Industry Trend Analysis - Assessing Brexit's Impact On EU Autos Sales - MAR 2017

BMI View: Sales of new vehicles in the EU will be negatively impacted by the UK's decision to leave the EU and this informs our lower EU vehicle sales growth forecast for 2016 and 2017 . The channels through which sales will be most affected are through Brexit ' s damaging effects on tourism-reliant car rental companies and on consumer confidence across the region.

The impact of the UK's decision to leave the European Union (EU), an event commonly referred to as 'Brexit', will have predominantly negative effects across the autos retail sector. This is reflected in our slower vehicle sales growth of 7.0% for the EU region (excluding the UK) in 2016, compared to the 11.5% y-o-y growth in the region over H116, and our slower 3.1% forecasted sales growth rate in 2017. Rental car fleet operators in European countries with high UK tourist arrivals will be forced to revise down their planned purchases in light of slowing tourist arrivals and, therefore, slowing growth in rental car customer spending. The European Central Bank's (ECB) looser post-Brexit monetary policy will also not provide significant support to sales growth given that the benefit of lower interest rates will be outweighed by weakening consumer confidence.

The fallout from Brexit for the autos retail sector will be felt hardest in tourism-reliant economies where sales of new vehicles are driven by large car rental industries. With foreign visitors representing a key customer group for car rentals, purchases of new cars by car rental companies often represent a large proportion of total vehicle sales in countries with large tourism sectors. This is particularly the case in countries like Romania, Portugal, and Spain where short-term car rental companies account for more than 15% of total car sales ( see chart below).

Rental Cars Represent Significant Sales Channels
Car Sales To Short Term Rental Companies, % Of Total Sales
Source: Leaseurope, GANVAM, BMI Calculation
see chart below
Post-Brexit Tourism Revisions Show Falling UK-to-EU Travel
UK Tourist Departures To The EU, 000's
f=BMI forecast. Source: BMI

For Spain and Portugal, this will have a measurable impact on autos sales given the higher proportion of UK visitors to the countries. For Spain, the UK accounted for more than 22% of total tourist arrivals in 2015 while in Portugal, UK citizens made up more than 13% of total visitors to the country. Combined with the fact that the tourism-driven rental car fleets account for 17% and 24% of total sales in these markets, respectively, this means that the forecasted slowdown in UK visitors will have a direct negative impact on rental fleet demand and, therefore, total sales growth.

UK Tourism's Importance Is Bad News For Rentals
UK Tourists As % Of Total Tourist Arrivals
Source: National Sources, BMI

Silver Lining Is Not So Bright

Due to rising negative effects on consumer confidence, lower interest rates in the EU region after the Brexit decision will not encourage sales of new vehicles. Partly in response to potential macroeconomic dangers from Brexit, our Country Risk team have forecasted that the European Central Bank will keep interest rates low for the majority of our five-year forecast period with gradual hikes to the central bank's key policy rate only being implemented in 2020 ( see ' ECB Policy: Looser For Longer' August 3). However, these cheap rates will not spur sales as they had done over H116 and 2015 due to the fact that car purchases on credit rely not only on cheap rates but also on strong confidence amongst consumers, which will not be the case over the next two months.

Consumer confidence is set to be tested over 2016 and 2017 by the growing risk of political and economic crises in the EU, which have been heightened by the Brexit decision. For instance, our Country Risk team have highlighted that Brexit has raised risks to the unity and integrity of the EU as a whole with 'eurosceptic' parties gaining popularity and influence across the region ( see 'Brexit Contagion Could Reignite Eurozone Crisis ' , June 28). At the same time, Brexit has also increased the risks of economic crises emerging such as a banking crisis in Italy, which all threaten vehicle sales considerably ( see ' Banking Collapse A Real Risk To Autos ' , July 8). The spectre of these political and economic crises will drag on overall consumer confidence, leaving consumers less willing to saddle themselves with auto loan debt.