UK car industry turmoil means bad news for Irish dealers

The UK motor industry and car trade is currently caught in a toxic whirlwind of Brexit uncertainty, which has triggered a major fall-off in investment in vehicle production. While the UK essentially squandered its own, indigenous, car industry in the travesty that was British Leyland, in recent years the country has become a major maker and exporter of cars once again. Albeit all owned by overseas companies, the UK built more than 1.7-million cars in 2016, in factories such as Nissan’s vast plant in Sunderland, Honda’s in Swindon, Mini in Oxford, Jaguar Land Rover in the Midlands and Liverpool, Vauxhall in Luton and Wales, and Toyota in Derbyshire.

Recent trends

That started to slide in 2017, and in 2018 there has been a positive rout of both vehicle production and investment in factories and facilities. In fact, in 2018, production of new cars in the UK slumped by 9.1 per cent, to 1.52-million cars — the lowest figure for five years.

According to Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT, the umbrella body that represents the UK car industry), that slowdown is almost entirely attributable to the spectre of Brexit, and two thirds of the motoring sector as a whole could be under severe threat in the event of the UK crashing out of the EU with no deal.

“With fewer than 50 days before we leave the EU and the risk of crashing out without a deal looking increasingly real, UK Automotive is on red alert. Brexit uncertainty has already done enormous damage to output, investment and jobs” said Hawes. “Yet this is nothing compared with the permanent devastation caused by severing our frictionless trade links overnight, not just with the EU but with the many other global markets with which we currently trade freely. Given the global headwinds, the challenges to the sector are immense. Brexit is the clear and present danger and, with thousands of jobs on the line, we urge all parties to do whatever it takes to save us from ‘no deal’.”

Unprecedented Growth

This comes at a time when the UK car making industry had turned around, utterly, from the doldrums of the 1980s when factories were closed and mass-layoffs occurred as the hulk of British Leyland was finally scrapped. Prior to 2017, the UK had seen seven years of what the SMMT calls “unprecedented growth” in car making, with outputs rising by as much as 70 per cent, and employment in the sector growing to more than 180,000.

“Much of this success is due to our global competitiveness, drawn from economic and political stability, investment, a highly skilled workforce and beneficial trading conditions with our biggest markets” said Hawes. “As a highly-integrated sector that has maximised the benefits of the European single market and customs union, a ‘no-deal’ Brexit is the most significant threat to the competitiveness of the UK automotive sector in a generation.”

UK diesel car sales

There’s another, underlying, trend which is causing turmoil in the UK car market right now, and that’s the dramatic fall-off in diesel sales. Diesel sales are tumbling across Europe, and that tumble is being lead by the UK, which saw a 30 per cent fall in new diesel sales last year. That means that the used values of diesel cars are going to come under yet further pressure, as buyers either trade back into petrol power, or into hybrid and plugin cars, which saw a sharp uptick in sales.

That pressure is already starting to show its effects. According to used car price comparison site, the values for diesel cars have fallen by 10.3 per cent for cars between nearly-new and five-years old. “it’s not just with bigger, premium SUVs and 4x4s. Smaller, cheaper used diesels are seeing falling prices too” Motorway’s Alex Buttle told Motorcheck. “To add to its woes, Vauxhall has also suffered with a 14 per cent average drop in used diesel prices. Meanwhile, most petrol variants of smaller cars across the market are increasing in price, unlike their diesel counterparts. Across the UK car market, diesel prices are struggling to maintain buoyancy and this long term trend could be irreversible. The outlook for diesel values into 2019 looks very bleak indeed.”

Cheaper used diesels in the UK, assuming that Brexit manages to keep trade flowing freely between Ireland and the UK, means a likelihood of more imported used cars, as 74 per cent of all imports last year (and 72 per cent of imports in January of this year) were diesel-powered, and that in spite of sharp reductions in the sale of new diesel cars here in 2018.

What does this mean for Ireland?

Probably nothing good, and as the Society of the Irish Motor Industry (SIMI) points out that could mean bad news for consumers, even if cars from the UK make for bargains.

Brian Cooke, director general designate at SIMI told Motorcheck: “As we have seen over the last two years, the weakening of Sterling has led to a large increase in used imports coming into Ireland. The devaluing of used imports in the UK prior to any exchange rate issue, while not as significant, could also encourage Irish retailers and motorists to look to the UK. In this environment, Irish retailers have been very competitive in offering real value to customers, not by just pricing deals but by also offering security and peace of mind to Irish customers. This is borne out by SIMI members indicating that used car activity has increased for them over the last 12 months.”

Cooke also pointed out that, depending on how Brexit plays out, consumers buying a used car from the UK could be setting themselves up for an after-sales fall if something goes wrong, as consumer protection laws won’t necessarily be enforceable across a new border. “It is easier for consumers to solve any problems locally, and in the event the UK leaves with a ‘hard’ Brexit there is no guarantee that current EU consumer rights will continue to be applicable in the UK, particularly to products that have been exported outside the UK” said Cooke.