Now we enter the great unknown
I’m sure by the time you read this you’ll have read 101 opinions on the results to last week’s referendum.
But for the automotive industry, the implications are particularly worth pondering.
Initial reactions from the motor finance industry to the Brexit result generally seems to be that we can expect some volatility in the short term, and that no one really knows what to expect in the long term. This makes sense given the unprecedented nature of the UK leaving the EU – no one really knows what’s going to happen, and this uncertainty can often lead to volatility as the market tries to readjust itself.
An obvious example of this is in our currency. As it became clear the UK planned to leave the UK, it fell to $1.3236, a drop of more than 10%, and the lowest it’s been since 1985. How long term the fall is is anyone’s guess, but assuming it stays as it is, this will have implications for the cost of imported cars and petrol (though it will also make exported British cars cheaper abroad). It will also make any upcoming holidays more expensive (boo).
A big part of the problem is we don’t know what the post-EU deal will look like. With David Cameron announcing his intention to step down, and both major political parties in England and Wales struggling with their leadership, we don’t even know who will be leading the country as new trade treaties are drawn up. Then there are questions over Scotland. Nicola Sturgeon has already said a second Scottish independence vote is “highly likely”. Again, this is more uncertainty.
UK car sales and finance penetrations are at, or approaching, historic highs at the moment. The UK automotive industry recovered relatively quickly from the financial crisis, thanks in no small part to the finance industry which has supported it. What, if any, impact will Brexit have on these figures in the future? On a more granular level, what will its impact be on model and marquee mix – will cars imported from the EU go up in price, making UK produced cars more affordable in comparison?
A big question is what impact leaving the EU will have on residual values. Will it have any? Certainly if car sales either increase or decrease as a result of the referendum, one would expect so. The noise from Glass’s at the moment is to expect some downward pressure on values in the short term. Will this influence be the same across the industry, or affect some more than others?
Right now, the answer is we simply don’t know for certain one way or the other. As the picture becomes clearer, Motor Finance will endeavour to make sure you’re up to date with these developments.