Brexit Impact on Automotive sector

wns.decisionpointus

Brexit news from the WNS DecisionPoint. Latest Brexit news, comment and analysis from the Guardian, the world's leading liberal voice. Follow the latest Brexit news stories and headlines. Get breaking news alerts when you download the News and subscribe to Brexit notifications.

ong>Brexitong>

ong>Impactong> on Automotive Industry


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

Table of Contents

Automotive: ong>Brexitong> is a Concern for Vehicle Manufacturers

Tariff-free Access to the EU Single Market

Production Outlook Scenarios: Hard ong>Brexitong> vs. Soft ong>Brexitong>

Vehicle Registration Outlook: Hard ong>Brexitong> vs. Soft ong>Brexitong>

Access to EU Talent Essential to the Success of the Sector

Cross-sectoral Regulatory Issues

01

02

04

07

11

12


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

AUTOMOTIVE: BREXIT IS A CONCERN

FOR VEHICLE MANUFACTURERS

In February 1984, when Nissan and

the U.K. government signed an

agreement to build a car plant in

the U.K., it had been a part of the

EU for a decade. The 799-acre

greenfield site in Sunderland,

Tyne and Wear is now home to one

of the biggest manufacturing

plants in the U.K., with over half a

1

million unit sales in the EU. Will the

result of the U.K. referendum

thwart the growth of thriving

companies like Nissan?

This section will analyze the impact

of ong>Brexitong> on the U.K. automotive

industry and try to answer some of

the pressing questions arising from

the U.K. referendum.

The result of the referendum on

U.K.'s membership can be assessed

through the following Issues:



EU tariffs on U.K. exports

Cross-sectoral regulatory issues

Access to EU talent

1. The Society of Motor Manufacturers and Traders (SMMT).

wnsdecisionpoint.com 1


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

TARIFF-FREE

ACCESS TO THE EU

SINGLE MARKET

Goods currently traded between

the U.K. and the EU 27 enjoy a

tariff-free movement. Access to the

EU's single market has made the

U.K. a formidable competitor as its

supply chain companies can do

business with other EU automotive

companies and the OEMs

(Original Equipment

Manufacturers) can tap into a

lucrative market of over 500 million

2

consumers . If the U.K. leaves the

single market without a proper

replacement for the current system,

it could result in the introduction of

automotive tariffs of 10 percent on

passenger cars, 10-22 percent

on commercial vehicles, and

3-4 percent on average for

3

automotive components.

The U.K. produced a total of 1.8

million motor vehicles in 2016, of

which more than 900,000 were

exported to the EU. The EU

represents 81 percent of the U.K.

vehicle import volumes ( 44.7

billion euros) and 52.8 percent of

U.K. vehicle export volumes (EUR

4

14.6 Billion). Many OEMs sell 75

percent of their production within

the EU. For engines, this figure

stands at 55 percent.

The chart below outlines the sales

of the biggest car manufacturers in

the U.K. According to these figures

published by the Society of Motor

Manufacturers and Traders, U.K.,

the EU unit sales of Nissan and

Toyota, the largest vehicle

manufacturers in the U.K., was

double the number of their non-EU

unit sales. Between them, Nissan,

Toyota and Honda made half of the

1.7 million cars built in the U.K. in

5

2016 and employed 16,000 people.

2. Ibid.

3. European Automobile Manufacturers Association, Position Paper ong>Brexitong>.

4. SMMT.

5. Article by Financial Times, Toyota and Nissan take different roads to ong>Brexitong>, March 2017.

2

wnsdecisionpoint.com


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

Exhibit 1

Sales of U.K. Built Cars

EU unit sales

Non-EU unit sales

Honda

50,000

80,000

Mini

Vauxhall

JLR

Toyota

Nissan

80,000

130,000

90,000

20,000

100,000

120,000

40,000

120,000

400,000

380,000

0 100000 200000 300000 400000 500000

Source: Society of Motor Manufacturers and Traders (SMMT)

Exhibit 2

U.K. Export Share by Region

EU US China Turkey Australia Japan

Canada South Korea Israel Russia

Russia

Israel

South Korea

Japan

Canada

Australia

Turkey

China

US

EU

Source: SMMT

wnsdecisionpoint.com 3


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

PRODUCTION

OUTLOOK

SCENARIOS:

HARD BREXIT VS.

