Citroen UK’s managing director Karl Howkins has told just-auto that his company is planning on a ‘hard Brexit’ with import tariffs added on cars shipped from the EU that could cause the UK market to decline by as much as 25%.
The UK is scheduled to leave the EU trade bloc on 31st October (although a further extension and a general election is also possible), but trade arrangements on UK-EU shipments after that date remain unclear. Reverting to WTO rules in the absence of a UK withdrawal agreement (negotiations between the UK government and EU Commission are ongoing) could mean new import tariffs of 10% imposed on UK manufactured new car shipments to the EU, with reciprocal tariffs applied in the other direction, too.
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Howkins said that six months ago he didn’t expect a hard Brexit but his views have changed. “I see Brexit being in a harder position now,” Howkins said. “We have been planning for a situation that is a hard deal, in a harder market. If that happens, a number of us are going to be impacted by tariffs that will be up to 10%.
“We have said to our network, ‘look guys you have got to be ready and your customers need to understand what tariffs are going to look like’. I didn’t want to scare them though. My job is to act as a filter, take some of the sting out of the head office, focus on the business at hand and the customers. We totally need to support the dealer and staff so that they focus on the customer at all times.
“We have a plan. We plan for the worse and hope for the best. The worse is import tariffs and a tougher market in terms of size and knock-on effects.”
Howkins says that uncertainty has been an unwelcome side effect of the Brexit process and worries that the UK’s political logjam could continue. “We want a [Brexit] deal, and I worry about a second referendum possibility, with the same outcome and another cycle of delay and uncertainty. The uncertainty is the biggest problem we are all facing.”
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By GlobalDataHowkins said that tariffs could add as much as GBP30-40 for customer monthly payments on PCPs (personal contract purchase car finance schemes). “It’s going to have a significant impact,” he said, with the market facing a decline of as much as 25%.
Howkins also noted the cyclical nature of the industry and previous tough recessions in the automotive business – 1990-1991 and 2008-2010. “I think we are probably due another one,” he said. “Regardless of what happens on October 31st [Brexit], we can see that the market is starting to consolidate. I think we have had six years of great growth in cars, but we are starting to see some real pressure points in the industry – particularly on the retail market – and that has knock-on effects for the fleet market as manufacturers start to push other channels to make up for the loss in retail volume.”
Howkins also said that the last day of September’s UK market was a “huge one”, otherwise September’s disappointing UK car market “would have been even worse”.
However, Howkins maintains that Citroen has had a good year. “We have grown our cars and commercial vehicle business in the right way,” he says.
But he also warned that the industry faces other challenges in the year ahead, besides Brexit. “We have CAFE [new EU rules on CO2 averages] and we are adamant that we will avoid fines, so we are in a process of taking out engines and models that don’t work for us.
“And there’s the issue for dealers and dealer groups of maintaining profitability, because they are all starting to feel the pinch. But we’ve been through worse – as a country and in terms of our economic position. We will get through it, but we have to be very agile and very quick.”
Howkins points out that there are opportunities even as the UK car and van market contracts. “If it’s down 10%, that still leaves the other 90% to play for,” he points out.
