While the UK and the EU have finally agreed on a so-called divorce bill that could yet reach £57 billion, there remains a huge amount of uncertainty concerning the exact outcome of the Brexit process.
This is having a detrimental effect on numerous industries, with the automotive sector offering a relevant case in point. In fact, sales of new cars fell by 9.3% to 161,997 in July, with the amount spent by customers in the market declining for the fourth consecutive month.
So how else is Brexit impacting on the automotive industry, and what should we expect in the future?
The impact of Brexit
The automotive sector has already been adversely affected by a strained economic climate, in which rising inflation and stagnant real wage growth have squeezed disposable income levels. Even with firms such as Likely Loans offering customers access to flexible credit options, it’s becoming increasingly difficult for households to commit to big ticket purchases.
Then we have Brexit, which will almost certainly force consumers to bear the brunt of increased EU tariffs on imports (regardless of whether or not the UK can negotiate an amicable deal). With no single market access, SMMT analysis suggests that an increased tariff could add an estimated £2.7 billion to the cost of imports, which will in turn push the price of overseas cars up by an average of £1,500.
With the pound also in danger of being permanently devalued by the Brexit process, import costs could yet rise even further for brands and potentially endanger smaller and independent dealers in the UK.
Interestingly, the tariffs applied to exporting cars to the EU could also increase by £1.8 billion across the board in the worst case Brexit scenario. This means that UK brands will have to pay a premium to sell vehicles overseas, which will eat into their margins and potentially force a further change in pricing.
The last word
In many ways, the current macroeconomic climate and the uncertainty over Brexit is serving as a double-edge sword for the automotive sector, as customers are spending less on big ticket purchases and brands are facing the prospect of seeing their margins squeezed.
This is particularly worrying for smaller dealers, who may not have enough room to manoeuvre and remain competitive in the new market conditions. In contrast, larger and national dealer chains may be able to absorb much of the additional cost themselves, although it’s inevitable that customers will have to bear some of the increased pricing burden.