SOFT BREXIT

Reassuring Nissan, Toyota and the

other leading auto manufacturers

has been a priority for the U.K.

government after the June 2016

referendum to leave the EU. Eight

months after the referendum,

Nissan and Toyota have signaled

their commitment, with Nissan

announcing in October 2016 that

new versions of its Qashqai and

X-Trail would be made in the northeast

of England, thereby turning its

Sunderland plant into a 600,000

6

plus production plant. In March

2017, Toyota announced GBP 240

Million worth of investment into its

Burnaston site in Derbyshire, with

an additional investment of up to

GBP 21.3 Million from the

government, thereby underlining

the company's resolve to continue

to manufacture in Britain even if

7

trading conditions were to change.

However, whether the big auto

manufacturers continue with their

commitment to treat U.K. as a

major manufacturing hub depends

on how well the U.K. is able to

negotiate the terms of ong>Brexitong> and is

able to retain the current structure

of its access to the single market.

Recent falls in the value of sterling

have made U.K. exports cheaper,

while the value of sterling against

the euro and the dollar is

approximately 15 percent below the

long-run average. While the lower

value of sterling will improve the

competitiveness of U.K. exports in

the long term, it will also increase

the costs of imported components

from the EU, which account for

nearly 60 percent of components

8

used in U.K. built cars.

The latest figures published by the

SMMT on car and commercial

vehicle production for the first five

months of 2017 suggest that

production has slowed down

across the U.K. following the

referendum and the resulting

uncertainty it brought with regard

to the U.K.'s position as a strategic

manufacturing hub in the EU.

British car production fell by 9.7

percent in May 2017 in the wake of

a slowing auto market across

Europe. Cars produced in the U.K.

for export fell by 9 percent to

109,591, while those made for the

home market fell by 12.8 percent

to 26,528. Production of

commercial vehicles also slowed

down to hit an all-time low of

6,875 in May 2017, declining by

28.3 percent from May 2016.

6. Article by Guardian, Nissan to review Sunderland plant's competitiveness after ong>Brexitong>, January 2017.

7. Article by Financial Times, Toyota and Nissan take different roads to ong>Brexitong>, March 2017.

8. SMMT.

4

wnsdecisionpoint.com


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

Exhibit 3

Car Manufacturing

May-16 May-17 % Change YTD-16 YTD-17

% Change

Total

150,802

136,119 -9.7 738,516 729,755

-1.2

Home

30,431

26,528 -12.8 166,766 153,199

-8.1

Export

120,371

109,591 -9.0 571,750 576,556

0.8

% Export

79.8

80.5 - 77.4 79.0

-

Source: SMMT, May 2017 Release

Exhibit 4

Commercial Vehicle Manufacturing

May-16

May-17

% Change

YTD-16

YTD-17

% Change

Total

7,748

6,875

-11.3

39,935

36,458

-8.7

Home

3,826

2,503

-34.6

19,062

12,999

-31.8

Export

3,922

4,372

11.5

20,873

23,459

12.4

% Export

50.6

63.6

- 52.3

64.3

-

Source: SMMT, May 2017 Release

Cars produced in the

U.K. for export fell by

9 percent to 109,591,

while those made for

the home market fell by

12.8 percent to 26,528

Despite the recent slowdown in

auto production, British auto

manufacturing industry remains in

good health with several new

models to go into production over

2017 to 2021 and expansion in

investments by leading auto

manufacturers. WNS

TM

DecisionPoint projects an upward

trend in auto production over the

forecast period. However, this

forecast is contingent upon U.K.'s

continued access to the EU single

market with minimal disruptions to

the current trade structure. A hard

ong>Brexitong> scenario without any access

to the single market will result in a

slowdown in vehicle production

from 2018-19, when ong>Brexitong>

negotiations will be underway.

But it is expected that 2019-2021

will see some improvement in

production, albeit a slow one,

owing to finalization of the

ong>Brexitong> agreement.

wnsdecisionpoint.com 5


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

6

wnsdecisionpoint.com


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

Exhibit 5

Vehicle Production Forecast

Soft ong>Brexitong>

Hard ong>Brexitong>

2021

1,905,371

2,087,168

2020

2,044,239

1,875,365

2019

1,847,650

2,004,156

2018

1,964,858

1,829,357

2017

1,889,287

1,820,255

0

500000 1000000 1500000 2000000 2500000

TM

Source: OICA, WNS DecisionPoint Analysis

VEHICLE

REGISTRATION

OUTLOOK: HARD

BREXIT VS. SOFT

BREXIT

Although the U.K. is a significant

consumer market, it is not large

enough to support the size of the

British auto manufacturing sector.

