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Brexit: Driving change in the motoring industry

Kevin Walmsley

12 August 2016

Working with the motor sector in the last few weeks since the EU Referendum, we have noticed a growing interest in relation to vehicle sales.  Is this an economic indicator? Potentially, Yes!

Following our research as a firm we are finding a consistent picture across Southern England. Is this consistent nationwide? Is our survey across single and multi-dealerships representative? In due course the numbers from the Society of Motor Manufacturers and Trader #SMMT will tell us.

We looked at the four week period running up to the Referendum and the four week period since, comparing that information with the same eight weeks in 2015. The results showed that there was, broadly, a ‘quieter’ spell for the two weeks either side of the referendum. However this needs to be seen against a background of higher sales in 2016 than in 2015 before the Referendum and a perceived recovery in sales after the referendum.

First-time falls

In a recent article on Automotive Management Online, our own findings appear to be widespread. There was strong demand for new cars during the first six months of 2016, even reaching record levels, however by the end of June, registrations fell 3.4% with 0.8% of those in June.

Brexit to blame?

Some experts in the industry have put Brexit to blame for the recent sluggish retail sales, something that has recently echoed in the retail industry as a whole, with some sources saying retail  is at its lowest ebb for 21 years.

For the motor trade, specifically, consumer confidence is a big player. After a house purchase, buying a car is considered to be the second biggest purchase people make during their lifetime, so is generally considered a key indicator for the economy as a whole. Aside from vehicle sales, house prices have fallen 1% following the Brexit vote – the first time in five months. Whilst this cannot be directly linked to Brexit alone, there have been other factors affecting the property sector – changes on Buy to Let, SDLT, tightened lending criteria to highlight only three, and with the Bank of England’s recent decision to cut interest rates to a record low of 0.25% this could also affect housing transactions and house prices.

Righting consumer confidence

Importantly, for vehicle sales, registrations grew for 43 consecutive months before experiencing the decline in June 2016.  July’s month end sales have also showed a lag in demand, but, again, it is too early to tell if this is down to Brexit alone. Car deliveries occur several weeks after purchase decisions, so there is likely to be a delay in the recording of sudden changes in demand. On the positive there is the “66” plate looming, whilst in looking for reasons for sluggish car sales there is also the recent “emissions issues” to take in to account which may have delayed purchasing decisions.

However, going forward undoubtedly there will potentially be higher costs of vehicles and their spare parts which do link to Brexit. The cost of the vehicle itself is likely to increase as the value of sterling has fallen. Approximately a million cars and associated parts are imported from the EU every year, so these costs are likely to increase with a weaker pound. Plus, items such as tyres are oil-based, and oil prices are in dollars – a further disadvantage with a falling currency – good for exports, but less so for imports.

According to one of our own sources here at Wilkins Kennedy, a sales reduction is possible but it will depend on the offers available from manufacturers. There is a large stock of new and used cars in the UK. So, whilst sales may not drop margins will be impacted – particularly for UK dealers who buy in Euros.

Motor traders will have no choice but to pass additional costs on to their customers if they are to continue making the same profits. It will also be up to the Treasury and the Bank of England, along with the dealers themselves, to stimulate demand within the economy

Brighter outlook

Importantly, we can talk ourselves in to a down turn – needlessly.  There are doubtless challenges ahead, but also tremendous opportunities. For the car buyer potentially a good deal to be had, for the car dealerships ongoing business and possibly the passing of any squeeze on margins back to the manufacturers.

Whilst there are fears that Brexit is keeping consumer confidence low, there is considerable hope and opportunity on the horizon. Car sales for 2016 overall have increased on the figures for 2015 and despite stalling figures in July month end, sales still rose 0.06% year on year thanks to a rise in demand for fleet vehicles. So, in essence, whilst there is a slight stalling, there are no over-riding concerns at the moment.

It is also very early to be predicting the consequences of Britain’s exit from the EU and only time will tell if these tell-tale signs of Brexit and consumer confidence are here to stay. If you are in the motor trade and have any queries as to how Brexit might affect you, Wilkins Kennedy can help – contact us to find out more.

About Kevin Walmsley

Kevin Walmsley

Kevin works closely with his clients who include individuals, owner managed businesses, larger corporates, partnerships , legal and professional practices and international businesses. The Managing Partner of the Heathrow Office, Kevin serves on the firm’s Management Committee and is a member of the Corporate Finance Faculty, the Audit Faculty and the Solicitors Special Interest Group of the Institute of Chartered Accountants in England and Wales, the Expert Witness Institute and the Institute of Directors.

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