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Brexit and car prices: what are the risks?

Richard Aucock from Motoring Research writes on the potential impacts of Brexit on the wider car market, including the risk of price rises and supply disruption, and what that could mean for the Scheme.


2020 has been a dramatic year for us all, and the motor industry has faced its own particular challenges. The pandemic forced car dealers to close, delaying deliveries of ordered cars – and it also saw factories shut down for months on end, which has had a knock-on effect on new car orders when restrictions began to lift. As the latest lockdown transitions into a stricter three-tier system, yet another challenge looms on the horizon: Brexit.

First things first, for Motability Scheme customers who already have a car on order: there’s no need to worry. The Motability Scheme is guaranteeing your order, including any Advance Payments – and if you have placed an order, you will not subsequently be required to pay more, no matter what happens with Brexit. You don’t need to do anything, other than keep in touch with your dealer about delivery dates.

Everyone on the Scheme is also working closely with car manufacturers to ensure as much continuity as possible into early 2021. The Motability Scheme Car Price Guide will be announced in early January 2021 and in these times of uncertainty, the team there are making great efforts to keep things as similar as possible, assuming that a Brexit ‘deal’ can be reached before the end of the year.

More broadly, the focus for the wider UK motor industry is whether a deal can be struck with the European Union, when the current transition agreement ends on 31 December 2020. The UK has already left the EU, on 31 January 2020; the past few months have been spent discussing a Free Trade Agreement – or ‘deal’ – that works for both sides. It is a highly complex discussion and it is still hard to say for sure what will happen.

It’s not possible to know, therefore, what the precise impact will be on the range of cars and prices available from 1 January. There is, however, a clear risk. If a suitable deal is not struck, the import of cars from the European Union into the UK risks reverting to World Trade Organisation (WTO) rules. These place a 10% tariff on vehicles arriving in the UK. Industry trade body the Society of Motor Manufacturers and Traders says this would add around £1,900 to the price of the average car imported into the UK. Even on a basic supermini-style small car, with a list price of £16,500, this would result in a price increase of £1,650. For a £25,000 vehicle, the price premium would be £2,500.

Car manufacturers are currently not able to go into model-by-model specifics. We simply don’t know what the situation will be – but I do know that each brand is preparing for all eventualities.

Of course, Motability Scheme customers lease cars rather than buy them outright. However, list prices still play a major role in deciding which cars are available on the Scheme, and in setting Advance Payments. If prices do have to rise because cars are subject to WTO tariffs, the result may be fewer cars with no Advance Payments, higher Advance Payments for other models – and where prices are maintained, it may be for a lower-spec vehicle than before.

An additional complicating factor could be due to where cars are built. Only models imported from Europe will be subject to WTO tariffs. Kia, for example, builds its popular Ceed and Sportage models in Europe – but imports other cars. This could result in changes in the types of vehicles available on special offer, and maybe also the line-up of cars offered on the Motability Scheme… but again, it is too early to say. My tip, if a Brexit deal cannot be struck, is to not be surprised if a few new and unfamiliar models start appearing on the Scheme during 2021.

As I said at the start, the combination of Brexit and the Covid pandemic means 2020 has been a year like no other. Many Motability Scheme customers have faced delays for new cars, which have been an unfortunate by-product of the coronavirus crisis. It is simply too early to say what the impact of Brexit will be.

The best outcome will be for a Free Trade Agreement deal to be struck. This will ensure as much continuity as possible for the UK come 1 January 2021. There may be short-term disruption to the supply of vehicles, as importers become accustomed to new customs rules and regulations: you may have to wait a little longer for your new car as a result. But these should not be significant – and the Motability Scheme will work with your supplying dealer to ensure you keep mobile until your new car is ready for delivery.

A different situation exists for the January price guide, and at present, it’s not possible to say what the overall impact will be on the range of cars and prices available. There is likely to be disruption within, and outside the Scheme – but rest assured that the Motability Scheme will be working hard to achieve the best possible outcomes for its customers, in the short and longer term.

 

If the UK announces the failure of talks and we are heading for a ‘no deal’ Brexit, there is likely to be serious disruption to the car market. In these circumstances, the Scheme will protect existing orders under its usual price guarantee, though there may be delays in delivery. As explained in Richard Aucock’s article, there is also likely to be a sizeable impact on future pricing. Our ability to take new orders would depend on getting confirmation on these prices.

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