Alarm bells are ringing across the motor industry that Chancellor of the Exchequer Sajid Javid’s decision that the UK will not “stay close to the European Union” after Brexit will trigger new vehicle and component price rises.
Furthermore, with the possibility of no regulatory alignment with the European Union in a future trading relationship, the motor industry’s well-established ‘just-in-time’ business model could be significantly impacted triggering longer vehicle lead times and component and spare part delivery delays resulting in increased fleet vehicle downtime due to administrative hold-ups at point of import.
In a headline-grabbing interview with the Financial Times (January 18, 2020), the Chancellor’s message to business following the UK’s January 31 departure from the European Union and the subsequent end of 2020 transition period was: “There will not be alignment, we will not be a rule-taker, we will not be in the single market and we will not be in the customs union.”
Saying that the required work would be “done by the end of the year”, Mr Javid told businesses to “adjust” to the new reality amid the possibility of there being no comprehensive free trade deal with the European Union with the result being some tariffs, quotes and border restrictions.
Late last year UK and European motor industry chiefs warned against diverging from European Union regulations highlighting concerns about the lack of frictionless trade and customs delays harming the industry’s ‘just-in-time’ operating model and the potential for World Trade Organisation tariffs impacting on the cost of vehicles and components.
The impact of tariffs – unless brands and their retail networks can absorb the additional costs which some have already warned they cannot – would see the list price of cars rising by 10%; commercial vehicle prices rising by up to 22% (an average 13.5% for light vans); and the cost of vehicle components by up to 4.5%.
What’s more, some motor manufacturers have already warned that the burden of price rises could mean that available model choice is reduced.
However, the Chancellor countered in the Financial Times interview: “Japan sells cars to the European Union but they don’t follow European Union rules.”
The Society of Motor Manufacturers and Traders said its priority was to avoid “expensive tariffs and other behind-the-border barriers”.
Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), said in response to Mr Javid’s interview: “UK fleets have enough uncertainty to cope with at the moment without having to worry about what kind of regulatory alignment the UK has with the European Union on vehicles and parts.
“Any sudden split from European Union rules could potentially create huge additional cost and administrative burdens. The sector is versatile and adaptable, but needs clear, specific and well-signposted details on future trading terms and conditions.”
What’s more, with the pressure on the UK and the European Union to agree a full trade deal by the end of 2020 – the Government’s self-imposed transition period – the BVRLA said: “This has increased the risk of a disruptive exit from the European Union at the end of 2020, and unless a sector-specific deal for the automotive sector is agreed in time raises the odds of negative consequences for businesses as they may not know how the future looks until late in the day.”
The European Union has confirmed that trade talks will not start before the end of February 2020. The BVRLA said in a briefing update: “One key date to look out for is July 1, 2020. This is when the UK and European Union would need to agree any transition extension past December 2020.”
The Association added: “But by July 1, we will know if there is even higher risk of a ‘hard’ Brexit and the possibility of tariffs or non-tariffs barriers in the automotive and other sectors. In the absence of a satisfactory automotive specific trade deal, the Government will still need to help our sector mitigate new tariffs/non-tariff barriers, possibly in a second Budget during 2020, or as part of a three-year Spending Review.”