Brexit's Impact on UK Car Prices

The ramifications of the United Kingdom's departure from the European Union, particularly a 'no deal' scenario, have cast a long shadow over numerous industries. While the global upheaval caused by the Coronavirus pandemic has understandably dominated headlines, the automotive sector has been holding its breath since the 2016 referendum, anxiously awaiting clarity on future trade relations with the EU. For major car manufacturers with significant operations in the UK, the prospect of tariffs and trade barriers poses a substantial threat to their business models.

The Brexit Vote and its Immediate Aftermath

Since the Brexit referendum, the UK's new car market has experienced a period of stagnation. This uncertainty has permeated the industry, leading to a cautious approach from manufacturers and consumers alike. The Society of Motor Manufacturers and Traders (SMMT) has reported a significant downturn in investment; average annual investment dropped from an estimated £4 billion between 2012-2015 to just £1.1 billion in the 2016-2019 period. New car registrations have also seen a decline, partly attributed to this pervasive Brexit uncertainty.

Impact on Car Production

The UK motor industry has long benefited from the seamless movement of parts, vehicles, and skilled labour within the EU. This interconnectedness has been vital for the survival and success of many iconic automotive brands, with European manufacturers playing a crucial role. A 'no deal' Brexit, however, threatens to dismantle these established supply chains. Major concerns include:

• Production Scale-Back: Companies like Honda have already announced the closure of their plant in Wiltshire in 2021, impacting thousands of jobs. Nissan has also publicly stated that the future of its Sunderland plant, the UK's largest car factory employing 7,000 people, is uncertain without a favourable trade deal.
• Investment Cuts: As mentioned, investment has significantly reduced, signalling a lack of confidence in the long-term viability of UK manufacturing operations in the face of potential trade barriers.
• Diminishing Demand: Consumer confidence, often linked to economic stability and affordability, has been affected, leading to fewer new car purchases.

The Threat of Tariffs: What Would a 'No Deal' Mean for Car Prices?

The most immediate and significant impact of a 'no deal' Brexit on car prices would be the imposition of tariffs. The World Trade Organisation (WTO) framework, which would likely apply in the absence of a specific UK-EU trade agreement, includes substantial tariffs on vehicles and parts:

Table 1: Potential WTO Tariffs in a 'No Deal' Brexit Scenario

Given that approximately 70% of cars manufactured in the UK are exported to the EU, and a significant proportion of cars sold in the UK are imported from the EU, these tariffs would have a widespread effect. Manufacturers have warned that these increased costs would inevitably lead to higher list prices for new vehicles, potentially adding hundreds or even thousands of pounds to the cost of a new car. This would also affect company car drivers, who would face higher 'benefit in kind' tax liabilities due to the increased prices of fleet vehicles.

Manufacturer Responses and Passing on Costs

The way manufacturers handle these potential tariff increases varies. Some, like BMW, MINI, and Jaguar Land Rover, have pledged not to pass on tariffs for vehicles already on order, offering a degree of protection for existing customers. However, other groups, such as the PSA Group (parent company of Citroen, DS, Peugeot, and Vauxhall), have indicated they will pass on tariffs to customers immediately. Volkswagen and similar companies have stated they will absorb costs for vehicles already in the UK before the 31st December 2020 deadline, but pre-ordered vehicles yet to arrive would be subject to tariffs.

The Impact on the Used Car Market

The ripple effect of higher new car prices is likely to be felt keenly in the used car market. As new vehicles become less affordable, demand for pre-owned cars is expected to increase. This could lead to a rise in used car prices, potentially benefiting existing stock held by motor traders. Furthermore, with fewer new cars being sold, the supply of quality used vehicles entering the market in the immediate future could be constrained, further driving up prices for desirable second-hand models. Garages offering servicing and repairs may also see an uplift in business as people tend to keep their existing vehicles for longer when new car purchases are less appealing.

Potential for Manufacturing Relocation

The uncertainty surrounding trade terms and the potential for increased costs have led some manufacturers to reconsider their UK manufacturing base. While plant closures are often attributed to a combination of factors, including declining sales across Europe, the looming threat of Brexit undoubtedly influences strategic decisions. The closure of Honda's Swindon plant and Ford's Bridgend site are examples of significant shifts in the UK automotive landscape. Industry rumours suggest that other plants, such as Vauxhall's Ellesmere Port facility and Jaguar Land Rover's Castle Bromwich plant, could also face scaling back or closure. Manufacturers prioritize cost efficiency and access to key markets, and the prospect of tariffs and complex customs procedures makes the UK a less attractive manufacturing hub for supplying the European market.

