BERLIN -- German automakers are taking a bleak view of next year’s UK auto market, forecasting that demand will swing to an 8 percent drop from a modest gain this year as Britain's decision to quit the European Union starts to impact the economy.
A weaker pound and a slowing economy will mean an end to six years of growth in the UK, the single biggest export market for German automakers, according to the VDA industry association.
"The British market was one of the few that continually surprised us in a positive sense during recent years when all others on the continent were suffering," VDA President Matthias Wissmann said at an event here. "We don’t expect that for 2017."
"One issue is the exchange rate, which will have effects on the market," he said. "The second is general uncertainty. The UK is a market with a high import ratio, if cars are 10 to 15 percent more expensive than they were, that doesn’t exactly cause consumer sentiment to soar."
Automakers including Ford Motor, General Motors' Vauxhall brand and Nissan raised new-car prices in the UK to recoup money lost following the pound's collapse after the Brexit vote, while simultaneously pushing fewer cars into the market to realize currency gains. The pound's sharp depreciation also has hit consumer purchasing power, leading to prices rising either visibly in the case of Apple smartphones or indirectly, for example with U.S. confectionery giant Mondelez's decision to space out the triangular chocolate chunks in Toblerone bars sold in the UK because of a rise in the cost of ingredients.
The VDA's prediction is more pessimistic that the UK’s own SMMT industry association which forecasts 5 percent drop in British registrations to 2.54 million after a predicted rise of 1.7 percent this year - followed by a further 1.3 percent drop in 2018. Analyst firm IHS Automotive estimates a decline similar to the VDA’s at 7.2 percent but they do so from a higher 2016 base figure than the German industry association so the resulting level for next year is 100,000 units higher at 2.51 million.
The SMMT has warned that tariffs could push up the list price of cars imported to the country by an average of 1,500 pounds if brands and their retail networks were unable to absorb these themselves. Altogether a “hard Brexit” with full 10 percent trade duties imposed on the UK exports to the EU could lead to at least 4.5 billion pounds in cumulative added costs for imports and exports, according to the SMMT.
High net worth individuals
Thanks in particular to the large number of high net worth individuals, the UK is a crucial market in particular for Germany’s premium brands such as Mercedes-Benz, Audi and Porsche: a dramatic drop in sales would hurt not just in terms of volumes but profit margins as well.
BMW in particular needs a strong UK with access to EU markets since it owns Mini and Rolls-Royce, two iconic English car brands. It has been a vocal supporter of the Remain campaign.
Although the EU referendum was held late in June, UK car sales have seen virtually no impact thus far with annualized sales rates hitting 2.7 million vehicles in recent months. Registrations rose by 2.9 percent in November, although demand from retail customers fell for the eighth month in a row.
Several auto executives point out that nothing has actually changed so long as exit negotiations haven’t officially started, adding that roughly half the country is elated over the vote to quit the EU.
German automakers exported 810,000 cars to the UK last year.