European Union: Brexit - What Does It Mean For The Automotive Sector?

Now that the UK has voted to leave the European Union (EU), what are the possible ramifications for the Automotive sector?

Q - What is the immediate impact of Brexit?

In legal terms, nothing has changed. The UK remains today in the European Union and all EU law continues to apply within the UK (either directly in the form of EU regulations or indirectly through incorporation of EU Directives in UK law).

However, with exchange rates fluctuating daily, checking how cross-border contracts deal with the exchange rate risk is important, as is putting in place appropriate hedging arrangements. However, this is likely to be more difficult for smaller businesses and hedging costs will probably increase.

Almost all contracts will not be impacted legally by the referendum result.

Any material transactions which have not been completed will need to be reviewed.

Q - What should I do next?

There is a risk that the UK and the EU may slide into recession due to the uncertainty undermining confidence and freezing investment decisions. Indeed, the impact on the economy is perhaps the most significant concern.

Much of the investment into the UK's resurgent auto industry by global manufacturers is based on the UK's open and free access to all European markets and to the UK being an active and influential member of the EU.

Nobody can predict what will happen in the long term, but in the short term a downturn, if one materialises, and a loss of consumer confidence, is bound to feed into new car sales figures and consequently into finance. We may see an increase in insolvencies and a rise in litigation.

Much will depend on the politicians and how much calm they can bring as the next few months play out. It is the author's personal view that politics is the art of fudge and I expect there to be a few twists and turns in the Brexit story yet. I would still not rule out us staying in the EU in some way, shape or form, or ending up with something that feels very similar. Therefore I would advocate caution in making any hasty decisions on what to do now.

It is to be hoped that the sector is generally well-prepared for a downturn. After all, it does not feel as if it's that long since we left the last recession.

Therefore, the usual recession agenda may need to be considered. We should not talk ourselves into a recession, though, and be savvy enough to recognise the passing birds and interesting opportunities which may present themselves:

  • Focusing on decreasing costs. That will mean reviewing workforces, capital investment, and procurement arrangements. This will be challenging given that, with a weak pound, imports are more expensive which will drive up raw material, components and energy costs.
  • Reviewing solvency risk in supply chains and customers. This means considering contingency plans. After all, becoming insolvent is awful, but that is closely followed by having to deal with a key supplier or customer's insolvency. You should ensure that your contracts have clauses allowing you to terminate on insolvency (permitted under English law) to ensure you have some options.
  • Credit might well tighten given increased risks. Check your funding arrangements - is it secure, what happens if the base rate increases? Additionally, a big issue in the 08/09 recession was withdrawal or tightening of credit insurance leading to cash flow getting harder - so consider your exposure.
  • Sales. Consumer caution and higher import costs may slow down new car sales. This may lead to benefits for the aftermarket, maintenance markets and second hand.
  • Interest rates. If interest rates fall, will this wash through to pricing? Will it make finance more attractive or will it erode the profit margin even further?
  • Opportunity. Be prepared to move quickly and perhaps assemble a team in readiness. Some overseas investors are already accelerating investments while sterling is lower. What assets will become cheap? Is there a great opportunity to renegotiate? And good businesses may be available for acquisition cheaply while competitors may be distracted.
  • Exports. The weak pound will benefit exporters. Where are your sales efforts focussed? Brexit may be an opportunity to increase the sale of cars, built in the UK, into other countries that UK-based manufacturers have struggled to sell into in the past. China, India, US, and Australia all present possible opportunities for the UK outside the EU subject to trade negotiations.
  • Local sourcing/sales. UK suppliers sourcing in the UK will, with the weak pound, have an advantage over importers. Original equipment manufacturers (OEMs) may look to use 'onshore' UK component suppliers where possible.
  • For better or for worse. Prices will alter in a range of ways to reflect market shifts and currency fluctuations. If you are in fixed cost contracts is there now room to renegotiate? Even if you are content with your arrangements, you need to be more circumspect on price shifts happening around you to avoid sudden surprises when contracts are renewed.
  • Skills. There is already a skill shortage in this sector. Even if residency rules do not change for those currently working in the UK is now the time to do a talent and risk audit? If we do leave and free movement is constrained, what is your plan?
  • Data and technology. A lot may happen in this space. Access to talent and cost may become problematic - American vendors will still want to enjoy the same margins. Also, in the future what will happen to Data Protection Laws? Even if they are unchanged, will your data centre location requirements remain the same? Will you need to relocate data to the UK rather than, say, Germany, and what will you want from your cloud computing suppliers?
  • Intragroup arrangements. It is too early to call what changes will be necessary, but perhaps this is a good time to collate and review what you currently have in place.
  • Exclusivity. Will "Made in the UK" be a possible logo and become a badge of pride? A sign of exclusivity and desirability? Do we need to take action to refine what we stand for as individual businesses and a country as a whole? A global centre of excellence for automotive innovation, engineering and manufacturing? Will British products become more desirable and sought after on the world stage? As a country we can perhaps become more nimble and free in how we innovate.

