Automotive production stuck in the slow lane

8 min read

October’s data from the Society of Motor Manufacturers and Traders (SMMT) on the production of cars, commercial vehicles and engines underlines the scale of the challenge that the automotive sector continues to face.

Automotive production stuck in the slow lane

Total UK car manufacturing output fell 18.2% in October, with 110,179 units leaving factories. This is 24,490 fewer than in October 2019. The decline reflected the ongoing impact of coronavirus, with fresh lockdowns in the UK and subdued demand in many key international markets.

October’s decline was driven largely by falling exports, which were down 19.1% (21,569 fewer vehicles). Exports to the United States (US) and the European Union (EU) slowed particularly severely, falling 26.0% and 25.7% respectively. By contrast, exports to Asian markets were much stronger, with a 57.1% increase in China and a 9.7% increase in Japan.

Commercial vehicle production fell 25.6% in October, with just 6,761 units manufactured during the month. Output for both overseas and domestic markets slipped back, by 21.1% and 30.4% respectively, with concerns about the post-pandemic recovery and the sector’s vulnerability if the UK and the EU don’t agree a trade deal by the end of the post-Brexit transition period on 31 December 2020.

Engine production also continues to suffer, with output in October down 20.1% to 193,374 units. This is seen by falls in domestic and overseas markets of 25.2% and 16.4% respectively. The latest declines mean that production of commercial vehicles in the year to date is down 30.1% compared to the same period of 2019, with the sector facing the triple whammy of threats from coronavirus, Brexit and banning the sales of petrol and diesel vehicles from 2030.

However, despite the difficult environment, Mike Hawes, the CEO of the SMMT, says the sector can recover with the right support. 

‘We remain hopeful for a brighter future, which, with the right support from government, and the right trading conditions, we can keep in our sights. The Chancellor’s Spending Review this week recognised that the ‘Road to Zero’ is a long-term aspiration, with initial funding confirmed for electric buses, vehicle charging points and consumer incentives, all measures we have previously identified as crucial to delivering the electric revolution.
‘However, this is only a one-year commitment, and much more will be needed. We will continue to work with the Government on a new industrial strategy in 2021 – starting with the delivery of the Automotive Transformation Fund – to ensure the UK can be a competitive place to produce ultra-low and zero emission cars and powertrains.’

 

Manufacturing sector news

The Government has in recent weeks made two important policy announcements that will have a direct impact on UK manufacturers. Its Green Plan is aimed at driving a ‘Green Industrial Revolution’ with targeted investment of £12bn, while its Spending Review sets out the Government’s forthcoming spending plans.

Green Plan

Looking at the Green Plan first, the initiative is focused on ten key areas.

  • Offshore wind. The Government has pledged the UK will produce enough energy from offshore wind to power every home, quadrupling production to 40GW by 2030 and supporting up to 60,000 jobs.
  • Hydrogen. The aim is to have 5GW of low-carbon hydrogen production capacity by 2030 for use by industry, transport, the power sector and homes. Ministers hope to develop the first town that is heated entirely by hydrogen by the end of the decade.
  • Nuclear. The Government is committed to nuclear as a clean energy source, and has plans for both large-scale plants and the development of the next generation of small and advanced reactors that could support 10,000 jobs.
  • Electric vehicles. The Government promises to support manufacturers in automotive centres such as the West Midlands, the North-East and North Wales to accelerate the transition to electric vehicles, including investment in key infrastructure.
  • Public transport, cycling and walking. The Government is committed to making cycling and walking more attractive, and to investing in zero-emission public transport.
  • Greener air travel and maritime. Ministers have promised to help industries seen as more difficult to decarbonise. Plans include research projects in areas such as zero-emission planes and ships.
  • Homes and public buildings. The aim is to improve the environmental performance of homes, schools, and hospitals through energy efficiency improvements. This includes a target to instal 600,000 heat pumps a year by 2028. There’s scope here to create 50,000 jobs by 2028.
  • Carbon capture. The Government says the UK can be a world leader in technology that makes it possible to capture and store harmful emissions. Its target is to be removing 10 metric tonnes of carbon dioxide by 2030, the equivalent of the emissions today of the industrial Humber region.
  • Nature. The Government has pledged to protect and restore the natural environment, with 30,000 hectares of tree planting every year.
  • Innovation and finance. Cutting-edge technologies will be needed to achieve these goals, which the Government believes the UK is well placed to develop. It aims to make the City of London the global centre of green finance.

Spending Review

Turning to the Government’s Spending Review, the Chancellor has this time set out plans for just the next 12 months, rather than for three years, as is the normal practice. Given the uncertainties of the coronavirus pandemic, the Government has chosen to focus on immediate priorities. MakeUK has published a useful summary of impacts on manufacturers from the review, including the below.

  • Increases to the National Living Wage and the National Minimum Wage. These will rise next year, in line with previous announcements, with 23 and 24 year olds now qualifying for the former.
  • An extension of apprentice incentive payments for employers, along with a continuation of the Kick Start initiative, which offers a £2,000 payment for employers that recruit an apprentice.
  • Significant increases in innovation spending, with £16.4bn of funding for research and development. This is critically important if the UK is to maintain its productivity and competitiveness.
  • A warning that the domestic economic environment remains challenging, with bleak forecasts in key areas.

Post-Brexit planning

Time is running out for UK manufacturers to prepare for the end of the post-Brexit transition period on 31 December. A comprehensive checklist of the actions that businesses need to take, along with useful resources, is available on gov.uk

Getting to grips with this new red tape is crucial. Our recent Trade Barometer report warned that manufacturers regard bureaucracy as one of the most significant challenges as they trade internationally, with 63% citing it as a concern. The end of the transition period will only add to the burden, but we offer a range of solutions to help overcome such challenges, including training for businesses making their preparations. Plus, we have several sessions on transition planning scheduled for December and January. For more information, email international@santander.co.uk.

To discuss how we can help your business please contact: ccbsectorinsights@santander.co.uk