A ‘no-deal’ Brexit and the Irish car market

Update – 30th July 2019 – What’s Next

Having taken some time to reflect on Mr Johnson’s appointment as UK PM, my opinion on the future of the UK used car trade is that everything remains, somewhat, the same. Some independent advice is always useful, you can review a youtube blog I read regularly read here. My own opinion is this, if the UK does leave the EU without a deal it will mean that the number of ‘viable’ (cost effective) vehicles available to Irish customers will reduce by 80-90% ie the vehicles that are priced significantly less than their Irish equivalents. Our commitment is that we will only advertise vehicles that you know what the final price in Ireland is.

Looking at Japanese imports, which currently attract 10% customs duty, our analysis shows the fall in the price of sterling will compensate for this in regards to used UK car imports (also approx. 10% given a no deal Brexit). Regulatory compliance shouldn’t be an issue, however, VAT on true imports will be. A true import comes from outside the EU. VAT @23% will be levied on all non EU used or new imported cars. Avoiding this trap is the key to keeping the value on offer. So to reiterate.

Some UK vehicles will no longer be viable, however, we will ensure that our cars are accurately priced. Our professional advice, ie we have paid for, has explained to us that many UK cars may well be cheaper than the discount viewed today, however, as mentioned, the choice will be restricted. To take advantage of the full choice on offer today our advice is to buy before the end of October. We have noted the Irish revenue position on this here. Meaning that a car bought on the Nov 15th will still get to Ireland through our process free of customs and VAT by the 30 day deadline. We will be sure to make sure that any car bought through us is still viable under the current regime.

Our prognosis remains as ever, the UK must agree to the ‘Withdrawal Agreement’ to avoid a cataclysmic economic result for the UK, however, emotions often rule minds so to be sure, and enjoy the full range of choice on offer today, then talk to us soon.

Update – 21st March – EU agrees to extend deadline to BREXIT

Leaders of the EU have agreed to extend the date of BREXIT until May 22nd once Theresa may passes the Withdrawal Agreement through the House of Commons by April 12th.This leaves 3 weeks for the British to either pass the Withdrawal Agreement, Revoke article 50 or decide on a ‘no deal’. With ‘no deal’ effectively off the table as parliament will not allow it, then the likelihood is that the Withdrawal Agreement will pass by the 12th April, if not, Theresa May will be be effectively deposed as MP’s ignore her and take matters into their own hands. Most likely parliament will revoke article 50 and agree to a 2nd referendum.

Update – British Parliament votes to extend article 50 until at least June 30th 2019

14th March 2019 – The British parliament has voted to extend article 50 until, at least, the end of June 2019. Clearly the UK parliament has begun to take control of the Brexit debacle by stopping the worst possible outcomes. The EU has indicated it will facilitate an extension given the right conditions, in reality the EU will be relieved to see some common sense in the chaos of British government. Whats clear from this is that the UK will not be leaving the EU with ‘no deal’, the British Parliament simply won’t allow it. This is great news for Irish buyers of UK used cars. Essentially any UK departure that includes a ‘deal’ or even postponement means retaining the current status quo. The longer the postponement the more likely Tory Brexiter MP’s are to vote for the withdrawal agreement for fear of losing Brexit all together.

On top of that the ‘threat’ levied at Northern Ireland farmers by the UK governments intentions on ‘no deal’ tariffs has the DUP in a spin. Essentially the UK proposes to allow tariff free access for all products from the South to the North, but not to the rest of the UK, in a bid to uphold their commitment to a borderless Ireland. Incredibly, this concept has been swallowed by the DUP without any hint of the drama that met the EU withdrawal agreement where Northern Ireland was to be treated differently from the rest of the UK. If implemented, the proposed one sided tariff free access South to North would destroy agriculture in the North. Northern agriculture is home to the DUP vote and Theresa May knows this. Expect the DUP to row back on their rhetoric and fall inline to support the withdrawal agreement.

Last week everything changed. Expect a lengthy postponement of the UK leave date and the ratification of the Withdrawal Agreement. In practice Brexit will be a non event for trade between the UK and Ireland at least in goods.

Update – British Parliament votes against ‘no deal’ in all circumstances

13th March 2019 – The British parliament has voted in favour of an ‘advisory’ amendment to reject ‘no deal’ in all circumstances. This represents a u turn in British parliamentary direction and most certainly means Britain will not leave the EU on March 29th 2019. In fact that’s more certain now than Brexit at all! The British parliament will not let the UK plunge out without some ‘arrangement’a big sigh of relief all round. Please review the details below in that context. While the UK may still leave the EU, though thats less likely now, it will do so with a deal which means the treatment of new and used car imports from the UK will remain as it is now.

