Manufacturers are warning leasing companies that they cannot guarantee company car prices beyond the end of the year, even for some models being ordered now.
In letters sent to vehicle lease provides by major carmakers, including BMW, Jaguar Land Rover and Mercedes-Benz, they say that the threat of a ‘no deal’ Brexit is to blame for the potential price hike.
If no deal is reached and ratified before December 31, World Trade Organisation (WTO) non-preferential rules, including a 10% tariff on cars and up to 22% on vans and trucks would apply.
That would equate to a price increase of almost £3,000 on the average UK exported car to the EU, a £2,000 price increase on UK vans exported to the EU and a price increase of £1,800 on cars and vans imported from the EU, if fully passed on to UK consumers, according to UK Automotive Trade Report from the Society of Motor Manufacturers and Traders.
It adds that additional customs duties, costs and complexity would significantly disrupt sourcing of parts and components from the EU.
A price hike could see rentals increased and result in company car drivers paying more in benefit-in-kind (BIK) tax thanks to higher P11d prices.
Mercedes-Benz says in a letter sent to leasing companies in the past week, that it will guarantee the prices of all Mercedes-Benz and Smart cars ordered before Saturday (October 31), that have a quoted UK delivery date on its ordering system prior to December 31, regardless of its arrival date into the UK.
However, it said: “Should a customs duty tariff become applicable on cars imported into the UK after leaving the EU Customs Union and Single Market, we would look to increase the price of our cars accordingly, to offset the amount of the tariff (unless covered by the stated price protection).
“The increase would be applicable to all vehicles and factory fitted options, whether marked sold or unsold and regardless of the order, allocation date or sales channel. This would potentially vary model by model.”
BMW issued its warning a few weeks before, saying that “unless there is a free trade agreement with the EU, additional customs duties are likely to be applied to BMW and MINI vehicles imported into the UK”.
“This means that any vehicles which are delivered into the UK on or after January 1, 2021, regardless of date ordered, may have additional customs duties imposed on them,” it said.
“Should there be a no-deal Brexit, BMW UK will provide details of the implications of that including any price changes for vehicles as soon as possible.”
It added that “orders must be confirmed within the BMW Retailer ordering system on, or before December 31 to receive price protection against the economic price increase”.
“Any unfilled orders will be highlighted to you by the supplying retailer or leasing company and will not be price protected. Economic price protection does not include the potential additional customs duties.”
It was similar warning from Jaguar Land Rover (JLR), which said it is “not in a position to guarantee pricing for vehicles that are registered after December 31”.
All vehicles, regardless of build location, it says may be subject to a price increase when registered from January 1, 2021.
Meanwhile, Volkswagen Group in a letter sent to leasing companies last month, on behalf of its VW, Audi, Seat, VW Commercial Vehicles and Skoda brands, says it is closely monitoring developments surrounding the UK’s transitional period.
As part of its preparations, it says that it has established an understanding of all Brexit eventualities and is “confident” of its readiness.
Actions it has taken include: obtaining an EORI number (used for customs declarations); optimising stock availability to mitigate the risk of supply constraints; appointing customs agents allowing it to import cars and parts into the UK in line with HMRC regulations; and implementing and tested required systems changes.
It adds that in the event of a ‘no deal’ Brexit, the “application of import tariffs and/or increases to prices are required, then we will communicate our plans to deal with this as quickly as possible”.
“In the meantime, we reserve the right to amend the price/discount of vehicles at any time if a change to regulation, legislation, application of tariffs, duties, taxes or other charge/event causes an increase to the costs of supply of vehicles,” it said.
Trade talks between the EU and the UK Government are ongoing in London until tomorrow (Wednesday, October 28), with more talks are also planned in Brussels from Thursday.
Northern Ireland Secretary Brandon Lewis said the extended talks were "a very good sign" a deal can be done.
But he told the BBC: "We have got to make sure it is a deal that works, not just for our partners in Europe... but one that works for the United Kingdom."
The two sides are thought to be working on legal texts, but Whitehall sources have indicated major sticking points - like fishing rights and competition rules - remain unresolved.
The UK left the EU on January 31 but has been in a transition period - continuing to follow EU rules and pay into the bloc - while the two sides try to agree a post-Brexit trade agreement.