Boom, Bust and Stagnation: The Brexit fall out for the used car industry

The resilience of diesel

At this time of political uncertainty, economic considerations continue to weigh on MPs’ minds as they debate the UK’s withdrawal from Europe. Brexit is leading to both a significant change in the UK’s relationship with other European countries and the opportunity to reopen the negotiation of trade deals directly with non-EU countries.

Many questions are shaping MPs’ and public opinion about the merits of a Brexit deal versus leaving the EU without a deal in parallel to the need for a political declaration on the future relationship the UK will have with the EU.

In a post-apocalyptic Brexit world with the potential of a weakened pound, no trade agreements and increased interest rates the potential fall out for the automotive industry is significant. Whilst the majority of economic projections suggest that Brexit will harm UK economic growth with increased barriers to trade between the UK and other countries many used car dealers are looking at how in the short and long term how Brexit will affect the used car market.

Trade tariffs

• Any increase in trade tariffs with Europe will see imported car models from all European manufacturers rise in price
• This is the most likely scenario with a No-Deal Brexit

Sterling

• The dramatic drop in sterling in August is probably only a taste of what is to come – leading to further price increases for new cars
• A no-deal scenario would likely see sterling fall 5-10%, causing a spike in inflation

The Bank of England

• The Bank of England held interest rates at 0.75% on 19/09/2019, mentioning ‘Brexit uncertainties’ frequently in its decision. In the past, the Bank has described holding rates as a ‘wait-and-see’ approach to Brexit
• With the deadline looming closer, the Bank might soon have to be more decisive
• In the medium term though, the Bank’s intention is still to gradually increase rates closer to their pre-recessionary norms – but only if the UK’s departure from the EU goes smoothly

Manufacturers

• Jaguar Land Rover is again planning a temporary shutdown of its main UK production plants for a week after Britain’s planned departure from the European Union on 31 October.
• JLR was forced to close its sites in April, when Brexit was originally scheduled to happen. Mini, Vauxhall, and Honda, among others, also closed during April.
• Twenty-three of the UK and Europe’s automotive industry bodies joined forces last week to stress the “catastrophic” impact of the UK leaving the EU without a formal deal would have on the industry’s operating model, due to increased border checks and wide-reaching tariffs.

The car market – no deal scenario

• Potential of new car prices rising significantly
• Demand for used cars reduces in response to increased prices
• Used car demand increases, especially for low mileage, nearly new cars