What impact will Brexit have on the car finance industry?
The question in the title is easy to ask but far more difficult to answer.
In one sense, of course, the answer IS easy – it’s “nobody knows”! However, when looking at the detail, predictions start to become cloudy.
The current position
At the time of writing, the car finance industry hasn’t featured highly (if at all) in the formal UK/EU Brexit negotiations and their associated media frenzy of speculation.
As of today, few details of anything have been released. What little we do know seems to suggest that the discussions are still at the macro principles level. As such, it seems unlikely we’ll hear anything concrete soon about specific industries.
We may need to be patient and wait.
The background canvass
Some time ago both the EU and UK engaged in some gentle public goading of each other.
Some slightly bellicose statements were made in front of the cameras and there was also some largely illusory economic sabre-rattling. It’s important to remember that these comments may not mean much. The positions politicians and negotiators adopt in public are often quite different to their private positions taken up in the meetings themselves.
While statements such “hard Brexit” and “make the UK pay” were rather liberally sprinkled around, it’s worth keeping in mind that both parties receive huge amounts from each other through trade. The wealth-generation and jobs this creates both in the EU and UK will be powerful influencers that will push the negotiators towards common-sense and win-win positions.
It simply won’t be in anybody’s interest to start a trade war or slap tariffs on anything.
The automotive industry
The UK’s motor manufacturing industry is understandably and legitimately worried about what might happen if the negotiators aren’t sensible and instead kick off tit-for-tat tariffs. They are essentially asking for the ongoing maintenance of access to the free market.
As the health of the European and UK car manufacturing industries is directly linked to the car finance industry, these concerns should be noted by those engaged in providing car finance.
However, while the report majors on the impact on the UK motor industry, it’s almost inconceivable that the French and German governments will risk major job repercussions in their motor industries by making it difficult for their producers to sell cars here. One only has to look at the numbers of Peugeots, Renaults, Citroens, VWs, Audis and BMWs on the UK’s roads to see how difficult it would be for Paris and Berlin to be unrealistically tough on the UK motor industry.
A subsidiary concern arises from the Brexit changes on the global money markets and specifically London.
Companies lending money typically need to fund those loans by borrowing and ensuring on the wholesale markets in the City of London. If London’s position as an (or arguably “the”) pre-eminent financial centre is threatened by market moves to Frankfurt and Paris, then it might conceivably increase the cost of borrowing.
That position might also be impacted by Sterling’s decline in value against the US dollar, given so much money moving around the globe is based on the dollar.
At the present time, it’s difficult to say more because so little is known.
There doesn’t appear to be any obvious cause for gloom relating to vehicle borrowing costs going up or finance being harder to obtain. Yet that position could change if the politicians lose sight of the mutual dependencies of the UK and EU economies.
The position will be watched with interest.