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CV & NRMM SERVICES


Brexit Briefing

www.kgpauto.com Briefing 6
Engine and Aftermarket Forecast Service for Non-Road Mobile Machinery and Commercial Vehicle Markets

Briefing Paper # 6-
Brexit: The Issue of Regulatory Alignment
Paris Kiernan, Analyst
One of the most pressing issues of Brexit for Taking a closer look into the exports of CVs, See our website
both the NRMM and CV market in the UK is roughly 70% of medium-duty trucks and only
the ability to sell vehicles and machinery into 20% of heavy-duty trucks are exported to the for information on:
the EU market. One of the problems that could EU.
occur post Brexit is the issue of regulatory Regular Services
alignment. Currently when an engine is manu- Therefore, the UK CV market is highly depend-
ent on imports and the resulting impacts of CV Engine and
factured in the UK, the majority are certified by Aftertreatment
the Vehicle Certification Agency (VCA). How- Brexit could increase the costs of CVs for UK
operators with the pound depreciating making Forecast
ever, post-Brexit will the EU still accept the
VCA as a body to certify products to meet EU imports relatively more expensive as well as
regulations? This could become an issue if a the inclusion of any tariffs that are implemented
hard deal is established along with many other and boarder delays post-Brexit. Non-Road Engine and
negative impacts associated such as boarder Aftertreatment
delays and import/export tariffs which would Non-Road Mobile Machinery Forecast
could encourage OEMs to shift UK production
to within the EU. Market
The UK is the leading producer of construction New Services
Commercial Vehicles Market equipment (CE) in Europe producing over
25,000 units a year. Interestingly, for the CE Non-Road Mobile
The UK produced just under 20,000 commer- Machinery Driveline
market, over the last few years the UK has ex-
cial vehicles (CV) in 2016 which includes
perienced increasing relative share of exports
around 10,000 units for heavy-duty trucks and Non-Road Mobile
to the EU from 27% in 2013 to 41% in 2016.
the remainder made up of medium-duty trucks Machinery
This has risen to 44% in the first half of 2017
and bus (>6t). Sales of heavy-duty trucks Electrification
equalling roughly £2.8Bn.
amounted to 36,000 units in comparison to
only 9,000 for medium-duty trucks. Hence, the Figure 3 2017H1 UK CE £m Exports and Imports
majority of heavy-duty truck sales are made up (Sources: HRMC, CEA)
of imports with very little exported. These ex-
ported trucks are predominately right hand 3000
driven which are exported to countries in Afri-
ca. 2500

2000
Figure 1 2016 Heavy-duty Truck Unit Sales
(Sources: LMC, SMMT) 1500

1000

500

0
Exports Imports

EU USA ROW

Exports significantly exceed that of imports


with many CE OEMs manufacturing in the UK.
However, the relative share of EU is much larg-
er with 63% of CE imported from the EU in
comparison to 44% exported.
Figure 2 2017H1 UK exports of built CV
(Units) (Source: SMMT) The agricultural equipment (AG) market in the
3000
UK has significantly less UK-based production
than the CE market. There are only two OEMs
2500 manufacturing in the UK, CNH’s plant in Basil-
don manufacturing over 20,000 tractors while
2000
JCB produce under 1,000 units for niche agri-
1500 culture applications. Roughly 40% of CNH pro-
duction in the UK remains in Europe. There-
1000 fore, imports are relatively more important for
500
the AG market than CE in the UK.

0
Overall, Brexit will negatively impact all mar-
Medium Duty Truck Heavy Duty Truck Bus kets due to the current free and ease of trade
EU Others being reduced once the UK has left the EU.

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Engine and Aftermarket Forecast Service for Non-Road Mobile Machinery and Commercial Vehicle Markets

Mutual Product Recognition for Possible Brexit Deals


OEMs Fortunately, a complete break away from EU
without any relationship seems unlikely, alt-
Many OEMs and component suppliers currently hough so does a soft Brexit after completion of
manufacture in the UK with the main players in the first phase. A soft Brexit can have many
the NRMM and CV market accounting for See our website
different outcomes with no off the shelf solution
roughly 20 manufacturing facilities generating available for the UK. Norway and Switzerland for information on:
£7.5 billion and just under 20,000 employees. are examples of close relationships with the
EU. However these countries and deals have a Regular Services
Figure 4 Major OEM Revenues from UK Plants (£)
(Sources: Companies House, KGP Analysis) lot of differences in comparison to the UK and CV Engine and
any future UK-EU deal: Aftertreatment
• Population is much smaller Forecast

