Brexit: How will it affect the car industry?
With Article 50 triggered an eternity ago, the UK is due to leave the EU on 29 March 2019. But we’re still no closer to knowing what’s really going to happen.
Hard Brexit, soft Brexit, no deal, what does it all mean for the automotive industry? Will new car prices rise? What about petrol prices? Will UK-based manufacturers move to the continent? Read on for all the key info…
What does Brexit mean for the motor manufacturers?
Currently Honda, Jaguar, Land Rover, Mini, Nissan and Toyota all have factories in the UK, with the automotive sector employing around 800,000 people. Pre-referendum, the industry benefited from substantial investment, with Sunderland’s Nissan plant securing contracts to build the Qashqai, Juke and Leaf models.
However, since June 2016, investment in the sector has fallen by around a third with many foreign investors wary of the effects of leaving the Single Market. That said, we’ve also seen Toyota invest £240m in its UK plants in 2017, signalling that future trade deals with the EU aren’t necessarily a make-or-break factor.
Other major news includes French company Peugeot’s decision to buy Vauxhall from General Motors. Peugeot has confirmed that jobs at Vauxhall’s Luton and Ellesmere Port plants are safe until at least 2020, but things aren’t as clear after that.
Jaguar Land Rover head honcho, Ralf Speth, took the opportunity of having the PM in the audience recently to hammer home the fact that a hard Brexit will threaten the companies survival in the UK.
In his speech he stated that Brexit risks 10s of 1,000s of UK jobs and that plants might stop on 30 March because of supply disruptions, before reiterating that access to the single market is "as important to our business as wheels are to our cars". Whether Theresa May understood the message loud and clear remains to be seen.
Since then Jaguar Land Rover has moved 2,000 staff at its Castle Bromwich plant to a three-day week until Christmas, citing Brexit uncertainty and sliding sales of diesel vehicles.
Elsewhere, BMW has previously announced that they plan to shut their Mini plant in Cowley, Oxford, for up to a month after the UK’s departure from the EU to minimise the impact of a no-deal Brexit and fears it may cause a shortage of parts. Honda meanwhile has reiterated that a no-deal Brexit would cost it “tens of millions”.
That’s not the only knock-on effect the upcoming exit from the European Union threatens to bring. While the UK’s electric vehicle market and plans to rapidly grow infrastructure flourishes, a no-deal Brexit could radically undermine incentives for carmakers to push sales in the UK.
Coming only days after the PM pledged £106m to try and help Britain's electric car industry, including potential green number plates to promote awareness of ultra-low emission vehicles, it was revealed by the FT that cars sold in the UK would no longer count towards manufacturers’ EU CO2 targets.
This would reduce one of the reasons for manufacturers to sell battery vehicles in Britain, potentially upsetting the government’s hard work towards phasing out the sale of traditional petrol and diesel vehicles by 2040.
Following the initial triggering of Article 50, the Society of Motor Manufacturers and Traders (SMMT) warned that the continued uncertainty risks damaging the £76bn automotive industry in the UK.
SMMT chairman, Mike Hawes said: “Triggering Article 50 has started a race against time to secure a deal that safeguards the future of the UK automotive industry. Government has committed to creating and supporting the right conditions for our industry to be successful.
“That means certainty in our relationship with our biggest market, tariff-free and open borders so products, parts and investment can flow freely, and continued influence over the regulation that governs the vehicles we build and drive. Now is the time for the government to deliver.”
Also, while demand for new cars has cooled somewhat since 2016’s record registration levels, the industry continues to be buoyant and resilient. So far, Brexit has done little to slow down consumers, with the dip in registrations also down to government-caused confusion around diesel.
Will cars cost more?
According to the SMMT, EU tariffs on cars alone could add at least an annual £2.7bn to imports and £1.8bn to exports.
Import tariffs alone could push up the list price of cars imported to the UK from the continent by an average of £1,500 if brands and their retail networks were unable to absorb these additional costs – a potential worry considering 85% of all new cars in the UK are imported from Europe.
What about motoring finance?
Much regulation currently applicable in the UK derives from EU legislation, and this regulation will remain applicable until any changes are made, which will be a matter for government and Parliament.
The Financial Conduct Authority has stated that firms must “continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect”.
“Consumers’ rights and protections, including any derived from EU legislation, are unaffected by the result of the referendum and will remain unchanged unless and until the government changes the applicable legislation,” it said.
What about car insurance?
Car insurance prices are currently at their highest ever level according to many reports. Although that can’t all be blamed on Brexit, there’s no denying that the EU has been generally positive for car insurance; a 2012 ruling made it illegal for insurers to discriminate on the grounds of gender, bringing costs for male and female drivers in line.
The recent fluctuation in the value of the pound could be said to be partly responsible for a rise in premiums, as many insurers are multi-national companies that cannot afford to give a real-word discount to UK drivers compared to those abroad.
Law-wise however, there are not going to be any immediate changes, according to the AA. Under current EU legislation, anyone who has a car that they insure can legally drive their car in any other EU country and benefit from the minimum level of insurance cover (usually third party) that applies in the countries visited.
What about fuel prices?
Like insurance, the cost of filling up has risen recently. This is due to currency fluctuations and, with the pound’s value down and crude oil prices on the up, these rises inevitably trickle down to the forecourt. The RAC has warned that the average cost of a full tank of petrol may hit a record high of £70 in October.
If the UK fails to agree on the terms of its exit and divorce settlement from the EU, and trades using World Trade Organization tariffs, the likely result would be an immediate slump in the value of the pound, with fuel prices increasing by as much as 20%, according to PetrolPrices.
For an average two-car family that fills up every fortnight, this could add around £500 per year to your motoring outgoings.
Will driving laws change? What about my driving licence?
Currently UK driving licences are valid in the EU. If you hold a UK licence, you can drive for both work and leisure purposes throughout the EU without other documents. But the Licence Bureau has warned UK drivers that their driving licences may not be valid in the EU in the event of the nation exiting with no withdrawal agreement in place.
The warning comes following the Department for Transport publishing a detailed guidance document entitled ‘Driving in the EU if there’s no Brexit deal.’
This states that UK residents looking to drive or hire a car in EU countries post-Brexit will need to be in possession of a UK driving licence and one or both of two different International Driving Permits (IDPs). One IDP is governed by the 1949 Geneva Convention on Road Traffic and the other is governed by the 1968 Vienna Convention on Road Traffic.
The 1949 convention IDP lasts for 12 months. After 28 March 2019 in the EU, a UK issued 1949 IDP would be recognised in Ireland, Spain, Malta and Cyprus.
The 1968 convention IDP is valid for three years. The UK ratified the 1968 convention on 28 March 2018 as a part of its EU exit preparations. The 1968 convention will come into force for the UK on 28 March 2019.
After 28 March 2019, a UK-issued 1968 convention IDP would be recognised in all other EU countries, plus Norway and Switzerland. IDPs are available from Post Office counters at a cost of £5.50 and take around five minutes to complete.
It’s still far too soon to know exactly what lies ahead for the UK and its motor industry, but ContractHireAndLeasing.com will bring you all the important news as it happens.