Fleet Leasing

Businesses urged to ‘get financing in place’ amid Brexit uncertainty

EU flag missing one star

Businesses are being advised to get financing in place now as all banks are reviewing their portfolios with Brexit in mind.

The advice came during the Brexit session, which was held under Chatham House rules, at last week’s British Vehicle Rental and Leasing Association (BVRLA) Industry Outlook Conference.

An industry expert warned that banks could be questioning in the New Year whether they want to provide working capital and it was important for businesses to ensure they had a strong relationship with their bank manager.

Since the conference was held uncertainty about Brexit has ramped up with Prime Minister Theresa May’s decision yesterday (November 10) to postpone the parliamentary vote on the Brexit withdrawal agreement, which was scheduled to take place this evening.

A straw poll conducted with delegates who attended the BVRLA’s Brexit session last week showed that the majority favoured the withdrawal agreement rather than a no-deal Brexit. Trade bodies the Society of Motor Manufacturers and Traders (SMMT) and the Freight Transport Association (FTA) had also both spoken out in favour of the deal.

The Prime Minister’s decision to postpone the vote and seek amendments to the agreement from the EU will only add to business uncertainty.

Carolyn Fairbairn, director-general of business organisation CBI, described it as “yet another blow for companies desperate for clarity”.

“Unless a deal is agreed quickly, the country risks sliding towards a national crisis,” she said.

“Politicians on both sides of the Channel need to show leadership, by building consensus to protect both the UK and EU’s prosperity. No one can afford to head into Christmas with the threat of no-deal costing jobs and hitting living standards.”

It is important to note that even if a withdrawal agreement is approved by Parliament, the UK still has to negotiate a trade deal with the EU and the earliest this would happen is December 2020.

What does Brexit mean for the fleet sector?

A number of concerns were discussed during the BVRLA’s Brexit session, largely centred on the UK failing to secure a deal with the EU:

  • What will happen to interest rates in a no-deal scenario? This is a particular concern for leasing companies as the low interest rates of recent years has enabled them to offer attractive deals, particularly in the personal/consumer market. An industry expert suggested that the Bank of England was unlikely to raise the base rate in a no-deal Brexit and could even reduce it. Perhaps a bigger concern is commercial rates and what banks are doing on a global market.
  • Will there be issues with vehicle supply and prices? If there is no deal this is highly likely as the introduction of tariffs would push up prices and could make foreign OEMs less inclined to put significant volumes of new vehicles into the UK. The SMMT estimates that UK buyers of a car or van from the EU would be faced with £1,500 and £1,700 increases.
  • What about the availability of parts? Delays are expected. The European Automobile Manufacturer’s Association (ACEA) told Fleet News that a single vehicle part may be composed of more than 30 components, and undergo more than 100 process steps to become a finished product. It may pass through 15 countries, and cross borders multiple times in its material journey, with a single vehicle consisting of about 30,000 parts.
  • Will there be delays at the ports and tailbacks on the M20? The Department for Transport (DfT) has been looking at traffic management in Kent and what would happen in the wake of no-deal. Currently, the border in Kent is free-flowing with lorries travelling within the EU not required to complete customs declarations and minimal passport checks. This means that it takes, on average, just two minutes for lorries to be processed. If more checks were required, increasing the time it takes to process each vehicle, it could lead to long queues on the M20 motorway. The DfT is looking at ways to keep the M20 flowing such as having a contraflow.
  • What will a no-deal Brexit mean for UK drivers who need to drive in the EU? As part of its EU exit preparations, the UK has ratified the 1968 Vienna Convention on Road Traffic, which will come into force in the UK on March 28, 2019. This means that all UK drivers and their vehicles can go into all the EU countries and should mean that the UK photocard driving licence is recognised. In a worst-case scenario, international driving permits (IDP), which cost £5.50 and will be available from 2,500 Post Offices from February 1, 2019, may be required. There are two types of IDPs required by EU countries and the version required would depend on which EU country you were visiting. More guidance is available on the Government website.
  • What are the implications for motor insurance? The UK wants to stay in the ‘free circulation zone’, which allows drivers to use their domestic motor insurance policy abroad. However, in the event of no-deal green cards might be required for a period of time.
  • Will there be changes to the VE103 certificate, which shows you are allowed to use a hire vehicle if you are driving it abroad? The 1968 convention may have implications for the VE103 certificate but whether any changes need to be made to the form is still to be confirmed.
  • What does Brexit mean for vehicle type approval? Measurements are being put in place to turn EU type approval into UK type approvals.
  • What happens to CO2 emissions requirements for new cars and vans in a no-deal Brexit? The UK has said that is committed to maintaining regulations that are at least as ambitious as current arrangements.

Opportunities from Brexit

Brexit has led businesses to look closely at their systems and processes, supply chain and staffing. It has made them question whether there might be a better way to do things. For example, if they are unable to recruit as many people in the future as they would like to, could they automate their systems more? So there is potential for efficiencies and cost savings.

The BVRLA’s Industry Outlook Report 2019 found that rental companies were “cautiously optimistic” that the uncertainty surrounding Brexit could drive a surge in demand for corporate rental and flexible rental business.

Steps to take now to prepare for Brexit

For a timeline of steps to take, visit KPMG’s Brexit navigator.

 



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