Ever before the term Brexit became as familiar as the brands AUDI, BMW or Mercedes, the Republic of Ireland (ROI) has relied upon imports of used cars from the UK and to a lesser degree, Japan. Since the peak in Japanese used imports in the 1990’s buyers have moved up the value chain in price and quality with the availability of popular German brands in European configurations from the UK. Imports of second hand cars from the UK make up about a 1/6th of total used car transactions in the ROI, notably they are inexpensive by comparison to Irish equivalents. Lower prices with high specifications and easy access to some 500,000 used UK vehicles has helped to reduce prices on the Irish second hand market while boosting choice. Interestingly, most of these imported vehicles are brought in by Irish main and independent dealers rather than members of the public and go straight to forecourt stock. (1)

While the UK used car market plays a significant role in the choice and prices of cars on the Irish market, when it comes to new cars the UK is even more important. Ireland imports all of it’s new unregistered vehicles, many of the top brands are manufactured in whole, or part, in the UK. With 9 engine manufacturing plants, 2,500 parts suppliers, 20 R & D centres and a range of factories pumping out 1.6m cars a year (2), the Irish new car industry is greatly exposed to the implications of a ‘no-deal’ Brexit.

What happens to the Irish new market in the event of a ‘no-deal’ Brexit?

According to SIMI, the effects could be devastating and on a par, if not worse, than the 2008-9 financial crisis when the industry contracted by 50% (3). A new customs duty would apply at a rate of 10%, the standard customs duty for all non EU vehicle imports, new or used. Perhaps more importantly though is the absence of automatic certification of new vehicles manufactured outside the EU. At present the VCA, the UK vehicle certification authority, is recognised as the authority of an EU member state, and can therefore certify a new vehicle for sale on the EU single market. Post a ‘no deal’ Brexit, UK manufactured vehicles will be required to be submitted to an EU member state approval authority to gain certification for sale on the EU market, including Ireland (4). While this is a common path for many non EU manufactured vehicles the process is not quick nor easy. Certification as part of a friendly departure may well be expedited and only ‘take months’, in a ‘no-deal’ antagonistic scenario were the UK fails to settle the withdrawal bill and a hard border is re-established between Northern Ireland (NI) and ROI, certification could literally take years.

Even if the certification process is smoothed over and UK vehicles move quickly to market in the EU, that process is an expensive one. By definition leaving the EU means leaving its regulatory orbit. While the UK may decide to follow the current EU system as set out in the 160-page Directive 2007/46/EC, not being an EU member has cost implications in the process of maintaining present and future certification. Non-tariff barriers can add over 20% to the post-Brexit cost of trading between the EU and UK, as Ford Motor Company have experienced when trying to import US-built products in to the EU.

While manufacturers will, no doubt, import reserves of new cars to meet some demand after Brexit, the bespoke nature of individual orders along with ‘just in time’ manufacturing will reduce the buffer and restrict supply to perhaps a few weeks.

For new vehicles a no-deal Brexit and its attendant toxic atmosphere may add 30% to the price of vehicles manufactured in part or whole in the UK. In a worse-case scenario the absence of a certification procedure would cause long delays to the availability of certain models in the ROI.

What happens to the Irish second hand car market in the event of a ‘no-deal’ Brexit?

For pre-owned vehicles, first registered in the UK ie UK car imports, the story is somewhat more complex. In 2018, the Central Statistics Office (CSO) shows that 127K used vehicles were imported from the UK, this is up from 48K vehicles in 2015. The main reason for this being the fall in the strength of sterling from 0.71p in the € in 2015 to 0.90p in the € in 2018 (5). There is clearly huge value importing used vehicles from Britain and that value increases as sterling weakens. In a ‘no deal’ scenario the exchange rate could improve further for Irish buyers (6) such that €1 equals £1 or maybe more. This represents a further weakening in British prices of second hand cars of some 10% on today’s exchange rate. This will make UK imports even more attractive, unfortunately that is where the good news ends, the new customs duty @ 10% , due on non EU vehicles, will wipe out this advantage to customers. Furthermore, according to the ‘Notice to Stakeholders – Withdrawal of the UK and EU rules in the field of VAT’, VAT @23% will be payable at the port of entry to Ireland. This is the case for all non EU vehicle imports today. This is quite different from what happens for UK imports while in the Union. The majority of UK used car imports are brought in by Irish dealers and the VAT due is payable on resale of the vehicle which means they pay when they sell the car not when they import it. While there will be little sympathy for Irish main dealers having to pay VAT ahead of reselling UK used vehicles, it will mean more cash tied up in vehicles and less vehicles on the Irish market and, hence, less choice and most likely, higher prices, for the Irish buyer when buying used cars on Irish dealers forecourts.

Will members of the public still be able to buy second hand cars from the UK?

