Can The UK Auto Industry Bounce Back?

Via Ag Metal Miner,

We may be coming out of the first pandemic lockdown and business does, broadly, appear to be picking up; however, some sections of manufacturing, including U.K. car manufacturing, are still suffering badly.

U.K. car industry, supply chain face challenges

An article in the Financial Times starkly outlines the continued pain the U.K. car industry is experiencing and, by extension its extended supply chain.

U.K. car manufacturing fell 44% last month compared with a year earlier. Domestic orders and exports remain severely depressed. Last month’s performance marked the sector’s second-worst since car plants restarted after lockdown.

The Financial Times went on to advise that just 51,039 cars rolled off British production lines. The total fell from 92,153 in August 2019. Meanwhile, August output for U.K. buyers fell 58% to just 7,795 vehicles. The number of cars made for export fell 41% to 73,443 cars.

To be fair, several plants working during summer 2019 boosted August 2019 performance. Summer output followed a three-week closedown in the spring to prepare for the expected Brexit in 2019, which in the end did not transpire.

So, looking at the first half of each year gives a fairer comparison. Yet, even in that view, the decline remains dramatic.

Between January and August, the U.K. produced 40.2% fewer cars than in the same months a year earlier. The period included several weeks of complete stoppages during the first lockdown in March and April.

Year-to-date production is now down by 348,821 units worth more than £9.5 billion to U.K. carmakers, according to the Society of Motor Manufacturers and Traders (SMMT). Furthermore, projections suggest U.K. car manufacturers are now on track to produce just below 885,000 cars this year – down 34% on 2019.

Job losses in the sector

The SMMT reported at least 13,500 jobs have been cut across the U.K. automotive sector this year. The body warned up to one in six positions may be at risk in the future.

Manufacturers are hoping the government’s latest job retention scheme will help employers keep skilled workers. Skilled workers will be needed if, or when, demand comes back, but many of them are currently facing redundancy.

Rising coronavirus cases, tightening restrictions, and Brexit

Yet with virus cases increasing in the U.K. and containment measures ramping up, the SMMT is if anything more pessimistic now than it was in the early summer.

The SMMT says business restrictions look set to make the industry’s attempts to restart even more challenging, with the prospect of Britain’s exit from the European Union also now just 100 days away.

The industry is not in a good state to handle the country’s imminent exit from Europe on Jan. 1. In addition, the automotive industry has been at the forefront of demanding a free trade deal between the U.K. and the E.U., saying last week that “no deal” would cost the pan-European automotive industry some £100 billion in lost trade over the next five years.

Europe, though, is proving very unwilling to retain the open-door, free-trade environment for electric vehicles – which it sees as the future – as it currently does for internal combustion engine (ICE) vehicles.

The future of U.K.-E.U. auto trade

The Financial Times recently reported E.U. diplomats said the European Commission is wary of agreeing to U.K. car manufacturers being allowed to source a large number of components from other countries while still exporting electric vehicles tariff-free to the E.U.

Four out of five cars made in the U.K. are exported. Of those exports, more than half goes to the E.U. British car plants owned by Nissan, Toyota and PSA are all reliant on European sales for more than half of their business.

Last year, Nissan sold more than 30,000 U.K.-built Leaf electric cars to Europe. Toyota exported close to 120,000 hybrid models across the channel. Europe is keen to keep the U.K. as a market for components and finished vehicles but not so keen on allowing these plants to sell into the E.U. tariff-free after Brexit.

Coming on top of already challenging times this year, some foreign owners of U.K. car plants may begin to wonder whether continuing to invest in the U.K. is as desirable as it once was.