A no-deal Brexit is not an option for the Irish motor industry
The impact of any Brexit deal will have far-reaching consequences for the Irish car market, writes Contributing Editor Geraldine Herbert
Since the vote by the UK to leave the EU in June 2016, used car imports have been steadily rising and have doubled in two years, up to almost 100,000 from 48,000 in 2015. New car registrations fell by 11.2pc last month and by 4.4pc overall this year compared to 2017. Despite favourable economic conditions of strong employment and growth in GDP, car sales are unlikely to improve while doubt and uncertainty around the consequences of Brexit continues.
With less than five months until Britain is due to exit, the draft agreement that Prime Minister Theresa May's government has just negotiated with the European Union will be welcomed by the UK car industry who maintain that a no-deal Brexit must be ruled out because of the threat it poses to the industry.
Key to future of the motor industry in the UK is securing a withdrawal agreement that secures an orderly transition out of the EU that avoids tariff barriers and maintains the benefits of the single market until a EU/UK trade agreement is achieved. The proposed draft agreement provides a solution to these issues for the UK and is, for the motor industry here, the best option at present.
Ciaran Allen, sales manager for Mercedes-Benz passenger cars in Ireland told the Sunday Independent: "A positive outcome in relation to Brexit manifested in an agreement between the EU, its member states and the UK government should remove much of the uncertainty that has existed. This would likely have a positive impact on Sterling and on currency exchange rates in a way that would make used car imports less attractive than has been the case."
However, until such an agreement is in place there will be no clarity.
Nissan Ireland's managing director James McCarthy echoes these concerns about the uncertainty.
"It turns business planning into a game of Russian roulette as distributors are ordering cars for delivery post-Brexit and don't know whether tariffs will apply or not and can only speculate as to the likely competitiveness of products come next April and May," he said.
If the deal is rejected by the UK Parliament in December, the UK government will have 21 days to forward a new plan. Failing that, there are a number of possible outcomes: they could postpone Brexit, try to renegotiate their exit terms, call a general election, hold a second referendum or leave with no deal.
Leaving without any trade transitional agreement on March 29 would have significant consequences for the motor industry in Ireland. A no-deal Brexit would mean that UK car exports to the EU would become subject to a 10pc tariff under World Trade Organisation rules.
SIMI director general Alan Nolan warned that the implications would be far-reaching in all aspects of the market.
"Importing UK-manufactured vehicle parts would be subject to tariffs, which the UK Society of Motor Manufacturers and Traders (SMMT) have calculated would average about 4.5pc on the cost of parts. There is also the potential for disruption and delay in deliveries, even of EU-manufactured parts if these are consigned through the UK.
"In addition, payment of VAT is likely to be required at the point of entry into Ireland for both vehicles and parts, rather than at the point of sale as at present," warns Alan Nolan.
So while a hard Brexit may seem like good news for Irish car sales as it would curb enthusiasm for used imports, the impact on the wider economy would also lessen demand for new cars.
However, could the impact of Brexit be felt in more areas than just cars sales and the cost of repairs? For example, what is the effect likely to be on car insurance or fuel prices?
We asked Conor Faughnan, AA Director of Consumer Affairs, on the effect this would have on bringing a car to the UK.
"Everything reverts to the pre-1992 situation of needing a green card when travelling outside the EU to guarantee insurance coverage," he said.
"You'd need to let your insurance company know your departure and return dates at the very least; companies may charge for this. You can drive in Switzerland now without doing this because they're in both the Single Market and Schengen agreements."
But what of fuel prices?
According to a 2015 SEAI report on energy security, 76pc of refined fuel product is imported from the UK, which in the event of a hard Brexit would most likely be subject to a tariff of at least 3pc under WTO rules for petroleum products, which would be passed onto consumers at the pumps.
David Blevings of the Irish Petrol Retailers Association believes Brexit will have a minimal impact on retail fuel prices in Ireland.
"Sixty per cent of the pump price is already made up of taxes including carbon tax and VAT, so in the event of a hard Brexit an increase due to a 3pc tariff would be nominal," he explained.
"The strength of the euro against the dollar, as all petroleum products are priced in dollars, is the key issue immediately post 29 March 2019, as is the current status of the OPEC reduced supply position and the sanctions against Iraq."
However, security of supply and cross-border trade are all up for debate and negotiation as part of the process.
Regardless of the deal Theresa May manages to deliver, it is likely that new car sales will decline further in 2019. Increases in motor tax and new car prices as a result of WLTP, a new system for emissions testing, and the looming threat of US Tariffs on European goods will provide further challenges in addition to Brexit.