Auto analysts comment on ‘perfect storm’ for car sector

Peter Barnes, head of automotive at global legal business, DWF (Photo: DWF)

Car industry analysts have outlined the compound challenge facing the UK’s car sector following the publication of the Society of Motor Manufacturers and Traders’ half-year figures. The stats show that the first half of 2020 yielded the lowest level of UK car manufacturing since the 1950s. Edwin Kemp, head of automotive strategy at KPMG, commented that the SMMT’s June 2020 new car manufacturing analysis is a harbinger for businesses’ likely descent into insolvency throughout the automotive supply chain. Peter Barnes, head of automotive at global legal business, DWF, added that the challenges facing the UK automotive industry add up to a perfect storm for the sector.

Kemp said: “Whilst car manufacturing in June was at substantially higher levels than in the previous two months, volumes were still half those of the same month in 2019. This can only be expected, given the impact of social distancing measures on running factories anywhere near capacity, and with subdued consumer demand failing to pull through volumes.

“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.”

Pandemic compounds Brexit challenges

DWF’s Barnes added: “As the pandemic continues to impact businesses and manufacturing globally, and fears of a second wave challenge consumer confidence, the automotive industry faces challenges like no other. It is, therefore, no surprise that the figures released today from the SMMT demonstrate that only 381,357 cars were produced on British production lines between January and June 2020, a value 42.8 per cent lower than last year.

“Such figures were produced largely in part by the factory closures amid supply chain problems and concerns for workers’ health. The sudden fall in demand by consumers added to the UK car industry producing the lowest number of vehicles since 1954 when Second World War rationing ended.

“The impact of these figures means that the UK is likely to produce 880,000 vehicles this year which represents a significant downturn on the numbers anticipated before the Brexit poll of 2m vehicles per year. Even if a full trade deal with the EU is possible from January 2021, a best-case scenario plotted by the SMMT going forwards is that UK plants produce about 1.2m vehicles per year by the middle of this decade.

“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.”