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For the financial services industry Brexit has so far meant mostly consultations, roundtables and contingency plans. Two years on from the Leave victory, and cross-border financial operators still do not know what, if any, limitations they will incur come March 29, 2019.

That is not to say Brexit has not yet had an effect – or that stakeholders in the industry, particularly captives, have not been making provisions.

For starters, the pound sterling’s 20% drop in value right after the Brexit vote hate heavily into financiers’ profits – overnight. Whether they were foreign banks with UK operations, like Santander, or foreign carmakers with a major share of the British car finance market, like Ford and Volkswagen, players in automotive had to reckon with a drastic drop in bottom-line profits for one of the most advanced consumer finance markets in the world.

The currency shock did not stop at companies’ balance sheets. As the cost of parts procuring rose, so did the price of a new car – and its financing.

According to research by accountancy UHY Hacker Young, the average monthly cost of a PCH agreement, across the ten most popular new cars, rose 9% in the year to February 2018. Higher retail price points translated to £11 more a month for leasing a Ford Fiesta and £18 more for a Vauxhall Corsa. For high-end models like BWM’s Mini, Audi’s A3 and Mercedes’s C Class, the monthly bill rose to around £70.

With the cost of new cars rising, customers are increasingly looking at cheaper alternatives.

A Close Brothers survey found that, while the uncertainty surrounding Brexit is giving time for thought for an increasing number of potential car buyers, those that do plan on buying a vehicle in the near future are more likely to opt for a used car rather than a new one, with or without finance.

That is hard news to swallow for captives, who make most of their money from selling vehicles from their parent company, straight out of the factory. Responding to a Parliamentary business committee consultation on Brexit last year, Ford Credit Europe said it could not “afford any kind of disruption to … continuity of financing [for Ford vehicles]”, adding that the introduction of border tariffs would place a significant cost for retail on both sides of the Channel.

In the face of a possible “no-deal” Brexit, where they might lose “passporting” capabilities, captives are taking no chances. Ford was reported to having applied for a banking licence in Germany at the beginning of this year, while in late 2017, Volkswagen Financial Services openly said it was considering a Prudential Regulation Authority licence in order not to lose access to one of its most profitable motor finance markets.

Whatever shape Brexit ends up taking, investors’ perception of Britain as a fertile financial services market has inevitably shifted. After the UK departs from the EU, there is no guarantee that the British market will not have a diluted strategic weight in carmakers’ decisions.

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