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Fleet industry divided on EU Brexit risks

EU referendum.

The fleet industry is divided over whether costs would rise as a result of the UK leaving the European Union, a Fleet News poll suggests.

Almost two-thirds (61%) believe their bottom  line would not be negatively affected, while the remaining 39% claim fleet costs will increase in the event of a so-called ‘Brexit’.

The trade body representing UK carmakers, the Society of Motor Manufacturers and Traders (SMMT), told Fleet News that it was concerned about what charges could be imposed on business.

“The UK’s membership allows components and finished vehicles to be imported and exported across the world’s largest single market without tariffs, which helps to keep costs down,” explained an SMMT spokesman.

“In the event of a Brexit, we would lose this automatic right and there is no guarantee we would be able to renegotiate such beneficial terms.

“It could take years for new trading deals to be agreed, and we could face tariffs of up to 10% – a significant cost in an industry with notoriously tight margins.”

Any additional costs could then be passed on to fleet customers through increased rentals, fewer discounts and heftier P11D prices.

Capital Economics, in a report for Woodford Investment Management on the likely impact of Brexit, believes a deal could be struck, but it would come at a cost.

“There are advantages for both sides in continuing a close commercial arrangement,” the report said.

“Not only is the European Union important to the United Kingdom’s trade position, British markets are important to the rest of the European Union.”

It could be argued the level of importance is relative, with just 18% of EU exports coming to the UK compared to 50% going the other way.

However, the report shows a fuller picture if the largest economies are taken separately: with the exception of Germany, the UK is a more important market for the biggest European economies than they are for the UK. For example, the UK accounts for 7% of France’s exports, while France accounts for 6.4% of British exports.

“Given the scale of trade interdependence, there would be little to be gained on either side from hostile trade relations after Brexit,” said the report.

However, it continued: “If the United Kingdom managed to negotiate a free trade agreement, exporters would face additional costs in selling into the European Union.

“These would include extra costs of clearing customs and the administrative costs of complying with the European Union’s rules of origin. They might also face other non-tariff barriers, such as quotas.”

Financial analysts have warned Brexit could weaken sterling, with some suggesting that it could impact fleet costs further by increasing pump prices.

UBS has warned that that leaving the EU would drive the pound down to parity with the euro for the first time since the single currency was launched in 1999, while Goldman Sachs said the pound could fall to $1.15, the lowest level against the dollar since 1985.

Analysis by The AA suggests that, if the value of sterling falls, fleets could face paying hundreds of pounds more to fill up their cars and vans.

In a “worst case scenario”, pump prices would increase by 18.7p per litre, reports the Press Association.

Any rise would be dependent on a rebound in the price of oil to more than $90 – it currently costs around $40 a barrel – which could occur if Opec agrees production limits and US drivers continue to increase consumption, said The AA.

“We don’t take a view as to whether the UK should leave the European Union as that is up to people to decide in a referendum,” said AA president Edmund King.

“However, even before the referendum vote, it seems that financial reports suggest leaving the EU could lead to a sharp fall in the value of the pound which in turn could hit pump prices within days.

“The instability of the pound – combined with Opec countries already looking to freeze oil output and the usual increase in fuel use during the US motoring season – could mean a significant rise in costs.”

FairFuelUK labelled The AA’s claims “ill-informed”. Howard Cox, the campaign group’s founder, said: “If the pound remains stable and oil remains low due to over production, then it will still be down to George Osborne what we pay at the pumps.”

The RAC was similarly cautious about the prospect of fleets facing a hike in fuel prices.

“While the RAC has no view on the UK’s membership of the EU, the impact on fuel prices of Britain exiting is not likely to be as dramatic as motorists might be led to think,” said fuel spokesman Simon Williams.

The RAC says that a 20% fall in the value of the pound would – based on current exchange rates – only add £2 to the cost of filling up an average car.

“While the strength of the pound is a significant factor in the price motorists pay for petrol and diesel due to wholesale fuel being traded in dollars, the oil price is currently a greater influence,” continued Williams.

“Opec appears to be sticking with the general principles of its over-production strategy, so there is little reason to expect anything to change drastically in the meantime.

This means lower retail fuel prices look likely to remain with us until at least the middle of this year.

“And, even after that, if the barrel price was to go above $60 it would signal a major move away from Opec’s strategy to maintain market share through a lower price and make it financially unattractive for the US to produce oil from fracking.”

Claims and counter claims will continue to define the campaign on the run up to the referendum on June 23.

A lack of detail has left the British Vehicle Rental and Leasing Association unable to draw any firm conclusions.

Chief executive Gerry Keaney told Fleet News: “At the moment there is very little detailed analysis of the regulatory or economic implications and the potential risks involved.”

Pan European operators such as Iron Mountain face perhaps the greatest degree of uncertainty.

Rory Morgan, head of logistics support for Western Europe at Iron Mountain, drew attention to how fitting telematics technology into vehicles outside the EU, where the provider doesn’t have a presence, had proved to  be problematic.

“We have had to jump through a few hoops to get things sorted in Brazil and Turkey, so should we be out of the EU we may well have similar obstacles,” he said.

“Secondly, we do move items around Europe on behalf of our clients so we may also be hit some issues as presently the paperwork is relatively easy.”

 

 



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Comments

  • DerekWebb - 18/03/2016 13:05

    As we move closer to a decision on whether we are in or out of the EU i feel that once again I am at the behest of the powerful. Once again, as in days gone by, I will be the recipient of the aftermath whatever it brings, and it will be, as in the past, "an adjustment" in the economy. I have withstood, 2 fuel crisis', stock market crashes, runs on the pound, banks out of control and wars, all of those things had a negative impact on my financial well being and what sickens me is I could do nothing about the "global" causes. I have survived but I am so disillusioned by politicians. We now see the Conservatives showing their real attitudes and beliefs, little Englanders who have never taken orders from anyone and Socialists who do anything to disrupt the Tories. They are all about vested interests and we, the great unwashed will have to get on with the aftermath. - Rant over.

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