News & views

Wednesday, November 09, 2016

Productivity levels are rising in the UK car industry. But with the Brexit vote creating uncertainties around imports and exports, what are the potential implications for motor dealerships?

The UK car industry has staged an impressive recovery in recent times, reversing the trends of the 1970s and 80s.

But with the country voting to leave the European Union (EU) on June 23, concerns have arisen over the sector’s long-term prospects. In particular, the question of whether trade tariffs could be introduced if Britain departs the single market is something car dealerships and motor traders will have to pay close attention to.

 

Startling renaissance

Just 40 years ago, Britain’s once-great automotive sector seemed to be in a state of permanent decline, brought to its knees by bad management and strikes.

But fast-forward to today and the picture could not be more different. Britain’s car-makers have undergone a startling renaissance and the country has become home to both big-name and more niche manufacturers.

 

Production milestone

Proving the upswing are figures[SC1]  released by industry body the Society of Motor Manufacturers and Traders, showing that more than one million motors were built in the first seven months of the year – the first time the milestone has been reached so early since 2004.

According to the data, output in the sector jumped by 126,566 units in July to bring the total number of cars made to 1,023,723 – a year-to-date increase of some 12% compared to July 2015.

 

Brexit challenges

But while the car industry has mounted a significant recovery over the past few years, the Brexit vote could create new challenges in the form of trade tariffs.

Having become the biggest market for cars made in the [SC2] UK, the EU is incredibly important to motor manufacturers and any move to damage the country’s access to it could force some companies to seek pastures new.

Britain’s biggest car-maker by units – Jaguar Land Rover [SC3] – has already suggested that any new tariffs imposed as a result of the UK’s Brexit deal could have a damaging effect on business.

However, Business Secretary Greg Clark took steps to allay Brexit concerns as part of his move to convince Nissan to build its next two car models in Sunderland. He told the car manufacturer that he is pursuing an EU deal that would mean no tariffs for car manufacturers and no bureaucratic impediments to trading. While no EU deal has as yet been confirmed, everyone in the automotive industry will be eagerly awaiting an update.

 

Opportunities for dealerships

As we’ve discussed, Brexit could have negative consequences for some of the UK’s car-makers. But in other parts of the motoring industry, it may provide fresh opportunities. Used car dealerships, for instance, might inadvertently benefit if trade tariffs are introduced between the EU and Britain.

Tariffs could make imports of popular cars produced in EU member states more expensive. This may prove bad news for new car dealerships, translating into higher prices on their forecourts. And, when combined with the weakened pound and feelings of economic uncertainty, consumers may increasingly decide to postpone new car purchases.

The flipside is that used car dealerships could benefit significantly. Rather than paying higher prices for new models, demand for used cars among businesses and households may increase.

To take advantage of this possible shift in demand, car dealers could reposition themselves more towards the used market. They may consider boosting their stock of used models, in order to cater for a potential rise in enquiries.

Trade tariffs between the EU and Britain could also open the door to vehicles produced in non-European markets such as Japan, China, India and the US. The lack of tariffs could make new vehicles produced in these countries cheaper than new vehicles produced within the EU.

The potentially price-conscious consumer of the future may find these cheaper models more attractive which could result in a larger market share for non-EU produced vehicles. Car dealers who are prepared to boost their stock of vehicles from non-European countries could be best placed to benefit should EU trade tariffs come into effect.

 

Protecting assets

Whatever the outcome of the Government’s Brexit negotiations, the coming few years are likely to be an uncertain period for the recently revived UK car industry.

With new risks and opportunities set to emerge, all of the sector’s stakeholders will need to protect their assets with the appropriate insurance, whether they’re dealerships, manufacturers or suppliers.

NIG provides flexible insurance to a range of businesses both large and small. Our Motor Traders Combined product is tailored to the needs of used and new car sellers, along with car body shops.

 

Find out more about our range of products


 [SC1]http://www.smmt.co.uk/2016/08/july-uk-car-production-continues-growth-with-over-one-million-cars-already-built-this-year/

 [SC2]https://www.theguardian.com/business/2016/aug/25/uk-car-production-biggest-total-first-seven-months-of-year-since-2004-smmt

 [SC3]https://www.ft.com/content/8858900c-854c-11e6-8897-2359a58ac7a5