For private buyers the advent of a no deal Brexit will also have an impact. At present the process of importing a UK used vehicle is relatively straight forward, at least up until the re-registration of the vehicle on Irish plates. You do not require an import agent or a customs clearance broker/agent. You can simply pick a car from our website (ukcarimports.ie) and have it delivered in around a week. After Brexit things become a lot more complex and potentially expensive, if you don’t get the right help. For example, the customs duty is calculated at 10% of the combined figure for the price of the vehicle plus shipping. While VAT is due @23% and is calculated on the car price including customs duty plus shipping. You can see how costs might ramp up very quickly. You will also need to pay a customs clearance broker to process the import. A customs officer is required to view the vehicle and payment of duty and VAT must be made at the port. This is the current process for importing non EU Japanese used imports (7).

For vehicle registration, the documents required will be slightly different. The current V5C, or UK log book, may no longer be recognised for Irish registration as it is not an EU member document. Instead a certificate of permanent export from the UK DVLA may be required. Again this is not yet established.

Another area of uncertainty surrounds insurance and certification for driving in the UK. Self-importation by members of the public, of UK used vehicles, will become a lot more complicated in a ‘no-deal’ scenario with the need for customs clearance at the port of entry or at the ROI – NI border. Another critical question for anyone looking to travel to the UK to collect a vehicle they have just purchased is the legality of their travel on UK roads. While the EU/UK is set to mutually recognise vehicles and driving licenses on traffic movement between the UK and EU and vice versa on the basis the vehicles/licenses comply with the relevant rules of the 1968 Vienna Convention on Road Traffic, the situation on insurance is a lot less clear. Here to now it has been relatively easy and cost effective to include the UK in the territory covered by your car insurance, or at least extend cover to the UK for a short period of time. This will lapse in the case of a ‘no deal’ Brexit. Without legal recourse between jurisdictions, legal centric insurance cover will have no framework to sit on. This will mean insurance cover will be almost impossible and where possible, a lot more expensive.

Similar consideration should be given to your rights as a consumer. As a non UK citizen/legal entity, one cannot presume you will have the same legal recourse in the event of an issue with the vehicle or payment. At present, as an EU citizen, you retain all the rights of a UK citizen, this area falls away in the event of a ‘no deal’ Brexit and while good intent and fairness may not be lacking on behalf of UK courts, your legal rights may well be non-existent or at best undefined.

A further complication is the VAT designation of the vehicle on import. While VAT qualifying vehicles can be exported VAT exempt from the UK, VAT Margin vehicles cannot. The difference between the two being that VAT is baked into the margin vehicle as it was sold at retail to a person who was not VAT registered eg the general public as such who can’t reclaim VAT. VAT qualifying vehicles are sold between companies with a VAT receipt, usually from a lease company to a car dealer who are both registered for VAT so the VAT element is still available to reclaim. In short, most cars for sale on UK dealer forecourts are margin vehicles, at present no VAT is due on these vehicles as the UK is part of the EU VAT system. After Brexit VAT will be due on all non EU vehicles at point of entry. So buyers will need to ensure they target VAT qualifying vehicles, as these can be exported from the UK excluding VAT thus ensuring you avoid paying VAT twice. Once you have bought the vehicle it will be too late! Having spoken to Revenue about this issue, which is somewhat technical, my understanding is that an exemption may be provided for all vehicles registered were VAT has been paid in the UK, while the UK was in the EU, on any second hand vehicle registered up to March 29th 2019 in the UK. In short caveat emptor ie ‘buyer beware’ post Brexit, make sure you have someone who knows what they are doing when accessing UK used imports.

What should I do to avoid the pitfalls and uncertainty?

In summary, it is clear the Irish new and used car markets will be greatly disrupted by Brexit, deal or no deal. A deal will keep us, more or less, in the status quo. A ‘no deal’ creates a huge vacuum that offers great advantages in terms of price but just as much uncertainty in the import process. Higher prices for new and used cars in ROI are almost certain in a ‘no deal’ situation. Clearly the impetus is to move to buy before the deadline of March 29th, 2019, the day the UK officially leaves the EU. For those who can’t move now or would prefer to wait, it is vital to employ expertise. We have had to do the same. In preparation for Brexit, ukcarimports.ie has established a UK partner to help us with the process of importation post Brexit, the aptly named www.carbuyerbuddy.co.uk will provide the legal reassurance of a UK registered entity which can protect our clients rights, deal or no deal. While in the EU, importing a UK car was complicated but transparent, after the UK leaves the process becomes fraught with complexity. Yet the financial argument to buy UK imports will remain or even strengthen, certainly if the € and sterling hit parity. Of course, all of this is hopefully improbable and everything will work out, if it does go in the wrong direction then make sure to inform yourself and get the appropriate help when looking for lower UK prices.

*Please be assured we guarantee that any vehicle imported with UK Car Imports, before or after Brexit, will be fully authorised for Irish road use.

 
By Richard Smith