Brexit: 'No deal' car price warning for fleets

Fleets are being warned they could face price increases and longer lead times for vehicles and spare parts, if the UK leaves the EU without a deal.

MPs hope to delay Brexit beyond March 29 if the Government fails to win a majority for its deal, in an attempt to take ‘no deal’ off the table.

However, with European elections planned from May 23-26 and newly elected MEPs taking their place in Brussels from July 2, EU leaders will not want to extend Article 50 beyond the end of June.

It leaves the UK Parliament with less than three months to agree a way forward or face the real threat of a disorderly Brexit.

The Society of Motor Manufacturers and Traders (SMMT), which represents UK carmakers, says fleets could suffer in the event of the UK crashing out of Europe. 

SMMT chief executive Mike Hawes told Fleet News: “A ‘no-deal’ Brexit would mean a very real risk of delays to vehicle and parts deliveries from the continent due to border checks, increased red tape and the likelihood of subsequent queues at ports.

“In addition, World Trade Organisation (WTO) rules would impose a 4.5% tariff on parts and 10% on finished cars crossing into and out of the EU, which could result in an average £1,500 uplift to sticker prices, if brands and retailers were unable to absorb these additional costs.”

Europe’s second largest car manufacturer, PSA Group, which has Peugeot, Citroën, DS, Opel and Vauxhall brands under its ownership, says it has a “comprehensive ‘no deal’ contingency plan” in place, but it is warning of a potential impact on pricing.

A spokesman said the carmaker was in contact with leasing companies to ensure they can carry out their business with “as much clarity and as little disruption as possible”.

However, he added: “Where existing orders are concerned, our dealers will provide details of any price impacts that may result from a ‘no deal’ scenario.”

In a memo to its fleet customers, seen by Fleet News, Zenith revealed Volkswagen Group UK had advised the leasing company it would reserve the right to increase prices in the event of a ‘no-deal’ Brexit.

Zenith managing director Ian Hughes told Fleet News: “Given the uncertainty that Brexit presents for UK business, Zenith is doing everything it can to update its customers. Information is shared as soon it is received and there is lots of support within our teams to handle any changes.”

Zenith has created a Brexit steering committee that meets each week to review any potential impacts on our customers and drivers. That includes having information ready for distribution to customers when driving in Europe, if the UK leaves without a deal.

Hughes added: “We are committed to ensuring drivers are able to proceed with the minimal amount of disruption.”

VEHICLE SUPPLY

Rupert Pontin, director of valuations at Cazana, suggests some leasing companies are “frantically reviewing” what plans they have in place should the industry find it difficult to access the supply of key brands (fleetnews.co.uk, February 19).

He also says there could be an issue for future forecasted values in the event of a significant overnight price increase.

“The percentage of original cost new measurement often quoted internally and externally, will drop,” he said.

“This is because the same car registered the day after one at a lower cost new will not hit the used car market at a higher price just because the manufacturer lifted the new price.”

Hughes told Fleet News there was nothing to suggest that vehicle supply would be an issue beyond that already seen from the introduction of the new CO2 testing regime, the Worldwide harmonised Light vehicle Test Procedure (WLTP).

Mercedes-Benz, which achieved the highest true fleet sales in the UK last year, with more than 83,000 cars sold to fleets, also played down any impact on vehicle supply.

A spokesman said: “Mercedes-Benz has the clear objective of ensuring that goods can continue to enter and exit the UK in a timely manner following the UK’s exit from the EU.

“We are constantly monitoring the status of negotiations, and have plans in place to ensure that our objective is met should the UK exit the EU without a transition period. These plans cover all relevant topics, (including) the supply and movement of goods, customs procedures and logistics.”

GROWING CONCERN

Nevertheless, there is growing feeling among fleets that the UK’s exit from the EU will result in higher fleet-related costs.

In a series of polls taken by Fleet News starting from a few months prior to the referendum in June 2016, to the most recent, last month, the percentage of respondents saying leaving the EU would result in higher fleet costs has almost doubled, from 39.3% to 74.5%.

In a poll held immediately after the referendum result, almost two-thirds (64%) of respondents feared price rises, while a third did not believe the UK’s exit would hit their bottom line.

