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24 Jan 19

UK fleets start to consider 'no deal' Brexit scenario

British fleets are having to wrestle with the implications of the UK leaving the European Union without a withdrawal agreement.

The so-called ‘No Deal’ option will happen automatically on 29 March, unless British politicians can agree an alternative strategy both among themselves and with the EU.

In a no deal scenario there would be no interim customs or free trade agreement between the UK and the EU, triggering World Trade Organisation tariffs on goods crossing the border between both entities and potentially leading to lengthy delays at customs.

ACFO, the Association of Car Fleet Operators, has tried hard to avoid getting involved in speculation about the consequences of a no deal Brexit.

John Pryor, ACFO chairman, said, “We’ve never been in a situation quite like this before. My gut feeling is that it [the withdrawal agreement] will not really matter. Cars will still come and we will still have fuel.”

Delays at the border

If there are delays in the supply of vehicles or parts for service and repair, fleets will just have to cope, he added.

The more significant early complication, said Pryor, could involve UK employees hiring cars within the EU, if the two sides fail to reach an agreement on accepting driving licences.

“Will you need an International Driving Permit (IDP)?” asked Pryor.

International Driving Permits

Confusingly, there are two types of IDP depending on where a motorist is driving within the EU. One type is for countries (Ireland, Spain, Malta and Cyprus) that signed up to the 1949 Geneva Convention on Road Traffic, and the second type for the other EU countries (plus Norway and Switzerland) that signed up to the 1968 Vienna Convention on Road Traffic). Obtaining an IDP costs £5.50 and takes about five minutes in a UK post office.

The British government said it is, “seeking to negotiate a comprehensive agreement with the EU to cover the continued recognition and exchange of UK licences after exit.”

For EU drivers coming to the UK after 29 March, the current licence arrangements will continue, with no IDP required.

Green Card insurance

The government has also warned that British motorists, including company car and van drivers, would need a Green Card as proof of insurance when driving abroad.

“If you are a commercial operator and have fleet insurance, you must ensure you have Green Cards for each vehicle. Some countries also require separate trailer insurance to that of the towing vehicle, which means a separate Green Card may be required for your trailer,” it said.

Challenge suppliers

Given the current uncertainty and high number of unanswered questions, Caroline Sandall, deputy chairman of ACFO, advised fleets to consider what will happen if there is a disruption to their supply chains, whether in the form of delayed new vehicle orders or delayed availability of parts. Both scenarios could increase demand for short term and gap style rental, she said.

“Fleets would be well advised to be talking to their supply chain to understand their plans to ensure continuity of service,” said Sandall.

Leasing industry reaction

 

At the BVRLA (British Vehicle Rental And Leasing Association), chief executive, Gerry Keaney, said the association's priority is to keep its members informed about Brexit developments and regulatory changes to ensure that they and their customers remain compliant with the rules.

 

"Be it understanding what documentation is needed when taking a rented or leased vehicle abroad, or be it around employing EU-staff, the BVRLA will continue to signpost members to the latest advice coming from government and will provide a platform for specialist business advisers and legal experts to share their views on what our sector should be considering as part of Brexit preparations," he said.

 

“The uncertainty around Brexit continues, despite government issuing a series of advisory notices and guidance documents. The prospect of being impacted by import tariffs on new vehicles and the myriad of other regulatory issues around type-approval, emissions standards, data protection and driving overseas will all have an impact upon our industry but regardless of the final Brexit outcome, the fleet industry will lead the way in supporting their customers with strength and resilience." 

 

Leasing company reaction

At Ogilvie Fleet, a top 20 UK leasing company, sales and marketing director Nick Hardy said a small handful of the company’s corporate customers had formally asked about the actions that Ogilvie was taking to prepare for a no deal Brexit.

“But as every day passes and a hard Brexit looks more likely, more and more people will be asking,” he said.

In turn, Ogilvie has asked vehicle manufacturers what preparations they are making, “and they say they are doing everything they can to protect themselves against a hard Brexit,” said Hardy.

“The supply of parts and vehicles could be interrupted, but no one knows for how long.”

Lease rate mitigation

Falls in the value of the pound since the UK announced it was leaving the EU have pushed up car prices significantly, and the imposition of additional trade tariffs would test fleet budgets and stifle demand across the entire new car market, both fleet and retail.

However, as the second largest new car market in Europe, the UK is too big for manufacturers to ignore, so it will be interesting to see how much flexibility there is in pre-tax, pre-tariff pricing to support sales.

The laws of supply and demand mean that a smaller new car market would support residual values, shrinking depreciation and allowing leasing companies to avoid passing on the full impact of higher new car prices, said Hardy.

Lessons from WLTP

He added that delays in vehicle orders in 2018 due to WLTP testing has prepared British fleets for longer lead times, and said the experience had showed that the majority of drivers and companies were prepared to wait for their first choice vehicle rather than accept a car that was immediately available.

This suggests ‘Buy British’ company car choice lists of readily available cars made in the UK (by Toyota, Honda, Nissan, MINI, Jaguar, Land Rover, and, er, Rolls Royce), are unlikely to start appearing. But there is a chance that patriotic fervour in the event of a no deal Brexit may give a boost to UK-based manufacturers.

Manufacturers want a deal

Nonetheless, the SMMT, which represents manufacturers and dealers, is campaigning strongly against a no deal outcome, which Mike Hawes, SMMT chief executive, said would be catastrophic for the automotive industry.

“Leaving the EU, our biggest and most important trading partner, without a deal and without a transition period to cushion the blow would put this sector and jobs at immediate risk,” he said.

“‘No deal’ must be avoided at all costs. Business needs certainty so we now need politicians to do everything to prevent irreversible damage to this vital sector.”

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Authored by: Jonathan Manning