What is ‘Brexit’?
It is a word that has become used as a shorthand way of describing the United Kingdom leaving the European Union – merging the words Britain and exit to obtain Brexit.
As many should know by now, the UK voted to leave the EU in a historic referendum on the 23 June this year, with England voting strongly for Brexit, by 53.4% to 46.6%. The pound fell against the US dollar to a 31-year low as the future of the UK’s economy was plunged into uncertainty.
Halfway across the globe, Asian exports could be hurt by Brexit as consumers in the UK will have lower spending power from a weaker sterling. Does this necessarily mean imports from the UK automatically become cheaper and lower car prices? Not entirely.
How does it affect car prices in Singapore?
According to car dealers locally, the slump in the pound sterling is not going to mean cheaper British cars; on the contrary, it may lead to higher prices. This is because the cars are transacted in Singapore dollars and not Pound Sterling.
Depending on how much of the car’s content is from European suppliers, this may mean that British cars will cost more, not less. For example, the Bentley and Rolls-Royce brands both have German owners – the Volkswagen Group and the BMW Group respectively.
“A lot of parts are not sourced from the UK but Europe. If the value of the pound versus the euro dives, it will be more expensive to produce that same car,” says the director of a dealership, who declined to be named. This therefore translates to higher prices in terms of Sing dollars, as British car exporters will inflate their prices to keep up with the cost of producing these cars.
In the short term, however, Jaguar, Land Rover, Aston Martin and Bentley are likely to witness higher demand for those with higher purchasing power due to the favourable exchange rates. Keeping this in mind, the higher demand for British car brands will also drive up the demand for COEs and therefore inflate the cost of owning a car in Singapore.
Given the volatility in the Pound Sterling and unstable economic situation surrounding Europe, it is best to hedge against the risks involved so that the forex impact will be lower.