Q - I have dealt with the immediate issues, what happens next?

The path for the next few years for our relationship with the EU and the rest of the world is very unclear. The main political parties are in chaos as they appoint new leaders, the "leave" camp have not set out a proposed pathway, and the EU is currently pushing hard for us to do so. We may end up with a general election or even a second referendum to give a mandate for the specific proposals.

That might mean that nothing will change (we end up staying in the EU), or not too much change but a loss of influence (the Norway model), or significant changes in specific areas (the Swiss model), or all-encompassing changes (the Canadian model)!

Our current view is that it is likely that we will end up with at least some form of free movement of goods between the UK and EU with low or no tariffs as we will still have an economy and purchasing power which is too significant to ignore. UK consumers like their German cars and German manufacturers like selling them to us. That in turn is likely to mean that there will be some form of free movement of people (as the price for being able to access the EU market) although naturally automotive businesses will be concerned about possible skill shortages and potential 'brain drains'.

Depending on what is negotiated, there may be free movement of services in certain sectors. The UK is likely also to regain hegemony with respect to trade with third countries and so we must query whether will we see the resurrection of the Commonwealth Preference System.

So with that in mind:

Q - Will there be a bonfire of EU regulation?

That is unlikely in the short and medium term for the following reasons:

  • The UK participated in the crafting of much of this legislation and so may find that it is in fact fit for purpose!
  • Any exporter to the EU will need to comply with EU law in order to gain access to that market.
  • If we do have free movement of goods in the automotive sector within the EU, which is likely, then we will need to keep the relevant legislation.
  • And note that if we are not in the EU, but have to comply with EU law, there is a risk that without the UK's close involvement in creating it, EU law might become less suited to UK business operations.

Specifically in relation to automotive finance businesses and the consumer credit legislation, while the EU has imposed certain requirements such as the use of the Standard European Consumer Credit Information (SECCI), the majority of requirements are now imposed by our FCA Handbook. With the ongoing review of the Consumer Credit Act, it is likely we will see more consolidation in the Handbook and it is hard to see how Brexit will have any impact on this.

Indeed, the FCA has urged firms to continue to abide by their obligations under UK law, including those derived from EU law, and continue with implementation plans for legislation that is still to come into effect.

Consumers' rights and protections, including any derived from EU legislation, are unaffected by the result of the referendum and will remain unchanged unless and until the Government changes the applicable legislation.

The longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future. The FCA has said it will work closely with the government as it confirms the arrangements for the UK's future relationship with the EU.

An interesting area to watch will be European-derived employment protection legislation e.g. Working Time (limiting the number of hours an employee can work), and temporary workers. Changing this presents significant opportunities for cost saving to businesses. Whether the UK will want to decrease protection in this area will depend very much on the bent of a future UK government.

The UK legal system is admired throughout the world and so there may be an opportunity to improve laws in other areas and to even set an example for Europe.

All businesses should be considering the impact of EU law on their businesses and identifying what EU laws restrict them or increase costs. Business should be channelling views via their trade associations to lobby government.

Q - What about migrant labour?

Immigration was a key theme to the referendum. There must then be a high chance that the UK will want to restrict immigration in some way.

That presents risks to the automotive sector, as it is a significant employer of skilled European labour.

However, the EU is currently making it clear that the price for low or zero tariff access to the EU markets is to accept free movement of people, as one of the fundamental four freedoms of the Single Market.

It is difficult to see how that conflict will be resolved, but delivering on the vote by the people of the UK appears to be the number one political challenge ahead for the new Prime Minister.

Q - Aside from cutting costs, what other opportunities does Brexit present?

The Leave camp talked of substantially increasing trade with non-EU countries. Assuming that is delivered, then combined with a weaker pound, it should create good opportunities for UK exporters (assuming they have a low reliance on imports in their own cost inputs). Non-EU markets looks like an area worth investing in.

Note, though, that liberalised trade with non-EU countries creates not just opportunities for exporters (who do not rely on imports) but also imports into the UK, where appropriate trade agreements are put into place.

Q - I own trademarks. What is the impact?

There is no immediate change. However, the future approach to trade marks in the EU is unclear. It is likely that we will end up with separate UK and EU trademark systems. If you have, or plan to register, trade marks, you should seek advice as the position gets clearer.

Q - I am a supplier investing heavily in product innovation. I have or may have patents and designs. What is the impact?

There is no immediate change. However, the UK will need to extricate itself from the existing EU system for designs. Patents depends whether the UK stays in the EEA, and with the approaching changes to European patent enforcement, the position is complex. If you have patents or designs, you should seek advice as the position becomes clearer.

Q - I am an indirect supplier of services - what is the impact?

For UK suppliers supplying services in the UK change will be limited except to the extent that any EU legislation gets repealed.

For UK suppliers of services into the EU, the position is uncertain. Most Brexit models suggest no or limited free movement of services with the EU. Given the importance of our financial and professional services market, this is likely to be an area where the UK does push for EU market access.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions