UPDATE: Fleet Implications of Leaving the European Union for the UK

The UK officially left the European Union on January 31, 2020. However, until the end of this year there is a ‘transition period’ during which no rules or regulations will change.

Over the coming months, UK Government and European Union officials will be holding intense discussions to, the UK hopes, ensure that transition is as smooth as possible and the status quo remains in place as far as possible.

That has essentially been taken to mean frictionless trade, free of tariffs with the European Union as well as other countries globally, with regulatory alignment.

However, Michael Gove, Cabinet member and Chancellor of the Duchy of Lancaster, threw a spanner in the works when he confirmed that post-Brexit border trade checks with the European Union were inevitable.

That, at face value, puts an end to hopes of “frictionless trade” and, from a motor and fleet industry perspective, is likely to mean border delays to the import of vehicles and components and, theoretically, jeopardises the sector’s long-established ‘just in time’ business model.

Mr Gove, quoted by the BBC, told a Border Delivery Group event in February 2020: “The UK will be outside the single market and outside the customs union, so we will have to be ready for the customs procedures and regulatory checks that will inevitably follow.”

That means import checks at UK borders and additional paperwork for traders in both the UK and the European Union with an inevitable impact on delivery times at least until technology fixes are available. However, that is expected to be 2025 at the earliest.

Separately, if no trade deal is reached with the European Union, taxes such as tariffs will also need to be charged and collected.

The UK Government has stated that it would not seek any extension to the transition period thereby putting pressure on officials to have agreements in place in just 11 months.

That, according to the British Vehicle Rental and Leasing Association (BVRLA), has “increased the risk” of a disruptive exit from the European Union at the end of 2020.

The organisation, of which Venson Automotive Solutions is a member, continued: “Unless a sector specific deal for the automotive sector is agreed in time [it] raises the odds of negative consequences for businesses as they may not know how the future looks until late in the day.”

Against that background, the coming weeks and months are, therefore, not a time for fleet decision-makers to do nothing. There is much preparation work to be done in the eventuality of change so that businesses and their fleet operations are in a state of readiness for a new dawn on January 1, 2021.

Two years ago Venson Automotive Solutions published a white paper - ‘Fleet Implications of a No-deal Brexit for the UK’. It, along with a range of other white papers on key fleet subjects, is available at: https://www.venson.com/Media/ViewWhitePaper/29

Below we look at the impact of Britain leaving the European Union, its effect on fleet operations and what action fleet decision-makers should take.

Tariffs in the event of no free trade agreement

At face value this is an area completely outside of the control of fleet decision-makers.

However, it is important that fleet decision-makers understand the impact of border controls and the UK failing to negotiate free trade agreements with the European Union as well as other countries, particularly as the result will be the introduction of World Trade Organisation (WTO) tariffs and a vast increase in red tape at borders.

Tariffs will trigger price increases - unless brands and their retail networks can absorb the additional costs which some have previously warned they could not - with the bold figures being: The list price of cars rising by 10%; commercial vehicle prices rising by up to 22% (an average 13.5% for light vans); and the cost of vehicle components by up to 4.5%.

Import tariffs alone could push up the list price of cars imported to the UK from the continent by an average of £1,500, according to the Society of Motor Manufacturers and Traders (SMMT).

Meanwhile, fleets can expect the in-life cost of vehicle operations to also rise as a result. Experts have suggested that service, maintenance and repair (SMR) costs could rise by 10%, while such an increase - along with the rise in the price of components - would also trigger an increase in insurance premiums.

Besides potential vehicle and component price increases, the imposition of border controls could mean that fleet operations are impacted by the imposition of red tape with the result that the delivery of new vehicles and replacement parts far from being ‘just in time’, as has been the motor industry model for many years, are delayed.

Ultimately, any delay to complex ‘just in time’ automotive supply chains could cause massive disruption to parts availability, delaying vehicle servicing or repairs and increasing vehicle downtime with a huge knock-on impact on fleet and business operating efficiency.

The motor industry has pleaded with the UK Government in the run-up to Brexit to ensure a free trade agreement with the European Union is implemented to, in the words of SMMT chief executive Mike Hawes “guarantee that all automotive products can be bought and sold without tariffs”.

Arguing that the UK automotive industry should be “at the heart of economic and trade policies”, the SMMT has calculated that the “devastating impact” of Brexit without an ambitious trade deal would add more than £3.2 billion a year to domestic motor manufacturing costs. A cost, it said, that could not be absorbed forcing prices to rise and global demand to shrink.

The reality, therefore, is that post January 1, 2021 fleet costs could rocket both in terms of new vehicle costs, SMR bills and insurance premiums.

The SMMT’s call for regulatory alignment is backed by the BVRLA. Its chief executive Gerry Keaney said: “UK fleets have enough uncertainty to cope with at the moment without having to worry about what kind of regulatory alignment the UK has with the European Union on vehicles and parts.

“Any sudden split from European Union rules could potentially create huge additional cost and administrative burdens. The vehicle rental and leasing sector is versatile and adaptable, but needs clear, specific and well-signposted details on future trading terms and conditions.”

Therefore, it is no surprise that a major new report from the BVRLA highlighted that demand for leased and rented commercial vehicles was increasing as operators looked for flexible options during continuing economic uncertainty.

Mr Keaney said: “Commercial vehicles are the lifeblood of the UK economy which means operators are looking for flexible and adaptable support with their fleets. Many truck and van operators are delaying re-fleeting decisions, largely due to a lack of confidence in their ability to forecast as a result of continuing uncertainties.

“Cost remains a major concern for operators, as knowing what a vehicle will cost post-Brexit is still an unknown.”

The ‘2020 Industry Outlook for Commercial Vehicles’ report, said: “The leasing and rental sector offers both certainty of cost and flexibility of access. In the current climate, these attributes are particularly popular with operators.”

Amid speculation of a 20% price rise on vehicles and parts post-Brexit in the event of trade tariffs being imposed, the report said: “Which customers can afford a 20% hike? For most [operators] Brexit clarity cannot come fast enough.”

The BVRLA’s ‘2020 Industry Outlook for Commercial Vehicles’ report is available at: https://www.bvrla.co.uk/resource/commercial-vehicle-industry-outlook-2020.html

Vehicle availability - a double whammy!

Fleet choice lists may have to be amended in the event of the imposition of trade tariffs because the burden of price rises could mean that available model options are reduced.

Meanwhile, simultaneously to the Brexit negotiations taking place between the UK Government and the European Union, motor manufacturers must also meet tough emission regulations.

And that could potentially mean a double whammy on vehicle choice and model availability as motor manufacturers realign ranges to combat both price rises and seek to avoid massive European Union fines for busting emission targets.

Ford, Britain’s biggest seller of company cars and vans has previously said that the cost of the imposition of tariffs would be “significant” and added: “This cost would either increase the cost of a vehicle, or reduce the choice available to the consumer or possibly both.”

However, reports have emerged of a potentially different scenario with a suggestion that Nissan, which has a manufacturing plant in Sunderland, could focus on the UK market to avoid tariffs on imported models. As a result, models produced at the plant by the Japanese manufacturer and sold in the UK would, on the face of it, be 10% cheaper than imported rival models.

Officially, Nissan chiefs, have denied the suggestion, first reported in the Financial Times. Nevertheless, the manufacturer is said to have put together several contingency plans in the event of the UK crashing out of the European Union with no trade agreement.

Nissan currently builds Qashqai, Juke and electric Leaf models in Sunderland and has around a 4% UK market share. However, it is suggested that by focusing on the British market at the expense of the European market it could increase market share to 20%.

Meanwhile, average carbon dioxide (CO2) emission targets set by the European Union across each motor manufacturers’ new car ranges must now be 95g/km. Carmakers breaching their individual CO2targets must pay fines of €95 (£81) for every gram over their limit, multiplied by the number of cars sold in both 2020 and 2021 and in future years.

Now research by PA Consulting, the international management consultancy, suggests that Europe’s 13 leading vehicle manufacturers collectively face fines of €14.5 billion (£12.4 billion) unless low-emission vehicle sales are given top priority.

The impact could be that motor manufacturers may have to radically and rapidly change vehicle line-ups, which could see some models axed, to avoid fines running into billions of pounds for failing to meet the tough European emission rules.

The key to vehicle producers reducing or eliminating the risk of fines is viewed as rapidly increasing the roll out of electric vehicles.

To combat the potential fines, PA Consulting said: “Manufacturers should look closely at how they can encourage sales of low-emission vehicles throughout 2020 as electric vehicles and plug-in hybrids qualify for super-credits that could significantly lower fines. That means reviewing pricing and promotions, and making low-emission vehicles more prominent in showrooms.

“Only by increasing sales of low-emission vehicles can car makers move towards their targets and reduce fines. That means understanding sales volumes by CO2emissions, heavily marketing hybrids and fully electrified vehicles, and thinking carefully about price. While the disruption and uncertainty caused by technological change have been difficult for the automotive industry, technology will be the long-term solution to reducing emissions and costs.”

In the UK the supply of electric vehicles is already under pressure with many fleets suffering lengthy lead times for orders to be fulfilled.