• UK has a much larger economy and


larger influence on the EU Non-Road Engine and
Aftertreatment
• Both countries generally accept EU
regulations in order to have the sin- Forecast
gle market and trade freely with the
EU
New Services
• Both countries have free movement
of people Non-Road Mobile
If a no deal, hence, a hard Brexit occurs, then Machinery Driveline
Another trade deal which has been mentioned
UK and EU regulation could diverge, and prod- recently is the CETA deal between Europe and Non-Road Mobile
ucts may not be accepted into EU markets un- Canada, with David Davis’ stating the UK want Machinery
less a mutual recognition of products is met. a Canada plus plus kind of deal. CETA took 7 Electrification
This in fact is very difficult with the only evi- years to finalise with Canada remaining outside
dence of a mutual recognition of products the single market and customs union. This kind
worldwide being Australia and New Zealand of deal would satisfy those who voted to leave
with highway cars. This could lead to major the EU as EU migration can be restricted and
OEMs with a large share of European sales would allow the UK to be independent in devel-
shifting production from the UK into the EU. For oping trade deals with other economies. How-
example, Caterpillar NRMM revenues for the ever, a lot would needed to be added to the
UK account for 0.4% whilst their European deal as the UK economy is 80% services and
sales generate 46%. Although this is an ex- CETA does not cover full market access in this
treme case among the OEMs’ revenues pro- type. Services has become very important to
duced in the UK, generally a large share is gen- OEMS in the last few years generating a high
erated by Europe. With these machines or com- share of revenue, therefore is a crucial negotia-
ponents not being able to be certified or sold in tion that needs to made between the UK and
the EU, this share of revenue will be eliminated, EU along with regulatory alignment to be able
with revenues falling, jobs losses are likely and to sell machinery into the EU.
even the shutting down of some plants would
be expected. Therefore, it is vital that the UK Whatever the deal come 2019, the UK will suf-
provide some agreement with regards to the fer negative short-term effects but with the hope
mutual recognition of products. this is offset by a long-term gain.
Figure 5 Summary of current EU relationships (Source:HSBC)

Soft Exit Hard Exit


Full EU Norway Switzerland Canada
Single Market Access Yes Yes Partial No
Duty free trade in goods Yes Yes Yes Yes
Market access for services Yes Yes Partial Partial

Free to negotiate trade agreements


with non-EU trade countries No Yes Yes Yes
Yes, but re- Yes, but re-
Makes EU budget contributions Yes duced duced No

Ability to restrict inward EU migration No No No Yes


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Engine and Aftermarket Forecast Service for Non-Road Mobile Machinery and Commercial Vehicle Markets

Meet us!
KGP will be attending various industry events in Autumn/Winter 2017. Contact us to arrange a
free consultation on Single Client, Multi-Client and Special Reports at any of the following:

• aabc - 29th January to 1st February - Mainz, Germany See our website
• IVT - 13th to 14th February - Cologne, Germany for information on:
• FPC - 28th February to 3rd Mach - West Midlands, UK Regular Services
• Intermat - 23rd to 28th April - Paris, France CV Engine and
Aftertreatment
• Integer - 26th to 28th June - Brussels, Belgium
Forecast
We can also prepare a client specific webinar to introduce our services and provide an industry
overview.
Non-Road Engine and
Briefings Aftertreatment
Forecast
KGP’s free briefings are published twice per month covering Commercial Vehicle and Non-Road
Mobile Machinery topics. Forthcoming briefings will include:

New Services
7 8 9 10
Non-Road Mobile
Briefing CV Update Batteries NRMM Update M&A and JV Machinery Driveline

Week 22/01 05/02 19/02 05/03 Non-Road Mobile


commencing Machinery
Electrification

References
• Knibb Gormezano and Partners Q3 2017 CV Engine Market Summary
Report:- Click Here
• Knibb Gormezano and Partners Q3 2017 Non-Road Engine Market
Summary Report:- Click Here
• LMC Global Commercial Vehicle Forecast Click Here

Contacts
Alex Woodrow Managing Director
alexwoodrow@kgpauto.com
James Dorling Senior Analyst
jamesdorling@kgpauto.com
Paris Kiernan Analyst
pariskiernan@kgpauto.com
Mick Beeson Sales Manager
mickbeeson@kgpauto.com
Knibb, Gormezano and Partners

6 Lancaster Park, Newborough Road, Needwood, Staffordshire, DE13 9PD UK

Disclaimer
Information contained in this document has been obtained by Knibb, Gormezano & Partners
from industry sources believed to be reliable. However, because of the possibility of human or
mechanical error by our sources, Knibb Gormezano does not guarantee the accuracy, adequa-
cy, or completeness of any information and is not responsible for any errors or omissions or for
the results obtained from the use of such information.
Copyright Knibb, Gormezano and Partners 2018

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