The global pandemic has been slap-bang in the middle of everyone’s minds throughout 2020. The automotive industry is no exception, and it was already trying to grapple with the slippery implications of a Brexit deal (or lack of).
During 2019, the automotive sector generated more than £100bn of trade. Almost 70% of vehicles registered in 2019 and an even larger proportion of parts used were imported from the EU. And over 50% of the UK’s assembled cars were exported the other way, into the EU.
The statistics discussed by the Society of Motor Manufacturers & Traders (SMMT) recently are also worrying. The Independent AutoAnalysis Production Outlook Report November 2020 forecast that, if the UK automotive industry has to trade under WTO terms, the tariffs could cost the sector £55bn over 5 years.
In 2019, British car production was 1.3m. Under WTO terms, that figure is expected to be consistently below 1m a year.
The potential effects of the Brexit deal are huge.
And they’re not limited to supply chain and costs either, because the uncertainty is having a knock-on effect on consumer confidence.
What’s more, automotive businesses are also dealing with the future ban on vehicles powered entirely by petrol and diesel, which was brought forward recently to 2030.
Consumers are attracted to greener vehicles for their lower running costs, as well as the environmental impact; but amongst their concerns are the initial spend on the vehicle being higher, a lack of local charging points, and a fear of being caught short on longer journeys.
When one of the key points raised by consumers about a move from petrol/diesel is the higher upfront cost of the vehicle, the prospect of a no-deal Brexit increasing that cost by 10% is an issue.
The technology and innovation for which the industry is renowned will continue to create improvements and will reduce some of the consumer concerns around a move from petrol and diesel, as longer journey ranges become possible. But the networking of charging points will still need huge investment, and whilst the amounts discussed in the recent Spending Review are welcome, it’s unlikely this will be enough.
Less than 2% of cars registered in Britain in 2019 were battery powered.
There has been a marked increase in sales this year, however, and electric cars, inevitably given the industry’s history of innovation, get better all the time. But, they’re still expensive to make and they rely heavily on incentives to sell.
GETTING BREXIT READY
When it comes to Brexit readiness, there are lots of factors to think about. Consideration of the supply chain and changes in timing from order to delivery will be important. There are likely to be delays at UK ports; businesses should consider the possible impact of this on manufacturing and assembly operations in terms of downtime should goods be substantially delayed.
If inventory levels have been, or are, increased to mitigate the risk of delays at ports, there could be strain on working capital, which may be further impacted by changing tariffs. The knock-on consequences of this with regard to payment terms for both customers and suppliers will also need careful thought.
The industry is experiencing change at a rapid rate. The terms of the Brexit deal are urgently needed so that businesses in the sector can plan and re-work short term strategies. And now, I suppose, we wait.
If you’re an automotive business wondering how we can support you at Cooper Parry, I’d love to chat. You can email me at email@example.com, or drop me a message on LinkedIn, if that’s your thing.
Elisa Howe | Audit Director