The SMMT says that manufacturers are fully invested in a zero emissions future, with some 60 plug-in models now on the market and 34 more due for launch in 2020.

Nevertheless, the BVRLA has warned: “The supply of electric vehicles in the UK is already a cause for concern. Any regulatory divergence, particularly as the European Union introduces its own new CO2emissions targets, could severely restrict vital imports of the latest battery electric vehicles.”

Even though the UK is exiting the European Union, it will still be impacted by the European Union’s emission targets as it adopts them as its own.

There is speculation, that as motor manufacturers look to minimise the impact of fines that they will target sales of electric vehicles and smaller CO2-emitting models at European Union countries, rather than the UK. With a larger spread to average across, the 95g/km target would be easier to reach.

The impact of that decision as model ranges transition would be to leave the UK potentially without some of its more popular vehicle options, and nothing to replace them resulting in a fall in over total new car registrations.

The SMMT’s Mr Hawes went further telling The Guardian newspaper: “Carmakers will have to look at their model mix to see whether that is economic. The fines are going to be severe, and all of them will do everything they can to avoid that.

“It could be that you see a reduction in consumer choice through the removal of higher-emitting vehicles from not just the top end, but particular segments.”

PA Consulting said: “This is the fifth year we’ve assessed progress towards the targets and, after positive results in recent years, many manufacturers have taken a step backwards and all now look likely to miss them.

“While a few top performers could turn the tide and avoid fines by prioritising low-emission vehicles, most must now take aggressive action to prepare for the 2025 and 2030 European Union CO2emissions targets.”

Those targets require by 2025 a cut of 15% on the 2020/21 95g/km emissions target and a 31% reduction from 2030.

In the UK new car fleet average CO2 rose for a third successive year in 2019 by 2.7% to 127.9g/km, according to the SMMT.

The motor manufacturers’ trade body said that massive investment by manufacturers into advanced powertrains, lightweight materials and aerodynamics meant new cars were ever more efficient, emitting, on average, some 9.3% less CO2than models produced in 2000.

However, that could not offset the overall CO2 rise which, said the SMMT, was due primarily to the effect of the more stringent new model emissions testing under the recently introduced Worldwide harmonised Light vehicles Test Procedure (WLTP) protocol.

It generally ascribes a higher CO2 value than the previous New European Driving Cycle test to the same model, but the SMMT also said that some segment shifts in sales and the decline in diesel in the wake of the 2015 emissions scandal that engulfed the Volkswagen Group and consumer confusion over Government policies towards the fuel were also to blame for the CO2 increase.

One of those segment shifts has been a significant rise, in registrations of sports utility vehicles in the UK and across Europe. On average, such vehicles, which are hugely popular as company cars, have CO2 emissions 16g/km or 14% higher than an equivalent hatchback model.

PA Consulting said: “All the car makers that were previously on track to meet their targets - Toyota, Renault-Nissan-Mitsubishi, Volvo, Honda and Jaguar Land Rover - are now set to fall short according to our forecasts.”

Other major manufacturer likely to face fines for breaching emission targets include: Hyundai-Kia, Volkswagen Group, BMW, Ford, Daimler, Honda, Fiat Chrysler and Mazda.

As a result, PA Consulting calculates that Volkswagen could face a potential penalty of €4.5 billion (£3.8 billion) - 32% of its 2018 earnings - reflecting the high number of cars it sells in Europe, and Jaguar Land Rover could see a fine equivalent to 400% of its 2018 profit.

PA Consulting concluded: “Car makers should accelerate innovative technologies to market.”

Drivers, driving licences, insurance and vehicle identification

Documentation required by drivers travelling overseas could change in the event of the UK Government failing to forge agreements with the European Union. Highlighted below are the key issues.

International Driving Permits: Any requirement for a driver to hold one or more International Driving Permit (IDP) is dependent on the outcome of trade talks between the UK and the European Union.

Currently UK driving licence holders who live in the UK can drive in all European Union and European Economic Area countries using their UK driving licence. In addition to a UK driving licence, an IDP is only required to drive in some countries outside of the European Union and European Economic Area.

In the event that there is no European Union exit deal negotiated, the UK Government has previously said that it would seek to put in place new arrangements for European Union and European Economic Area countries to recognise UK driving licences when people were visiting, for example on holiday or business trips.

However, if no agreements are reached then there are three types of IDP, although in all likelihood either one governed by the 1949 Geneva Convention on Road Traffic or one governed by the 1968 Vienna Convention on Road Traffic will be required. Which one is required for a journey abroad depends on the country/countries being visited. An IDP is only available from a Post Office at a cost of £5.50.

