So what's happening with Brexit

Tuesday 20th October 2020

With COVID-19 still dominating the news, the not so small issue of Brexit has been rumbling on in the background with far less public attention than you might otherwise expect. Deadlines have come and gone, the posturing has continued, and both sides are still claiming that they are prepared to walk away if an agreement can’t be reached soon.

In fact, the influential German Chancellor, Angela Merkel, recently said that a Brexit trade deal with Britain is in the interest of all, but then swiftly added that EU member states must be prepared in case an agreement cannot be reached. However, Michel Barnier, the EUs lead negotiator, has been quoted as saying that whilst the negotiations were in a difficult phase they are at least more constructive than recently.

So, what does it all mean and what are the key issues for UK businesses, fleet operators and individual drivers?

Vehicle Tariffs

Approximately 70% of cars registered in the UK are imported from one of the 27 EU member states. Conversely, every second car sold by UK based manufacturers goes in the other direction. And so, it is clearly in everyone’s interest that a deal is reached which sees zero tariffs on vehicles and component parts.

Although, even if a deal is agreed, some British car manufacturers could still face higher export tariffs. This is because vehicle components which originate in non-EU countries are not considered to be British. As a result, cars, vans, and lorries which don’t have enough British made parts (less than c.60%) could attract a 10% tariff, thus making them less competitive than EU vehicles.

Any tariffs applied will be based on the customs price at the point of import and so, whether these are levied due to the components country of origin, or as a result of no deal being agreed, this could lead to a 6.3% increase in the price of a new vehicle. To put this into perspective, this would mean that a Volkswagen Golf, with a purchase price of £21,145, would increase by over £1,300. And of course, the more expensive the vehicle, the bigger the jump in cost.

Ford, who have the biggest market share of new car registrations in the UK (9.37%), say that they will protect the price of any orders placed prior to the transition period ending at the end of this year.

The second most popular manufacturer, Volkswagen, have said they may need to increase car prices to reflect any additional tariffs. This would also apply to other brands in the VW family including Audi, Seat and Skoda. Mercedes-Benz, Citroen, Peugeot, and Vauxhall have all said that any additional tariffs would be passed on to customers. On the other hand, BMW have recently stated that vehicles imported on or after January 1st, may have additional customs duties imposed on them, even if they were ordered before the transition period ends.

Not all of the UK’s most popular vehicles are sourced from the EU. Honda, who primarily manufacturer their vehicles in Japan, are unaffected by EU related import tariffs. In fact, the recent trade deal between the UK and Japan means that Honda, Nissan and Mazda will benefit from reduced tariffs and streamlined regulatory processes.

The Environment

The UK government currently plans to mirror EU targets for average COemissions. Failing to do so would go against their stated aim of being carbon neutral by 2050. And with some polls showing that there is public backing to bring this date forward, pulling away from existing targets would likely play out badly with voters.

In any case, manufacturers won’t want to adhere to multiple standards and will therefore stick to EU rules. The difficulty would come if the UK wanted to set more stringent controls on carbon emissions than the rest of Europe. This might not be on the cards today, but we will wait to see how the UK reacts as and when the EU sets new targets of its own.

Having said this, the most environmentally friendly vehicles are purely electric and so tailpipe emissions are clearly irrelevant. However, because EVs are currently more expensive than their petrol or diesel counterparts, any tariffs imposed would have a disproportionate impact; making them less attractive to businesses and drivers considering a switch.

Vehicle Repairs

The automotive industry operates a complex ‘just in time’ supply chain and any customs arrangement which fails to mirror the seamless free movement of goods could result in a longer wait for vital parts.

The additional downtime resulting from delays in the repair process would be disastrous for UK fleets. Not only could it cost up to £800 per day, the disruption caused by the extended loss of business critical vehicles could mean falling foul of punitive Service Level Agreements and put future business at risk.

Additionally, a no-deal scenario means WTO tariffs coming into force on components imported from the EU; increasing the cost of repairs by around 4.5%.

Supply Chain

Putting aside the delivery of new vehicles and components, keeping the logistics sector moving is vital, not to just to the UK economy, but for food and medicine supplies.

Much has been made of the potential for massive queues clogging up the roads around the port of Dover and the Channel Tunnel. Michael Gove, who is responsible for no-deal planning recently said that only half of big businesses and 20% of small businesses would be ready for the strict application of new EU requirements at the border. Under such circumstances, up to 60% of laden HGVs could be turned back by the French border authorities, thus clogging up the Dover to Calais crossing.

To address this issue, the Kent Access Permit system has been designed to ensure that drivers have all the necessary paperwork in place before they enter the county. In other words, operators of vehicles weighing in excess of 7.5 tonnes will need to apply for the necessary permit online and prove they have all the necessary paperwork in place to transport goods to Europe.

Whatever sort of deal is agreed, international hauliers will need to use up to eight IT systems when moving goods to and from Europe. Four of these are UK systems, with additional software platforms required based on the route travelled and type of goods being transported.

Any business exporting goods to the EU will need to use the Smart Freight software. However, whilst the government asserts that this will be ready before the end of the year, there is growing concern that there simply isn’t enough time to carry out large scale user testing. Not least because we are fast approach the peak Christmas season when carriers will be operating at maximum capacity whilst also struggling to adapt to ever-changing COVID related restrictions.

The Economy

With the UK already in recession, anything which makes conducting business with the EU more difficult, or less profitable, will further impact the UK economy. Not only does this affect the stability of millions of businesses up and down the country, a falling pound makes crude oil more expensive to import. Any consequential increase in pump prices would drive fleet operating costs up at a time when many businesses are struggling to stay afloat.

The Final Deal

Will there be a deal in time? Yes of course, no, probably, hopefully. The truth is that with under three months to go we simply don’t know. It is reported that Boris Johnson’s Chief Negotiator and European Advisor, Lord Frost, has told the prime minister that deals in key areas such as security and fishing are still possible and that, although time was tight to agree 500 pages of legal text this month, it could still be done.

Will Emmanuel Macron step back from his red lines on fishing quotas? Will Angel Merkel be flexible on competition regulations? Only time will tell. EU leaders may have dropped their pledge to ‘intensify’ Brexit talks, but this is unlikely to tangibly affect the likelihood of a deal.

As things look set to go down to the wire, one of the major challenges to sealing an agreement in time is that the 27 EU countries need to agree with each other before the EU as a block can finalise a deal with the UK. The future is far from certain, but at least we will know soon.

Whether a deal is reached or not, Hitachi Capital Vehicle Solutions is committed to helping fleets through these turbulent times, working closely with them to increase efficiency and reduce the true cost of business mobility.