Written by
Amy Buxton, Financial Trend Guru
, 18 May 2018

The British public might need to rethink its love affair with European car manufacturers, as Brexit looks set to take its toll on vehicle prices and give UK motorists some serious headaches.

Drive down any busy road in the UK and you’ll see a slew of favourite European cars passing you by. You’re probably driving one yourself, as it happens, which means that you’re probably already committed to a certain level of brand loyalty, when it comes to your preferred vehicle manufacturer.

Whether you’re a VW household, an Audi family or a hardcore Peugeot fanatic, you’re likely to naturally plump for a new model from the same manufacturer when your current car gives up the ghost and that could mean a MUCH larger bill than you’re ready for. Why? Because Brexit is bumping up the price of manufacturing costs, as well as imported cars from European suppliers by up to 13%. If 13% doesn’t sound like a catastrophic rise in price, let us put it into context for you.

Let’s say you want to buy a new VW Golf for £20,000. That’s already a large investment, but add on an extra 13%, just because the UK has decided to leave the EU and suddenly, you need to either pull the extra £2,600 out of thin air or commit to a crippling loan agreement that will cost you even more. Does that sound tempting to you? No, we didn’t think so.

What if the UK reaches a no-tariff deal with the EU?

In a bid to try and stem the flow of consumer panic, questions are being asked as to what trade and tariff deals could mean for the cost of new cars, post-Brexit, but the news is not as positive as you might like it to be. It’s not simply the cost of importing cars that will definitely rise, as a lot of European manufacturers have plants in the UK already. It’s actually the plant costs themselves that look set to soar by up to 13% and that won’t be halted, even if a tariff-free deal can be reached.

What is going to affect UK car manufacturing plants?

Once the UK leaves the EU, car manufacturers will need to be prepared for increased scrutiny, delays and even resistance to accept exported goods. It’s a saying that has been around forever, but “time is money” rings absolutely true in this case. The longer it takes to get cars assessed, accepted, exported and sold, the more they necessarily cost, with some experts concluding that prices will hike by a minimum of £1,500 per new vehicle. OUCH.

Why are we hearing about World Trade Organisation rules?

If the term sounds a little archaic, it’s because it is, in a strange way! Instead of being able to enjoy the perks that come from being part of the EU, most notably a lack of import tax between countries, pre-EU financial obligations will come into effect and that’s going to spell disaster for anyone that has a love affair with European cars, particularly those from German manufacturers.

The Volkswagen group, also known as Volkswagen AG, enjoys the most vehicle sales in the industry, has a fiercely loyal body of customers and owns a shocking number of brands, including Audi, Bently, Seat and Škoda. With this in mind, you can already get a feel for just how many people will be impacted, should import tax add the predicted 10% to new vehicle prices, come Brexit. Let’s put that into context with some real figures.

In 2016, Germany exported 950,000 cars to the UK. The value of these exports totalled almost €21billion. When Brexit has been initiated, that amount will increase by an extra €2.1billion and who pays for that? Well, the government certainly won’t be picking up the tab, so it’s going to fall to those of us that need a new, reliable and warranty-ensured car.

What else will increase, alongside car prices?

Ahhh, the really big question. Well, prepare for a horrifying answer! In essence, everything to do with your car will increase in price, including, but not limited to, servicing, maintenance, spare parts and even labour to look after your vehicle. We did warn you that there was little good news!

If the Society of Motor Manufacturers and Traders’ report is to be taken as read, car servicing charges look set to rise by 10% following the UK’s exit from the EU and that doesn’t even take into account spare parts. It’s worth remembering that anything being imported will have to have tax added and not just that; delays will be likely. Customs checks and assessments will no doubt place unwanted hurdles in the way of consumers trying to work to tight schedules and deadlines too, which means that new car buyers might look elsewhere for their next vehicles.

What’s the solution?

Let’s face it; you put prices up significantly and all of a sudden, we get very ‘British’ and start coughing uncomfortably and looking for better deals. There’s nothing a Brit likes more than an awkward haggle or shopping around, which is why there’s been a lot of discussion as to the potential alternatives to buying imported European cars.

A common sense solution to the problem of imported car price hikes that is being heralded right now is to look a little closer to home and try to select a vehicle that is actually made in the UK. Once the undisputed global epicentere of motor manufacturing, the UK is a little less triumphant right now, but there is still a generous contingent of brands to choose from.

Rather problematically, a high proportion of the UK manufacturers are considered to be luxury brands, such as Aston Martin, Lotus, Bentley, Rolls Royce, Jaguar and Land Rover, which means that they are expensive already and not within reach of the average consumer, but happily, there are a handful of mid-range brands to choose from. Mini, Vauxhall, Nissan, Toyota and Honda are all still built in the UK and will allow for import tax-free purchases, but wait, as there is still a snag and it’s a BIG ONE.

What’s the problem?

While a number of brands still make vehicles in the UK, manufacturing costs ARE going to rise, which are always passed onto the end consumer. Reports have been released that show new cars made in the UK could increase by a minimum of £2,000 per vehicle, thanks to parts being sourced from the EU and being subject to, you guessed it, import tax! In lieu of the UK mastering the production of elements such as headlights, body panels and even electronics, there will always be a need for European supply chains, so are we actually well and truly over a barrel?

It seems likely that another round of scrappage will occur, in a bid to improve air quality in the UK and remove older, more polluting vehicles from public highways, but how successful can the endeavour be? With new car prices set to increase, there has to be a contingent of drivers that will try to eek out the life of their existing vehicles through careful use and regular maintenance, right? Of course there is and what’s more, should the worst happen, these savvy shoppers will be far more likely to seek out secondhand private car sales as apposed to looking at brand new offerings from pricey dealerships.

Is it all doom and gloom?

In short, it really could be! New cars are going to be more expensive than they’ve ever been, servicing costs are set to rise and older cars are more than likely going to be targeted by new rounds of the scrappage scheme, The only thing we can do is batten down the hatches and try to wait out the storm, in the hope that trade deals can be agreed and car prices will level back out in the aftermath of Brexit.

If nothing else, us Brits are terrific at waiting; just look at how great we are at queuing, but it certainly couldn’t hurt to start saving a contingency fund, just in case the family motor suddenly packs up and splutters to a halt. After all, we can’t bank on insurance prices falling or interest rates staying low, which means that buying a new car in the UK, post-Brexit, might be a financial burden too huge for most people to bear.

Written by
Amy Financial Trend Guru
, 18 May 2018

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