The new Trump-imposed tariffs on all exports to the US is a “double whammy” for the UK automotive sector, as it will affect not only businesses that sell vehicles to America, but also suppliers who produce components for vehicles that might be manufactured or used there.
This change is likely to cause significant disruptions to both supply chains and the pricing of finished goods, with some manufacturers already pausing exports.
The largest impact will be on the manufacturers. The bad news is that, usually, if something negatively impacts manufacturers this eventually filters its way down to dealers.
Whilst Trump is indicating that the UK is receiving a better deal than other countries, with generally lower tariff rates, it certainly won’t feel like that for UK exporters. With profit margins razor-thin within the sector, there will be little scope for manufacturers to absorb the tariffs.
It’s a difficult position for the government. Everyone is watching to see whether retaliatory tariffs on certain goods of strategic export value to the US will be imposed to try and force America’s hand, or whether a trade deal ultimately materialises.
We have the added issue that the automotive industry relies on a global supply chain. So, even if the sale of the vehicle itself is not adversely impacted by the change in tariff rate, the raw materials or components used in manufacturing the vehicles may be. Whilst the recent changes to the zero emission vehicle (ZEV) mandate, which set targets for the percentage of electric vehicles to be sold annually could provide some cost savings, it’s unlikely these changes will go far enough to offset the tariff costs or to subdue the industry’s outcry.
With the exception of dealers who specialise in exports, the tariffs are unlikely to have a significant immediate impact on Xeinadin’s client base due to their UK or occasionally European customer focus. Where exports do make up a large proportion of sales, the hope would be that as these tend to be luxury models, customers will not necessarily be dissuaded from purchasing vehicles due to the higher price tag.
Now is the time for the industry to look toward opportunity however and reassess every aspect of how the sector operates. Whilst the US is an important export market for UK-built vehicles and components, consideration should be given to strengthening relationships with other markets such as Europe. From a manufacturer perspective, every link in the supply chain will need to be analysed to ascertain whether it would be more advantageous to source components from jurisdictions less affected by tariffs, or even whether production should be moved to the US. Obviously, this is simple in theory but complicated in practice, requiring significant investment and understanding of local regulations and working practices.
It is also possible that we will see more emphasis on selling vehicles within the UK. If we have an increase in the availability of vehicles, this could trigger price reductions, aiding the sale of new vehicles albeit potentially at a reduced margin. The impact on used values shouldn’t be ignored however, both in terms of the creation of negative equity for customers, and stock valuation issues for dealers.
In reality though, the only certainty with the tariff situation is that change will happen, we just don’t know what this will be.
Michelle Malone is a director at accountancy and advisory firm Xeinadin