The impact of Brexit on motor retail

The political climate may be harming consumer confidence but there is hope for dealerships – ripe opportunities exist in expanding the forecourt to meet evolving customer demand.

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It is becoming increasingly clear that the political climate regarding Brexit may be harming consumer confidence when it comes to buying a new car and, in most cases, committing to a finance package.

According to findings from Auto Trader’s latest Market Report, the ‘Brexit effect’ is unsettling consumers with some 62% of people believing that Brexit will lead to general price increases, while almost half (48%) felt they would face greater financial challenges than the previous generation. Furthermore, 35% of people surveyed felt they were less well off, while nearly a third (29%) believed they have a worse quality of life compared to their forbears.

In terms of the impact on the UK automotive market, research from intelligence provider LMC Automotive has found that a no-deal Brexit could cost some £9 billion in annual revenue. The figure is based on a sales estimate of 2.53 million light vehicles in 2020 following a no-deal scenario, 10% fewer than would be the case after a smooth transition Brexit. The lost revenue figure, based on an average transaction price of £30,000, would be spread across OEMs, dealers, suppliers and other motor industry participants. Run in conjunction with Oxford Economics, the research assumes GDP growth of only 1% in 2019 and 0.8% in 2020, compared to 1.7% and 2% for a smooth transition.

There is hope. Ripe opportunities exist in expanding the forecourt to meet evolving customer demand.

“The impact on the vehicle market would be greater than for the UK economy as a whole,” says Pete Kelly, LMC Automotive’s Managing Director. “As the UK imports most of its cars, prices would inevitably rise with further devaluation of the pound after a no-deal Brexit. The very likely imposition of tariffs would only compound the negative effect on demand,” he adds.

This gloomy picture contrasts with the views of dealers themselves, with data from the Close Brothers Motor Finance Dealer Satisfaction Survey revealing that the majority of motor retailers (95%) were confident about their business prospects in the market this year, up marginally from 93% in 2018. In addition, six in ten of the dealers questioned said they were ‘very confident’ about the business outlook for 2019. Overall, stability, expansion of new vehicle types and new innovations in car finance products were perceived as the largest opportunities in the year ahead.

While the overall picture from dealers is one of confidence, the research from Close Brothers also found that when it came to concerns about Brexit, anxiety among dealers has increased this year. Over a third (35%) of dealers now see Brexit as the biggest threat to their business, compared to just under a quarter (24%) last year. Further concerns cited included the continuing impact of WLTP legislation on the supply of new diesel and petrol cars, which has also had a knock-on effect in terms of a lower volume of ‘late plate’ product available to meet demand in the used car market.

“Despite many warnings of post-Brexit gloom, the UK’s dealers remain resolutely optimistic about the success of the sector,” comments Sean Kemple, Director of Sales at Close Brothers Motor Finance. “Of course threats to the sector cannot be ignored and it’s no surprise that we’ve seen increased dealer concern about legislation and stock availability in relation to WLTP. Car manufacturing and registrations have suffered and dealer bottom lines have subsequently done the same.”

“But there is hope. Ripe opportunities exist in expanding the forecourt to meet evolving customer demand, be that for new fuel types, new models, expanding the used stock selection, or an enhanced aftersales proposition. To seize these opportunities, dealers must establish themselves as a source of expertise and reassurance to their customers,” he concludes.

The consumer switch to contract purchase-based vehicle finance products, away from outright vehicle purchase, also provides some cheer to dealers, with cars sold on the basis of a monthly payment. This reduces the impact on price increases on Eurozone vehicle imports in the event of a weakening value in sterling.

As motor retailers brace themselves for Brexit and the challenges it presents, partners such as Autoglym provide dealers with a compelling added value proposition that offers clear customer benefits. To find out how our vehicle protection system LifeShine can generate incremental revenue for your dealership, call us on 01462 677766 or email lifeshine@autoglym.com.

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