SMMT warns latest UK car production plunges are taste of things to come
UK car production declined almost 43% in June according to the latest figures issued by the Society of Motor Manufacturers and Traders (SMMT), with a gloomy outlook for the future unless a FTA is reached with Europe.
June saw minor increases in production throughout the month, but social distancing measures and weak global demand restricted output, the Society said. However, the figures are a taste of things to come, the Society warned, unless a Free Trade Agreement is reached with Europe.
June’s performance rounded off the worst first six months for UK car production since 1954, with 381,357 cars built since January – a decline of 42.8% compared to year-on-year figures.
The on-going pandemic crisis has already claimed at least 11,349 jobs across the automotive industry, including manufacturing, supply chain and retail, the Society commented.
Furthermore, the SMMT has warned that new analysis suggests car production losses could total 1.46m units by 2025 – worth over £40bn – if no FTA is in place by the end of 2020 with Europe, which would force the sector to trade on WTO terms with full 10% tariffs applied.
Significant questions remain about the nature of trading conditions from 1 January, with uncertainty about customs procedures, regulation and damaging tariffs causing real concern, the Society said. According to the latest survey of SMMT members, this lack of clarity is now severely hampering nine in 10 companies’ (93.5%) ability to prepare for the end of the transition period.
The coronavirus crisis has exacerbated the situation, with six in 10 (61.3%) automotive companies saying COVID-19 has diverted resources away from Brexit preparations, while more than seven out of 10 (77.4%) view securing a tariff and quota free FTA as crucial to their future success.
Nissan’s Sunderland plant longevity is already contentious, according to top Nissan executives who warned that the plant would no longer be sustainable earlier in the year unless a FTA and clarity is provided with good time to the manufacturer.
Mike Hawes, SMMT chief executive, said, “These figures are yet more grim reading for the industry and its workforce, and reveal the difficulties all automotive businesses face as they try to restart while tackling sectoral challenges like no other. Recovery is difficult for all companies, but automotive is unique in facing immense technological shifts, business uncertainty and a fundamental change to trading conditions while dealing with coronavirus.
“The critical importance of an EU-UK FTA is self-evident for UK Automotive. Our factories were once set to make two million cars in 2020 but could now produce less than half that number, a result of the devastating effects of the pandemic on top of already challenging market conditions and years of Brexit uncertainty. This industry has demonstrated its inherent competitiveness and global excellence over the past decade. Its long-term future now depends on securing a good deal and a long-term strategy that supports an industry on which so many thousands of jobs across the country depend.”
The latest independent production outlook commissioned by SMMT, and also released today, now expects just over 880,000 cars to be produced in the UK this year – some 32% lower than made in 2019 and 30% less than anticipated in January pre-crisis. If realised, this would be the lowest total since 1957.
The analysis also suggests that without a positive trade agreement with the EU, and the industry trading on WTO terms with 10% tariffs, output could stay around the 800,000 mark, or less, to 2025 while a successful conclusion to negotiations with a zero tariff and quota FTA would see car volumes recovering to pre-crisis levels of 1.2m units within the next few years and the potential for further long-term growth after that.
The UK automotive sector is one of the nation’s most valuable economic assets and a global trading powerhouse, sustaining more than 820,000 jobs with 168,000 directly in manufacturing. A successful restart of the £82bn industry would help sustain jobs nationwide, boost tax revenues and international trade, plus drive a green recovery for the UK by helping government meet climate change and air quality goals.
For the UK market, manufacturing was down 63.8%. Production for export also fell, by 45.0%, although overseas orders accounted for nine out of 10 vehicles built – thanks to key global markets opening for business earlier than the UK, including in the EU, China, US, South Korea and Japan.
Despite apparent gloomy figures, June marked a vast improvement on April and May, the Society added, when only a combined 5,511 cars were built.
Alfonso Martinez, managing director of LeasePlan UK, said: “Today’s figures are a stark reminder of the automotive industry’s reliance on overseas suppliers and the unequivocal need for the UK to have guarantee of supply of the latest EVs post Brexit. We’re on the cusp of an EV revolution, but the only way to facilitate a smooth and timely transition is for UK drivers to have access to the right vehicles at the right time. Without it, the nation cannot deliver on its commitment to stop the sale of new internal combustion engine vehicles in time for a 2032 deadline. EVs are the future of UK transport, and we are ready for the switch, but we need greater clarity to help us navigate this next chapter.”
Edwin Kemp, head of automotive strategy at KPMG, commented: “With COVID-19 spikes re-emerging in some European markets and other key geographies being impacted, consumer behaviour and confidence continues to suffer. Without improvements in consumer demand for new vehicles, it is likely that production will continue to operate well below capacity for some time.
“As industry players seek to manage liquidity, the reported job losses in the wider automotive sector are, unfortunately, likely to be a precursor to businesses up and down the supply chain going into insolvency in the coming months.”
Peter Barnes, head of automotive at global legal business, DWF, said: “The coronavirus pandemic caps a perfect storm for the UK car industry which has been facing falling investments and uncertainty since the 2016 vote to leave the EU. The future now depends on securing a good deal. Positive news in respect of treatments and vaccines for coronavirus will assist a quicker recovery from a global economic downturn, and it will no doubt boost consumer confidence and purchasing power when they are available.”