Businesses encouraged to run Brexit stress tests
02 June 2016
Author: Tristan Young
Remarketing firms and the wider business community have been urged to run stress tests on their operations in case Britain votes to leave the European Union.
Headlining the Vehicle Remarketing Association's annual conference, which took place earlier this month in Birmingham, Deloitte economist Debrapratim De advised delegates to assess their business's ability to weather the short-term financial upheaval that he believes is likely if Britain votes to leave the European Union on 23 June.
"Business leaders should test their businesses against a Leave scenario, which will lead to an environment of massive change," he said.
De specified that businesses should test for higher finance costs, a 30% depression of sterling against the euro, a 25% fall in UK equities, a decrease in business confidence, and overall heightened economic uncertainty.
He also pointed out that while the polls report a 50:50 likelihood of Brexit, bookmaker Paddy Power thinks there is a one in three chance of the Leave campaign winning.
De gave an outline of how the UK economy was performing at the moment and explained that while growth is slowing, and forecasts suggested that trend would continue, there were "tail winds" helping the economy. He said these included low-cost commodities plus low interest rates, which lead to easy access to money, both for consumers and businesses.
"The current recovery is being driven by the consumer. Wages are growing and unemployment is falling. We're near an eight-year high for confidence in major purchases [such as cars]," said De. Overlaying this was a survey from Deloitte of Britain's finance directors that saw Brexit as the highest risk to business.
"Leaving the EU will be a shock to business confidence, will cause political stress and possibly a domino effect," he continued, although he added Brexit could be a good thing, leading to reform and strengthening for the rest of Europe.
Looking at how the UK car sales and remarketing business will behave if Britain leaves the EU, De said: "In the short term there would be a squeeze on both consumer spending and business confidence. However, in the longer term, while nobody knows for sure, the UK is a strong economy so will adapt to the new reality."
Are residual values about to crash?
The issue of whether residual values about to crash was one of the top questions among delegates attending the annual Vehicle Remarketing Association Conference this month.
During the VRA panel sessions, the topics of RVs and market pressure were prominent. The majority of experts on the panels were of the view that if the UK remained in the EU then there would be some downward pressure. However, if the UK left the EU then the outlook could be more volatile.
If values decline it is expected to hit finance providers hardest because they are the ones underwriting the asset. However, there was a strong belief among the panellists that in the retail market consumers handing back cars without any equity to act as the deposit for their next car could turn a host of people off currently popular personal contract purchase schemes.
This would have the knock-on effect of decreasing the price of nearly new cars and strengthening the price of older cars as buyers move from the new car market to the used market to find transport.
VRA audience votes to stay in EU
A survey of delegates at the VRA Conference earlier this month showed 70% were in favour of Britain remaining in the European Union. Of the remainder, 26% supported leaving the EU, with just 4% undecided.
Speaking at the conference, Deloitte economist Debrapratim De, who had analysed polling data, said that those over 43 years old were broadly in favour of the Leave campaign, while those below it were usually in the Remain camp. He added that despite the odds favouring a Remain win, younger people are less likely to cast a vote, which will make the result a close-run thing.
Nama plans report relaunch
The National Association of Motor Auctions is planning to relaunch its monthly pricing report next month after the organisation stopped publication in February when remarketing company BCA pulled out of supplying the organisation with data.
The new version of the Nama report is expected to be slimmer and concentrate more on graphical interpretation of figures supplied by a host of other remarketing firms.
Nama is also thought to be planning a webinar on car and light commercial vehicle prices at auction to accompany the monthly report.
Speaking to BusinessCar at the recent VRA Conference, a spokesman for Nama said: "BCA leaving hasn't affected the data. We've tested our figures and it's still representative of the market.
"[The company] is still a member of Nama and we're hopeful they will come back in for data in future."
"BCA, as a listed company on the London Stock Exchange, for regulatory reasons is no longer in a position to continue to supply its data to Nama for the purposes of preparing the Nama report," a BCA spokesman explained.