Analysis
31 Jan 20

Bye-bye UK: what's next for fleets and OEMs?

As the UK divides between celebrations and funeral-style wakes at the departure of the country from the European Union at midnight tonight, the fleet and automotive sector faces several both challenges and opportunities.

While nothing officially changes in the trading relationship between the EU and UK until the end of 2020, the declaration by the UK Government that it will not seek any extension to this arrangement has placed huge pressure on trade negotiations.

Many commentators, including EU leaders, say it will be impossible to negotiate a full trade agreement in the next 11 months, creating uncertainty over which goods and services will be covered by any free trade arrangements.

Rental and leasing

For the rental and leasing sector, this uncertainty is boosting sales opportunities, at least in the short term, as businesses avoid making long-term capital invesments in new vehicles.

BVRLA Chief Executive Gerry Keaney, said: “Many truck and van operators are delaying re-fleeting decisions, largely due to a lack of confidence in their ability to forecast as a result of continuing uncertainties. Cost remains a major concern for operators, as knowing what a vehicle will cost post-Brexit is still an unknown.”

Manufacturing consequences

However, for vehicle manufacturers both within the UK and EU, the need for a free trade agreement is absolutely essential for manufacturing efficiency. A taste of what may lie ahead occurred twice in 2019, when OEMs shut their UK factories in anticipation of the UK leaving the EU without a trade deal.

Shipments of new vehicles from the UK to the EU fell by 11.1% year-on-year in 2019, while all vehicle exports were down by 14.7%.

Mike Hawes, SMMT Chief Executive, said: “Given the uncertainty the sector has experienced, it is essential we re-establish our global competitiveness and that starts with an ambitious free trade agreement with Europe, one that guarantees all automotive products can be bought and sold without tariffs or additional burdens.

“This will boost manufacturing, avoid costly price rises and maintain choice for UK consumers. Negotiations will be challenging but all sides stand to gain and this sector is up for it.”

Potential tariffs

If the EU and UK fail to negotiate a trade deal for vehicles, World Trade Organisation tariffs will be applied to new vehicles crossing the Channel in both directions. This would see UK fleets face an increase of 10% in the acquisition cost of vehicles made in the EU, and vice-versa, although EU fleets would have a wider choice of alternative vehicles from other manufacturers within the EU to avoid having to pay tariffs.

 

 

Authored by: Jonathan Manning