According to the figures published

by the Association Auxiliaire de

l'Automobile, 2.7 million new

passenger cars were registered in

the U.K. in 2016, 18.5 percent of the

14.2 million that were registered

across the EU and the European

Economic Area (EEA) as a whole.

The export market will always be

vital if the U.K. plans to sustain

and expand the existing auto

manufacturing sector. The regional

nature of the automotive sector is

such that that the EU will remain

U.K.'s single largest export

market, which makes export

tariffs critical to the existence

of the current sector.

The final sale price of a vehicle is

determined by factors other than

the costs of manufacturing the

vehicle; however, even a 10 percent

tariff on automotive components

imported from the EU will raise the

9

manufacturing costs significantly.

This will be passed on to

consumers by manufacturers,

thereby curbing the demand for

cars and commercial vehicles.

According to the figures published

by the SMMT, the year-to-date new

passenger cars registered from

2016-17 declined by 0.6 percent to

1,158,357. This slowdown can be

attributed to the uncertainty

caused by the surprise

announcement of a June 2017

election, with buyers holding back

until the election outcome.

Demand was driven by business

purchases, to offset declines from

private and fleet buyers.

9. SMMT.

wnsdecisionpoint.com 7


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

Exhibit 6

U.K. Passenger Car Registrations Overview

Year-to-date

Total Diesel Petrol AFV Private

Fleet

Business

2017

1,158,357

509,817

600,604

47,936

522,877

589,161

46,319

2016

1,164,870

559,269

567,907

37,694

545,674

575,169

44,000

% change

-0.6

-8.8

5.8

27.2

-4.2

2.4

5.3

Source: SMMT, May 2017

Exhibit 7

Commercial Vehicle Registrations

2016 2017

May

Apr

32,989

32,127

32,494

27,637

Mar

70,669

69,726

Feb

16,631

16,206

Jan

24,621

25,215

0 10000 20000 30000 40000 50000 60000 70000 80000

Source: European Automobile Manufacturers Association, June 2017

8

wnsdecisionpoint.com


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

A comparison between the

commercial vehicle registration

figures for the first five months of

2016 and 2017 shows a slight

decline of 862 units in the

registration figures for the month

of May, which is lower in

comparison to the relatively larger

decline of 4857 units for April. The

British referendum in June 2016

and the snap election called in the

first quarter of 2017 are primary

factors leading to the decline,

coupled with an ongoing

inflationary squeeze on consumer

and investment spending brought

on by a depreciating sterling.

We expect car and commercial

vehicle registrations to grow at a

stable rate for the remainder of

2017. This will continue into the first

half of 2018, supported by

declining oil prices and a

depreciating pound which will add

to the competitiveness of U.K. auto

exports. Our outlook for the period

2019-2021 remains stable, with

both car and commercial vehicle

registrations forecasted to grow at

a steady rate, provided that the

U.K. is able to retain its current

trade agreement with the EU. A

hard ong>Brexitong>, which implies a shift

away from the current system of a

single market, will lead to a slide in

vehicle registrations in the forecast

period, exacerbated by new trade

tariffs, thereby aggravating costs of

production and final sale prices. A

soft ong>Brexitong> with access to a single

market will ensure a rapid increase

in registrations from 2019-2021

when the ong>Brexitong> framework for the

British auto industry is finalized.

wnsdecisionpoint.com 9


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

Exhibit 8

Forecast for Passenger Car Registrations

Soft ong>Brexitong>

Hard ong>Brexitong>

2021

2,689,887

2,870,286

2020

2,662,489

2,841,052

2019

2,599,870

2,787,844

2018

2,581,579

2,688,154

2017

2,572,919

2,626,776

0 2400000 2500000 2600000 2700000 2800000 2900000

TM

Source: European Automobile Manufacturers' Association (ACEA), WNS DecisionPoint Forecast

Exhibit 9

Forecast for Commercial Vehicle Registrations

Soft ong>Brexitong>

Hard ong>Brexitong>

2021

2020

2019

2018

2017

513,448

480,027

492,904

464,387

478,656

450,964

456,211

437,320

423,340

419,030

0 200000 400000 600000

TM

Source: International Organization of Motor Vehicle Manufacturers (OICA), WNS DecisionPoint Forecast

10

wnsdecisionpoint.com


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

ACCESS TO EU

TALENT ESSENTIAL

TO THE SUCCESS

OF THE SECTOR

The U.K. automotive industry

benefits from access to the skills

and experience of the EU and

global employees. EU skills and

talent are utilized in all aspects of

businesses in the U.K. There are

three principal reasons for the use

of EU migrant labor in U.K. plants.