Beyond Tariffs: Other Brexit-Related Costs and Delays

Even if a trade deal is successfully negotiated, it is highly probable that additional costs and time delays will still affect the transportation of vehicles between the UK and the EU. Increased customs checks and administrative burdens are anticipated. The SMMT has estimated that the costs associated with planning for these new procedures alone could amount to £500 million. While used cars themselves are not subject to tariffs as they have already been manufactured and 'cleared' for sale, the logistics of moving them could still be impacted by these new border procedures.

Will Your Motor Trade Business Thrive Post-Brexit?

The outlook for motor traders post-Brexit is complex, with both potential opportunities and significant challenges:

Reasons for Optimism:

• Increased Used Car Demand: As new cars become more expensive, demand for affordable used vehicles is likely to rise, boosting sales for dealers.
• Higher Used Car Values: Increased demand and the potential for higher new car prices could elevate the value of existing used car stock.
• Boost for Aftersales: With people holding onto cars longer, the demand for servicing, maintenance, and repairs is expected to grow, benefiting garages.
• Favourable Finance Deals: Low interest rates on finance packages could continue to support both new and used car sales.

Reasons for Concern:

• Reduced Supply of Quality Used Cars: Fewer new cars sold means a smaller pool of newer, high-quality used vehicles entering the market.
• Environmental Targets: An ageing vehicle population, with older, less efficient technology, could make it harder for the government to meet environmental targets, such as reducing air pollution.
• Supply Chain Disruptions: The availability and cost of vehicle parts may be affected, leading to increased servicing and repair costs.

Navigating the Uncertainty: What Cars to Buy and Sell

Predicting which specific car models will be best to buy and sell after Brexit is challenging due to the ongoing uncertainty. However, several factors are likely to influence purchasing decisions:

• Price Sensitivity: Consumers will be more attuned than ever to list prices. Models that manage to avoid significant price increases due to tariffs or that are sourced from markets not subject to EU tariffs may see a surge in popularity.
• Perennial Favourites: Established popular models such as the Ford Fiesta, Ford Focus, BMW 3-series, and Vauxhall Corsa are likely to continue selling well, even with increased costs, due to their strong brand loyalty and established market presence.
• Import Sourcing: Vehicles imported from countries like Japan, which may bypass EU tariffs, could become more attractive. However, this depends on manufacturers' ability to manage increased transportation costs if they no longer route vehicles through the EU.

It is crucial for motor traders and consumers alike to monitor price fluctuations and market trends closely. The automotive industry has a history of resilience, and while Brexit presents significant challenges, it is unlikely to lead to the collapse of the sector. Collaboration between the UK and EU remains in the best interest of both parties, aiming to protect jobs and ensure continued access to vehicles across the continent. Even in a 'no deal' scenario, the possibility of negotiating a trade deal retrospectively remains.

Frequently Asked Questions

Will car prices definitely go up after Brexit?

Car prices are highly likely to increase, especially if a 'no deal' Brexit occurs and tariffs are imposed. The extent of the increase will depend on whether manufacturers pass these costs onto consumers and the specific trade agreements reached.

Are used cars affected by Brexit tariffs?

Used cars themselves are not directly subject to tariffs as they have already been manufactured and imported. However, the increased cost of new cars may drive up demand and prices for used vehicles.

Could car manufacturers leave the UK entirely due to Brexit?

While some manufacturers may scale back or relocate certain operations, it is unlikely that major manufacturers will leave the UK entirely. The UK remains a significant market, and manufacturers will adapt to new trading conditions.

What is the impact on car parts?

Tariffs of up to 4% could be imposed on car parts imported into the UK from the EU. This could increase manufacturing costs and potentially lead to higher prices for servicing and repairs.

What should I do if I'm looking to buy a car?

It's advisable to monitor the market closely, compare prices from different manufacturers and dealers, and consider whether to buy before any new tariffs or trade agreements come into full effect. For those with existing orders, clarify with the dealer whether any price increases will apply.