As a result businesses and drivers should check if they require an IDP and which one. Further information is available at:

https://www.gov.uk/driving-abroad/international-driving-permit

https://www.gov.uk/visit-europe-1-january-2021

https://www.postoffice.co.uk/identity/international-driving-permit

Insurance: The Association of British Insurers has urged drivers to contact their insurer for a Green Card - an international certificate of insurance - and take it with them if they wish to drive their vehicle in the European Union, the European Economic Area and some other countries (Andorra, Serbia and Switzerland) in the event of no agreement being in place following the transition period. In certain instances, such as fleet insurance, multiple Green Cards may be required.

Green Cards will be required under regulations as proof of insurance. Those who travel without one may be breaking the law, which applies to both businesses and individuals. The same requirements will apply to European Union motorists travelling to the UK.

Best practice advice for fleet operators is to contact the company’s vehicle insurance provider ASAP and at least one month before any date of travel overseas.

Non-UK driving licence holders: Companies have been urged to “thoroughly check” the validity of non-UK driving licence holders during the post-Brexit transition period.

The call has come from the Association for Driving Licence Verification (ADLV), which is urging companies to use the transition period to review the current actions they take in respect of non-British licence holders driving or employed in the UK, particularly in respect of convictions in the UK.

Although not shown on overseas licences, they are still recorded by the Driver and Vehicle Licensing Agency (DVLA). Consequently, the ADLV says that checking convictions enables the verification of all drivers against DVLA records as a minimum requirement for someone working and driving in the UK.

The organisation’s chairman Malcolm Maycock said: “Few companies seem to recognise the very real requirements for thoroughly checking non-UK licence holders entering the country.

“Whilst their physical licence identifies the country where they passed their test, an expiry date and the category of vehicle they can drive, it doesn’t provide convictions which may be held at the DVLA for motoring offences committed in the UK. By checking non-UK licences, companies maintain far greater control of risk and contribute greatly to road safety.”

Additionally, employers should review and document licence categories, expiry dates and locations where a driver passed their test - just because an employee has a European Union licence it may not mean they passed their test in a member country. When an employee with a non-UK driving licence started to drive in the UK should also be recorded.

Vehicle number plates and national identifiers: Under international conventions, GB is the distinguishing sign to display on UK-registered vehicles when driving outside of the UK, including in the European Union and European Economic Area.

The AA has advised that many UK drivers may have to purchase GB stickers as their Euro-style ‘GB’ vehicle number plates may not be recognised after the transition period.

However, drivers will not need a GB sticker to drive outside the UK if they replace a Euro-plate with a number plate that features the GB sign without the European Union flag.

Vehicle registration documents: Vehicle registration documents are required to be carried when driving abroad. That means either a vehicle’s log book (V5C) or drivers of leased and rented vehicles have an obligation to obtain a VE103 certificate from their hire or lease company before taking their vehicle overseas.

Both the V5C and the VE103 are essential documentation that prove drivers have permission to drive the vehicle. Without that documentation, drivers could be subject to delays at the border, or in the worst instance, have their vehicle impounded.

Road traffic crashes in the European Union involving UK residents and European Union drivers visiting or living in the UK: UK residents involved in a road traffic crash in a European Union or European Economic Area country should not expect to be able to make a claim in respect of that incident via a UK-based Claims Representative or the UK Motor Insurers’ Bureau (MIB).

Instead, UK residents involved in a road crash may need to bring a claim against either the driver or the insurer of the vehicle in the European Union or European Economic Area country where the incident happened. That may involve bringing the claim in the local language.

In the event of a crash in a European Union or European Economic Area country caused by an uninsured or an untraced driver, UK residents may not receive compensation if there is no agreement. That, said the Department for Transport, would vary from country to country.

Conclusion

There is much to concern fleet operators and one key date to look out for, according to the BVRLA, is July 1, 2020.

That is because it is when the UK Government and the European Union would need to agree any transition extension past December 2020. However, it is not clear if that date is set in stone in international treaty law though, so an extension may be possible.

But by July 1, 2020, fleet operators will know if there is a risk of a hard Brexit and the possibility of tariffs or non-tariff barriers in the automotive and other sectors.

In the absence of a satisfactory automotive-specific trade deal, the BVRLA said: “The Government will still need to help our sector mitigate new tariffs/non-tariff barriers, possibly in a second Budget during 2020, or as part of a three-year Spending Review.”

Ultimately, fleet decision-makers must spend the coming months analysing their own car and van operations, assess the impact of a hard Brexit, generate options and be prepared.

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