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Automotive Manufacturing: 2019 outlook
It’s fair to say that 2018 was a challenging year for the UK automotive sector, but what’s the outlook for 2019?
Sean Edwards, our UK Head of Automotive, Rail and Marine gives his thoughts.
Consumer confusion and uncertainty across the sector driven by factors such as the political backdrop of Brexit, global trade wars, the so called ‘demonising of diesel’ and transition to lower carbon emission vehicles have all contrived to put pressure on the industry. A slowdown in growth in China and the requirement to comply with increased regulation (Worldwide Harmonised Light Vehicles Test Procedure (WLTP)) have also added pressure.
We’ve seen a drop in UK car production following a successful 2017, with 2018 manufacturing output down 9.1% at 1.51m units. This is still a decent performance for the UK by historic terms and it’s worth mentioning notable increases in output for UK commercial vehicle production, up 8.5% on 2017, and a strong performance for engine manufacturing with a slight dip of 0.3% at 2.715m units in 2018.
The situation in the UK has been further exacerbated in recent weeks by the announcement from Honda that they will halt production in the UK from 2021. A decision that will impact up to 3,500 jobs directly and potentially many more from across their supply-chain.
Despite the headwinds in the market, what is apparent is that we’re experiencing a period of unprecedented change in the industry and if the government can provide clarity on future trading arrangements and an environment in which consumers can have confidence, both economic and technological, there’s every reason to be optimistic as we progress into 2019 and beyond.
The challenges ahead
Global trade developments: The EU accounts for 52.6% of UK car exports and millions of pounds of goods travel between borders every day to deliver the Just in Time (JIT) production required by Original Equipment Manufacturers (OEMs). Any disruption or friction to these arrangements will have significant implications. At least 10% of employees in the UK’s automotive sector are from EU member states so maintaining access to this level of skilled workforce will be equally as crucial for the future of the industry. It will also be important that the UK is able to maintain close alignment with future European regulatory policy that will affect the cars we manufacture and buy.
Aside from Brexit, other global political developments like the trade war that continues to be played out between the US and China, and the latest targeting of trading arrangements between the US and India and Turkey as part of its attempt to address what it sees as unfair trade practices will continue to have an impact, with tariffs bringing cost pressures and impacting sales demand.
Consumer attitudes: The uncertainty among consumers over the transition away from diesel and petrol vehicles is expected to continue. As governments have committed to policy pledges to transition to ultra-low emissions vehicles, OEMs will have to continue to develop alternative powertrain technologies for lower-emission vehicles without knowing what will end up being the prevailing technology of the future. This will require significant investment from across the manufacturing supply chain.
Consumers also want more connectivity and are increasingly using digital sources in making their purchase decisions. Adapting to these technological developments will be imperative to future success.
Finally, it’s expected that OEMs will need to adjust to changing regional patterns of supply and demand with their production and product portfolios. They will also face increased competition from new entrants, particularly from Asian markets.
Opportunities for the automotive sector
Mobility and the way people travel is changing and with that presents opportunities for automotive manufacturers and suppliers to develop new solutions and models to meet this change.
New technology is creating cars that are far more advanced and compelling to consumers than ever before, and connectivity will become increasingly important. Suppliers have the opportunity to adapt their products to meet consumer needs, as well as opportunities for non-traditional suppliers from sectors such as electronics to enter the market.
Globally, strong growth is expected from emerging markets, particularly in Asia, Latin America and parts of Central and Eastern Europe over the next five years as personal incomes and economies develop. It’s important that automotive businesses react to this and become increasingly international in their outlook.
What should businesses in the sector be thinking about as we progress in 2019?
The global automotive industry is in a time of wide-ranging and transformative change, with sales continuing to fluctuate and environmental regulations tightening. For a successful and long-term future, companies will need to get key strategic decisions right in the next decade.
This includes their strategy for adapting and implementing new technology and new models to meet changing consumer demand, and continued investment in alternative powertrain technologies to meet future emissions targets. Funding and leading the transition from the Internal Combustion Engine (ICE) to Autonomous, Connected, Electrified and Shared (ACES) technologies and manufacturing will be crucial.
It will also be vital that companies understand and attempt to mitigate potential issues caused by political uncertainties such as Brexit, with international sales and footprint one area to focus on to diversify and grow sales.
Read about how we help customers in the Manufacturing industry.