, decisions they are made invariably in a worldwide context.

“The internet has changed the world and, while there are plusses and minuses, generally international businesses are thriving as can be seen from the level of stock markets in London and globally.”

Bray’s optimism stems from fleets that could be able to adapt quickly to maximise any opportunities that arise from a new trading regime. And there might still be a few years where the current trading conditions as an EU member are extended.

“It is a challenging and changing world and Brexit will have an impact,” he said. “But it will also present major opportunities. Businesses must be nimble and alert – and that includes within the fleet arena – and move forward as opportunities occur.

“March 29, 2019, is when the UK is scheduled to withdraw from the European Union. That date is a long way off and the reality is that Brexit negotiations are likely to be protracted and could continue much longer than the Government’s two-year forecast in terms of having new trade agreements in place.

“Therefore, fleets must continue to operate against a background of what is known and manage assets effectively and efficiently. That means continuing to evolve because standing still while awaiting Brexit’s outcome, which will take many months and even years, simply means costs will escalate.”

"Review funding and management of fleets now"

Colin Tourick, professor of automotive management at the University of Buckingham business school, also offered advice. 

He said: “Businesses should review how they fund and manage their fleets now, with a view to keeping costs as low as possible.

“That should put them in better stead if the negotiations don’t deliver a smooth Brexit. And if there’s one thing I’d recommend it’s to look at the CO2 emissions levels of the cars managers are putting on their fleets.

“Whatever else happens, CO2 is still likely to be a key issue when it comes to vehicle taxation, national insurance, fuel consumption, running costs and depreciation, and will become increasingly important as more cities follow London and introduce low emission zones.”