Two subsequent polls, taken around a year apart, echoed a similar sentiment, before the most recent suggested almost three-quarters now expect to see fleet costs increase, with fewer than one in five (18.1%) believing they will escape unscathed.

STAFF SHORTAGES

In terms of the logistics sector, experts are also warning that a disorderly Brexit could result in significant staff shortages, because of immigration policy uncertainty.

New research from workforce management experts at Quinyx found that under any Brexit scenario, employers in the UK’s logistics sector expect to lose, on average, 21% of their blue-collar workforce as a result of the UK’s departure from the EU, with 13% saying they expect to lose 31% or more.

The study, based on economic analysis of ONS data and findings from an employer sentiment survey of 1,008 senior decision-makers, also compared the predicted growth and economic output of the workforce in the logistics sector under both a disorderly and an orderly Brexit scenario.

The study found that the increase in economic output generated by the UK’s logistics workers (in manual roles) would be £9.8 billion per year by 2024 under an orderly Brexit, compared to £3.1bn under a disorderly Brexit. This equates to a 68% reduction or £6.7bn loss per year.

Mansoor Malik, managing director of Quinyx, said: “The impact that a disorderly Brexit will have on the UK’s truck drivers, packers and warehouse workers as well as the logistics businesses that employ them is concerning.

“Employers, especially those in the logistics sector, need to make plans to avoid staff shortages in the future.”

UK CAR PRODUCTION

The auto industry, meanwhile, has suffered extensive job losses, with thousands more workers facing the axe following Honda’s decision to close its Swindon plant by 2021 (fleetnews.co.uk, February 19).

Japanese car producers, including Nissan, have said that Brexit uncertainty is not helping them “plan for the future”. Nissan recently opted to build the next X-Trail model in Japan, rather than in Sunderland.

However, Honda denied its decision to close its plant in Swindon was related to Brexit, instead blaming a global restructure and a decline in demand for diesel.

A new trade deal between the EU and Japan that came into force in February will have also played its part. It will see tariffs on cars exported from Japan to Europe reduced to zero over the next 10 years.

In a recent report, consulting firm LMC Automotive estimated that more than 730,000 cars built in the UK in 2018 were for Nissan, Toyota and Honda – nearly half of all light vehicles produced.

If the UK were to leave the EU without a deal, cars made in Japan could, under the new EU-Japan trade deal, end up costing less to import into the EU than those produced in the UK.

Hawes said: “The challenges facing Honda are not unique. The global automotive industry is facing fundamental changes: technological, commercial and environmental, as well as escalating trade tensions, and all manufacturers are facing difficult decisions.

“The UK should be at the forefront of these changes, championing its competitiveness and innovation, rather than having to focus resources on the need to avoid a catastrophic ‘no-deal’ Brexit.”

Jaguar Land Rover (JLR) said in January that it would be cutting 4,500 jobs (fleetnews.co.uk, January 10). It said that it was facing a different challenge in the Asian market: a sales slowdown in China.

Passenger vehicle wholesales fell by 17.7% year-on-year to 2.02 million units, according to the latest figures from China’s Association of Automobile Manufacturers.

VAUXHALL FUTURE

PSA Group chief executive Carlos Tavares, meanwhile, says that Vauxhall may emerge as “the survivor” of a post-Brexit car manufacturing sector in the UK.

Last year, following proposals of a restructuring of the Ellesmere Port Manufacturing Plant, where it builds the Astra, it announced almost 250 jobs would be lost this year (fleetnews.co.uk, November 26, 2017).

At the beginning of 2018, the car manufacturer announced 250 job cuts at the plant, following an initial 400 in October 2017.

Tavares said: “We may have the opportunity to be the survivor – the survivor of the automotive industry in the UK – because Vauxhall is a brand that is warm to the hearts of UK consumers, we may be the ones with the best opportunities to survive and make a good business out of it.”

Reporting a €1.7bn (£1.46bn) increase in recurring operating profit in the group’s first full year results since its acquisition of Opel Vauxhall, Tavares would not rule out the closure of UK plants, however.

To read Brexit analysis and advice for fleets from Professor Colin Tourick, click here.