North West automotive industry faces long road to recovery

Very few industries have been left unscathed by the coronavirus pandemic, but the automotive industry is one that has suffered more than most. Government restrictions have halted production, creating a spiralling effect throughout the supply chain, while new car sales have equally fallen to record levels.

As the largest manufacturing subsector in the region, with transport and equipment taking a 17.7% share of all output, the North West has been left reeling from the challenges being faced by the automotive industry. Already facing a troubled year of performance, the region’s problems were compounded by COVID-19.

The latest figures from the Society of Motor Manufacturers and Traders (SMMT), show that as UK showrooms reopen new cars registered were significantly up on April 2020 but remain -12.9% adrift of the 10-year March average. The SMMT has warned that around 8,300 registrations a day are needed for a return to average pre-pandemic levels by the end of the year, with a Q1 shortfall of 58,032 fewer cars, costing the industry ￡1.8 billion.

While a return to growth, and reopening of the new car market, gives cause for tempered optimism, the statistics make for difficult reading for the automotive industry.

The transport and equipment sector in the North West is historically robust, but our latest Automotive Insight report lays bare the long journey the sector faces on the road to recovery – not just for original equipment manufacturers (OEMs), but for those that rely on order performance downstream.

While the 30% drop in vehicle registrations in 2020 has clearly had a profound effect on production and the supply chain, restricted international trade has equally played its part. In 2019, the North West accounted for 8% of the UK’s total goods exports. The region also maintains an above-average dependence on the EU for exports amongst other regions and nations, with 52% of exported goods journeying to the EU. Curtailing that channel has clearly come at a significant cost the region.

Already reeling from a gradual decline in consumer demand, which started to take effect in 2018, COVID-19 has accelerated the problems already being faced by the sector. This, in turn, has caused job losses and plant closure risk in the North West, as well as in other parts of the UK. The SMMT estimates that for every original equipment manufacturer (OEM) job lost, a further five will go in the supply chain.

So, what are the challenges facing the sector and what can be done to repair an industry under considerable pressure? In the coming years, automotive manufacturing will have to contend with the repercussions of Brexit and the UK/EU Trade and Cooperation Agreement, including meeting the rules of origin requirements; new legislation, including UK low emission zones and a UK ban on petrol and diesel cars from 2030; navigate the technological advancements and the switch towards alternative propulsion technologies; not to mention changing consumer habits. As a result, returning to pre-COVID-19 volumes will create further upheaval for many OEMs and small-to-medium-enterprises (SMEs) that produce automotive components.

Despite the difficult road ahead, the North West automotive industry has a chance to reinvigorate itself. The electric vehicle market is highly competitive and growing at pace – and one that offers real opportunity should the UK wish to take it. This doesn’t come without a cost. There needs to be significant investment in OEM assembly lines, with the origin requirements brought in by the UK/EU Trade and Cooperation Agreement, providing an opportunity to develop a local functioning supply chain for batteries. The Faraday Institution forecasts that there will be a need for seven UK-based gigafactories (large, high volume battery manufacturing facilities) by 2040 to meet UK electrical vehicle demand. There is little doubt the opportunities are there if the sector can pivot accordingly.

In the short-term, the North West automotive industry must realign and reassess. There is a clear pathway ahead that requires careful consideration – whether that’s exploring refinancing options to fund investment or turnarounds; reviewing strategic options, such as investment, turnaround, closure or a sale; or restructuring existing facilities and operating models. The challenges and changes the industry is facing should be viewed as a golden opportunity to reposition the UK automotive industry to be at the forefront of the electrical revolution in Europe and the North West has a rightful place at that table.