“Some people say the glass is half empty or half full, but to me that’s irrelevant. Because I’m having another drink.” (Sean Lock)
The best jokes always have an underlying truth hiding in plain sight. It’s easy to focus on news flow and make a snap judgement on whether things are materially better or worse than you were expecting, but it also helps to take a longer view. As the FRP auto team, we always keep a watchful eye open for the monthly data released by the Society of Motor Manufacturers and Traders (SMMT). The headline-grabbing figure is always the new car registrations and it’s fair to say that the news here has been fairly grim, of late. Less heralded – but equally important – are the manufacturing statistics, and when you dig into the data here, a more complex picture emerges.
Monthly UK car registrations announced today showed a very modest year-on-year increase (1.2% compared to last August), but August is always a quiet month ahead of the new number plate release, and this follows five consecutive months of decline. Overall, the market remains 11% behind the prior year, and 35.3% down for the year-to-date compared to the pre-pandemic levels and whilst BEV (battery electric vehicles, i.e. hybrid, plug-in hybrid and electric vehicles) uptake continues to grow (now accounting for c15% of all new cars sold), the overall market is facing another difficult Autumn as the cost-of-living crisis bites.
But turn to the UK car production figures, announced on the 25h August and there are some, perhaps surprising, changes. July showed a third consecutive month of growth of car manufacturing output (up 8.6%), driven in particular by BEV production following a record £3.4bn investment into the industry in H1. The recovery was particularly strong in production for the domestic market, which grew 40.7% in the month, compared to a modest increase in production for the export market (2.8% monthly growth), although export remains a much larger share of total production (80% compared to 20% for the domestic market). Overall, however, it remains a challenging environment for manufacturers, and whilst the monthly figures flatter, the year-to-date picture remains firmly in the doldrums. Global supply chain issues continue to hamper production, with the shortage of semiconductors and impacts of the conflict in Ukraine impacting availability of materials. Overall volumes for the calendar year are still 16.5% lower than the prior year (which itself was already materially lower than 2020), with sluggish exports and continuing structural challenges. In fact, despite the monthly ‘growth’, July’s output was still 46.4% below pre-pandemic levels.
So what does all that mean for the UK industry overall? Well, in the short-term and medium-term, energy costs will continue to bite, and there is no quick fix for the widespread shortage of skilled labour. Cash remains king, and there will be those who are facing difficulties exacerbated by credit insurers withdrawing or reducing their coverage. The most vulnerable have already played most of the cards in their hands, and there is unlikely to be widespread support for any further governmental intervention. As demonstrated by the current low level of administration appointments as compared to pre-pandemic levels, automotive businesses have been very resilient given all the challenges they have been facing. However, there is no let up and energy costs and the wider geopolitical uncertainties are exacerbating the position. Consequently, the OEMs and tier one manufacturers are casting a critical eye across their supply chains, and that inevitably will lead to consolidation and market exits, even for some long-standing suppliers.
But with a longer-term horizon, there are clear signs that the UK industry is reshaping to take advantage of the continuing shift to EV. Yes, further investment is required to accelerate the transition, but this remains a £24bn opportunity (according to the Advanced Propulsion Centre). Despite the doom and gloom, the UK (and in particular, the Midlands and the North) retains a global reputation for skilled labour. The restriction here is more likely to come in the UK’s ability to deliver the estimated 5,000 new engineers by 2025, rising to 20,000 by 2030 from the SMMT’s own research.
So irrespective of whether the narrative is of a glass being half-full or half-empty, the UK automotive industry remains a key part of the UK economy. It employs over 180,000 direct manufacturing workers and 780,000 across the wider industry, which is estimated to account for c£70bn turnover and £14bn of value added to ‘UK Plc’. And whilst the “glass half empty” narrative will continue to dominate the media headlines for a while, the industry is certainly getting ready for a few more “drinks” over the coming years.
The FRP Automotive Team has expertise across the full range of FRP Advisory’s services, including Corporate Finance, Debt Advisory, Pensions Advisory, Forensic Services and Restructuring Advisory.
"Whilst the “glass half empty” narrative will continue to dominate the media headlines for a while, the industry is certainly getting ready for a few more “drinks” over the coming years."