Brexit has both risks and reward

Recent mainstream news has concerned immigration controls and low-skilled workers in the UK.

The FT received an (out of date) brief for immigration plans, part of the hard Brexit angle the UK government seems to be following.

This issue carries a stark warning from former Leaseurope head Tanguy van de Werve’s Association of Financial Markets of Europe (AFME) on the event of a ‘hard’ Brexit.

British Prime Minister Theresa May’s assertion that “no deal is better than a bad deal” did not travel well across the Channel. ‘Hard Brexit’, in which the UK severs financial ties with the European single market, is not a situation many businesses would like to consider.

According to the AFME, €1.28trn (currently £1.13trn) of bank assets, which include loans, securities, and derivatives, would have to be moved to EU jurisdictions if the UK loses passporting rights as a result of Brexit. These are the key concerns and arguments of the AFME’s 44 page ‘Hard Brexit’ warning. 

There’s a triple threat to SME leasing across Europe, and perhaps investment prospects in the UK as a result, as described in the report.

One of the upcoming political footballs will be the oncoming effect of the Brexit negotiations on motor manufacturers’ supply chains.

Will a demand for ‘Britishness’ from products prevent the supply of imported goods?

Will the UK timeline for the death of the internal combustion engine by 2040 create a background pressure that Brexit might push over the edge?

Or will it be plain sailing? Perhaps we will see new British manufacturers spring out of the soil to replace the vacuum.

At a time of constricting political openness and uncertain future trading conditions for manufacturers, motor financiers and lessors have their work cut out with contingency planning.

The extension of the Financial Conduct Authority (FCA) regimes on senior managers looks restrictive now, but there is a chilling effect on the FCA’s longer term plans if they are going to have to reciprocate financial laws and regulations if some of the AFME’s suggestions do occur or Brexit does turn hostile.

Ford has emerged as the largest manufacturer to break the deadlock and offer a cashback scheme on new cars.

This could be good news for lessors, as consumers shuffle from one form of motor finance to another in order to take advantage of the offer, to avoid penalising diesel charges, and get new models for a better price than previously offered.

Ford are not alone in these actions, and other manufacturers have also broken out and are offering scrappage schemes; VW; Audi; FCA Group, to name but a few.

What more could we want than new competition! Certainly commercial vehicle funders will welcome the new changes. This could be a major opportunity for new leases and businesses offering new vans that are compliant.

Perhaps this is also the ‘swing of the pendulum’, and here we are creating another issue with greenhouse gases by promoting petrol engines again – although the effect will be less pronounced if they are assisted power-vehicles or electric vehicles.

Certainly we are going to need more power stations to power the prospective electric vehicle revolution. The National Grid’s Future Energy Scenarios report said we would essentially need the capacity provided by 10 more power stations for the national demand if every car was electric and required charging from the network.

Therefore plant and equipment lessors could find that the disruption to the motor market could be the best thing that happened to their market. And if we are unable to buy electricity from Europe anymore as a result of Brexit, the argument gets even stronger.

Interesting times ahead.