Published Wednesday 13th February 2019

Figures published by the Society of Motor Manufacturers and Traders (SMMT) at the end of January show that UK car production fell during 2018 to its lowest total in five years. The industry trade body’s figures showed that the total number of cars produced totalled 1,519,440, a 9.1% decrease on 2017 and the lowest annual output since 2013 (1,509,762).

Car production is one of the biggest sectors in UK manufacturing, an industry hit particularly hard by Brexit and other international factors. Some analysts see these damaging results as a sign, not just of the damage being done in the present but also the difficulties that post-Brexit UK businesses could face.

The Brexit Winter Freeze

The figures for the UK car industry are some of the worst faced by any sector. However, many of its trends are spotted across UK business. There was a particularly large slide in car production towards the end of 2018, with a production decrease for December of over 22% compared with 2017. Whilst the low output figures will grab much of the attention, just as worrying are the statistics on investment. Another common trend amongst major UK businesses, inward investment in the UK automotive industry fell by nearly half in 2018, compared to 2017. The annual figure of £588.6 million represents the lowest investment in the sector since SMMT started recording these figures in 2012.

The report by SMMT is very clear about what it regards as the primary cause for this: Brexit uncertainty. It believes that the record-low investment is down to “fears over the UK’s future trading prospects with the EU and other key global markets after 29 March” and urges the UK government to agree, at a minimum, some form of transitional period that will allow trade to run smoothly following the Brexit deadline.

Throughout the report, SMMT makes it clear that a no-deal scenario following the Brexit negotiations would be catastrophic for the UK automotive sector, referring to it as “the most significant threat to the competitiveness of the UK automotive sector in a generation”. The nature of the automotive industry means that it is in a uniquely perilous position if no agreement is in place. The primary fear is the potential distribution crisis after Brexit if no transitional period is implemented. Due to the industry’s reliance on ‘just-in-time’ production, any delays to goods and parts travelling from abroad into the UK and vice-versa would cause significant expenses across the production process.

An Unpredictable Business

Another critical problem that will arise in the event of a no-deal exit from the European Union is the sale of finished products to foreign markets. As with many British industries, the majority of UK car exports are to the EU (52.6%). Beyond this market, the SMMT also note that they have experienced export increases in other nations, such as Japan (26% market growth) and South Korea (23.5% growth), that currently benefit from preferential trade agreements with the European Union. Including the total exports to all countries with preferential trade agreements – either implemented or soon to be ratified – with the EU, a no-deal Brexit would put around two-thirds of the current UK car export market under threat.

It’s worth noting, however, that not every negative result is down to Brexit alone. The SMMT report also acknowledges the effect of slowing global economic conditions, particularly in China. Traditionally a large market for UK car exports, car sales in China fell in 2018 for the first time since the 1990s, leading to an export decrease of nearly 25% from the UK. The Chinese slowdown has already been highlighted as a primary reason for slower performance by many UK car firms, such as Jaguar Land Rover and Nissan, who run one of Britain’s largest car factories.

Another market feature regularly mentioned as a reason for the performance slowdown is the fall in the diesel market. Led by Government uncertainty and a lack of consumer confidence, diesel sales have plummeted, forcing many major car manufacturers to evaluate their strategies going forward.

The automotive industry is seen by analysts to be somewhat unpredictable, as it can often be swayed by the swap of old models for new releases. However, the fact that these figures are so low and also share similarities with other business sectors shows the potential crisis awaiting a no-deal Brexit scenario. It is vital, therefore, that businesses are already evaluating their manufacturing procurement chains before the end of March.

Here at ERA, we are experts at helping major UK businesses reduce their manufacturing costs. We have experts in the sector that will work with your company to implement effective procurement strategies, helping you reduce your expenses in the long-term. We have worked with a variety of manufacturing businesses and saved money in a range of areas, such as distribution, utilities and logistics. So, if you are looking to further secure your supply chains ahead of Brexit, why not get in contact with our team today?