“Too early to tell” (Marshalls Group)
“Higher UK car prices (Peugeot UK CEO)
“Growth in new car registrations too slow” (Inchcape)
“The vote for Brexit was just a bump in the road on the way to a three million unit new car sales market” (Andy Bruce, Lookers plc CEO, quoted in AM Online)
“The SMMT has insisted that future growth of UK automotive manufacturing is uncertain following the publication of results, which showed the most productive H1 since the year 2000” (SMMT quoted in AM Online)
“Customers will be more open to warranty and insurance products as they crave greater security amid the uncertainty of post-Brexit Britain.” (Ian Simpson, European MD of Automotive at The Warranty Group, quoted in AM Online)
“Bob Shanks, Ford’s chief financial officer, said that closures would not be discounted as the business sought to “claw back” the projected losses which would come in the wake of disappointing financial results.” (AM Online)
“The result of the Brexit referendum will cause “a very damaging period of uncertainty”, according to the head of Mitsubishi. said Mitsubishi Motors in the UK managing director Lance Bradley.” (AM Online)
“Lower demand of two Vauxhall models in the UK, blamed on the Brexit vote, has led Opel to cut working hours at two German plants” (AM Online)
“Automotive industry analysts at IHS have predicted a reduction in vehicle sales and manufacturing for the UK and Europe as OEMs respond with caution to Brexit” (AM Online)
“Britain’s Brexit decision could provide a boost to the used car sector at the expense of new car sales, according to Startline Motor Finance” (AM Online)
Registrations of new cars in the UK fell for only the second time in 4 years in June 2016 – a sign of weakening consumer confidence?
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In February 2016 the SMMT Industry Forum conducted a survey of automotive firms for the Automotive Industrial Partnership. The results revealed a skills shortage in the industry, leaving 5,000 job roles unfilled.
The NFDA called upon the Government’s to delay the implementation of its Apprenticeship Levy, saying that following the Brexit ‘leave’ vote, the economic situation was uncertain. The delay would enable firms to manage any pay cuts or job losses resulting from the vote .
Falls in the value of sterling would affect the commodity prices of raw materials.
Manufacturers could be less able to support and protect residual values if they attempt to hold prices to stay competitive.
Should the increased price of raw materials be reflected in price rises, then residual values potentially would stay reasonably constant.
Car residual values took a knock eight years ago when many customers returned their cars or aimed to renew vehicle finance at lower rates. However, the market corrected this big fall in a relatively short time.
It’s possible that if the pound is weaker then manufacturers will restrict subsidies on new cars. This could have the knock-on effect of raising both new car prices and used car prices in turn.
The overall condition of the economy and level of demand will have an influence on the factors above.
In the first half of 2016 the UK car manufacturing grew to 158,641 units produced in June. This was a 10.4% month-on-month rise. 897,157 units in total were manufactured over the six-month. This was up 13.0% on 2015’s figure of 793.639.
UK auto manufacturers experienced their eleventh consecutive month of growth. Exports drove volumes. Year-to-date demand rose 14.9% to 695,139 units. Domestic market production grew by 7.1%.
77.8% of UK-built cars were done so for over 100 overseas markets.
UK car manufacturing currently depends upon an intricate cross-border trade supply chain throughout Europe and the world.
Local sourcing of UK-built car components is growing, but 59% of vehicle components are sourced mainly via continental imports.
(Source: SMMT July 2016)
With so much of the motor finance market predicated on consumer confidence, softening of demand in the short term is to be expected and it is vital that we see clarity at the earliest opportunity concerning the intentions of the Government and our future relationship with the EU.
We’re yet to see the full effect of the Brexit vote, but any reduction in finance subsidies and the possible relocation of manufacturing plants would lead to production volumes falling. The UK is home to seven foreign volume car manufacturers, many drawn by both the attractive price of metal and proximity to Europe, so any disruption may see car prices climb in the showrooms.
The Government was clearly expecting a ‘remain’ vote. So, with the shock of a ‘leave’ majority and David Cameron’s resignation, there were immediate reactions from the FTSE, Sterling Exchange Rate, Property Funds & Valuations.
Much of this negative reaction has dissipated and the effects ameliorated. However, where are we now?
Some vehicle manufacturers have taken the opportunity to increase list prices but with the used car market showing no signs of weakening, the strong penetration of PCP/PCH will mean that monthly customer payments will not move up – if at all.
We have seen a number of speculative comments regarding investment ‘hold’ decisions from Japanese brands, but this will not affect sales of their cars in the UK. We have also seen speculation regarding import quotas being reintroduced.
(The September registration numbers will be interesting and we will have these before we publish.)
It would appear that the Government does not want to reveal its plans for discussion with the EU – and why would it? Currently we are left in a vacuum with commentators expressing many different outcomes, but nobody knows how Brexit will really impact yet. So, during this period of uncertainty, what is the best course of action?
In most instances, don’t do anything!
However, if you are considering an exit from your business/property, now is a very good time to sell. The UK is experiencing the lowest-ever interest rates, making it easy for buyers to borrow. When the impact of Brexit is known, it’s likely that we will see a downturn before we experience the benefits that Brexit will hopefully bring. But we won’t know how long they will take to arrive!
If the impact is worse than expected, values of property and businesses will sink, interest rates may have to go up to strengthen sterling and sales will undoubtedly slow.
My advice would be that a potential exit anytime in the next three years will be at a lesser value and more risk than acting before Article 50 is invoked and the impact of Brexit is clear.