Firstly, U.K. automotive

manufacturing has a skill gap of

around 5000 people, which is

projected to increase. Secondly,

with many companies having

multiple plants across the EU,

employees are moved from one

plant to the other for specific

engineering or manufacturing

needs. Thirdly, many companies

choose to move their employees

for professional training and

development, in order to improve

the quality and competitiveness

10

of their business.

According to a survey conducted

by the U.K. Automotive Council and

the Automotive Industrial

Partnership, majority of vacancies

in the top 10 current and future

priority jobs are engineering

positions, with a particular

concentration around design and

production engineering,

accounting for 40 percent of

immediate vacancies. However, the

potential loss of access to the EU

workforce and uncertainty over the

status of current EU workers is a

challenge for the U.K. automotive

industry's plans from a perspective

of continued innovation,

productivity and output as well as

future growth potential.

One of U.K.'s many advantages as a

member of the EU is labor market

flexibility, which is essential for

ensuring that workers are allocated

to their most effective use in the

economy. High labor flexibility

allows easy shifting of workers

from one economic activity to

another, rapidly and at low cost

and allows for wage fluctuations

while minimizing social disruption.

It gives companies the confidence

to rapidly take on employees to

meet market demand. Additional

administrative and cost burdens for

moving skills, and a reduction in

the ease of access to skills will

reduce U.K. industry

competitiveness and risks creating

the perception that the U.K. is not

an easy place to do business.

10. SMMT Issue Paper, November 2016.

wnsdecisionpoint.com 11


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

CROSS-SECTORAL

REGULATORY

ISSUES

The EU allows financial institutions

established within the region to

operate a branch network across

Member States by virtue of the EU

Capital Requirements Directive

passport for the provision of

banking services, which is crucial to

the automotive industry. Motor

vehicles are expensive, and hence,

dealers need assistance in order to

make their purchases. Likewise,

motor vehicles are expensive to

manufacture, and therefore

manufacturers need to be paid

quickly for the vehicles that they

sell in order to have enough

liquidity to fund the manufacture

of more vehicles.

To alleviate the cash-flow concerns

of both sides to the transaction, a

third- party financial institution will

finance the sale of the vehicle from

the manufacturer to the dealer. In

this way, the manufacturer gets

paid quickly for the vehicle that has

been sold and the dealer is

afforded a period of credit for

making the payment. Most

automotive manufacturers operate

in this manner, as this is essential to

the maintenance of healthy dealer

networks. Many automotive

manufacturers set up their own

financial institutions created

specifically for the purpose of

providing wholesale dealer finance,

known as 'captives'.

Captive finance companies based

in one EU Member State will often

operate a branch network to other

Member States within the single

market. The ability of those

companies based in the U.K. to

continue to support a branch

network once the U.K. leaves the

EU may be severely impeded if

there is no future provision made

for the continuation of the

passporting regime. If the U.K.

leaves the single market (and sits

outside the EEA) and the EU single

rulebook on financial services,

captive finance firms based in the

U.K. would be required to take

mitigating action to ensure

continuity of service, including

relocating their headquarters

from the U.K. to another EU

11

Member State.

Uncertainty regarding the

application of cross-sectoral

regulations following the U.K.'s

withdrawal from the EU will

negatively impact business

operations. The Great Repeal Bill,

a new legislation put into place by

the U.K. government to ensure an

orderly transition from the EU

membership and that same rules

and laws apply after the U.K. leaves

the EU, should provide some

certainty. However, clarity is

needed regarding the maintenance

of regulatory equivalence in areas

that are critical to ensuring that the

automotive sector can continue to

access the single market without

any barriers.

11. Ibid.

12

wnsdecisionpoint.com


BREXIT

IMPACT ON AUTOMOTIVE INDUSTRY

About DecisionPoint

Making key decisions that improve business

performance requires more than simple insights.

It takes deep data discovery and a keen problem

solving approach to think beyond the obvious.

As a business leader, you ought to have access to

information most relevant to you that helps you

anticipate potential business headwinds and craft

strategies which can turn challenges into

opportunities finally leading to favorable

business outcomes.

TM

WNS DecisionPoint , a one-of-its kind thought

leadership platform tracks industry segments served

by WNS and presents thought-provoking original

perspectives based on rigorous data analysis and

custom research studies. Coupling empirical data

analysis with practical ideas around the application of

analytics, disruptive technologies, next-gen customer

experience, process transformation and business

model innovation, WNS aims to arm you with decision

support frameworks based on 'points of fact.' Drawing

on our experience from working with 200+ clients

around the world in key industry verticals, and

knowledge collaboration with carefully selected

partners including Knowledge@Wharton, each

research asset comes up with actionable insights with

the goal of bringing the future forward.

wnsdecisionpoint.com 13


References

i. Why Holiday Marketing Sparkled a Little Less

Brightly in 2016, Retail Dive, January 2017.

ii.

iii.

iv.

U.S. Customer Loyalty Program Memberships

Reach Double Digit Growth at 3.8 Billion, 2017

Colloquy Loyalty Census Reports, Colloquy,

June 2017.

The Journey from Price to Value, From Prospects

to Customers, Colloquy, February 2017.

Loyalty Programs: Valuing The Retention and

Data Factory , UBS, July 2016.

v. Customer Loyalty: Toward an Integrated

Conceptual Framework, Dick, Alan S., and Kunal

Basu, Journal of the Academy of Marketing

Science, December 1994.

vi.

U.S. Grocery Shopping Trends, 2016, FMI,

August 2016.

vii. How Personalization is Driving Increased Loyalty

for Walgreens, Total Retail, January 2017.

viii. For U.S. Retailers, Coalition Loyalty Programs

Gaining Steam, Colloquy, September 2016.

ix.

Plenti Coalition Loyalty Program Strikes Chord

with Shoppers, Loyalty 360, December 2016.

x. Walgreens Integrates Rewards Program into

Android Pay, Retail Dive, February 2017.

xi.

Bed Bath & Beyond Pilots New Loyalty Program,

PYMNTS, December 2016.

xii. What's the Point of Points? Debating the Future

of Loyalty Programs, Loyalty Academy, May 2017.

xiii. Retail Stores with Credit Card Loyalty Incentives,

The Balance, April 2017.

xiv. To Have a Killer Loyalty Program, Retailers Need

to Think Big, eMarketer, September 2016.

xv. Target Unveils $7B Plan to Overhaul Stores, Retail

Dive, March 2017.

xvi. Mobile Phone, Smartphone Usage Varies Globally,

eMarketer, November 2016.

xvii. Want to Build Customer Loyalty? Smartphones

are the Secret Weapon, Colloquy, March 2017.

xviii. Predicts 2017: Marketers, Expect the Unexpected,

Gartner, November 2016.

xix. Four Keys to Cyber Security: Protecting

Restaurants and Retailers From Data Breaches,

Chain Store Age, March 2017.

Copyright notice and disclaimer:

All materials and software published on or used here are protected by copyright, and are owned or controlled by or licensed to WNS (Holdings) Limited

(WNS), or the party listed as the provider of the materials. UNAUTHORIZED COPYING, REPRODUCTION, REPUBLISHING, UPLOADING, POSTING,

TRANSMITTING OR DUPLICATING OF ANY OF THE MATERIAL IS PROHIBITED. You may use it for personal, noncommercial and informational purposes,

provided that the documents are not modified and provided you include the following copyright notice in such downloaded materials: © Copyright 2016

WNS (Holdings) Limited. All rights reserved. Some of the information contained herein is extracted from various publications and publicly available

information of other companies on their website or other resources, and WNS makes no representation as to the accuracy or completeness of the

information. WNS makes no representation that all information relating to these companies/WNS and its businesses has been included.


A credible insights hub for companies looking

to transform their strategies and operations by

aligning with today s realities and tomorrow s

disruptions.

Email: perspectives@wnsdecisionpoint.com

Website: wnsdecisionpoint.com

@WNSDecisionPt WNS DecisionPoint WNS DecisionPoint

More magazines by this user
Similar magazines