UK car production: a bright future?

UK car production has so far fallen compared with last year as faltering demand from UK consumers and uncertainty over Brexit casts a pall over the industry.

Leading industry figures are complaining about a lack of dialogue from the UK government, not least on Brexit but on radical plans to ban new sales of conventional cars in the UK by 2040.

Slowing output

UK car output was down by 13.7% in June compared with the same period a year earlier, according to figures from the Society of Motor Manufacturers and Traders (SMMT).

It marks the third consecutive month of decline, with UK car production having fallen by 2.9% year-to-date.

The UK had previously been forecast to churn out 2m cars by 2020, eclipsing the all-time record of 1.92m cars produced in 1972. Last year, production rose to 1.7m cars as UK plants hit their highest output levels in twelve years.

Cooling domestic market

The vast majority of the recent decline in output this year appears to be driven by falling demand within the UK. Over the first half of the year, domestic demand slid by 9.5%, while exports were little changed in percentage terms, down by just 0.9%.

Flagging demand in the home market chimes with recent weak growth readings for the UK economy, with higher inflation believed to be eroding consumer spending power. Weakness in sterling since the Brexit vote has pushed up the UK´s overall price levels.

Brexit uncertainty

The SMMT claimed Brexit uncertainty was also undermining investment plans within the sector, calling for the UK to seek a transitional agreement for continued membership of the EU single market and customs union until a new trade agreement is in place.

“Brexit uncertainty is not helping investment and growth is stalling. The government has been in “listening” mode but now it must put on the table the concrete plans that will assure the future competitiveness of the sector. Investors need certainty,” said Hawes.

Forecasts

Independent forecasts, such as the one commissioned by AutoAnalysis, predict UK car output to pick up in the second half of 2017 based on positive contributions from new model launches and updates concentrated in the premium segment of the market.

SMMT, however, believes output will fall below the earlier hopes for the UK industry to produce two million cars by 2020.

The auto association suggests that failure to secure a trade deal with the EU, or effective transitional arrangements, could lead to a precipitous decline in production in 2019, once Brexit becomes a reality.

While prolonged uncertainty may lead auto manufacturers to postpone investment decisions, SMMT warned that the imposition of WTO tariffs on trade between the EU and UK could see domestic car production drop by as much as 10%.

Electric: opportunity or threat?

SMMT is also worried about the longer-term outlook for UK car production given the UK government´s proposals to outlaw sales of new petrol and diesel cars by 2040.

The plans put forward by the Department for Environment, Food and Rural Affairs (Defra) yesterday were largely greeted by surprise from the UK´s motor industry.

Spearheaded by the newly appointed environment minister Michael Gove, the development was even understood to have taken other government departments by surprise.

SMMT warned an outright ban on conventional vehicles could undermine the market for new cars, while calling for consumers to be offered incentives to purchase electric cars instead.

“Much depends on the cost of these new technologies and how willing consumers are to adopt battery, plug-in hybrid and hydrogen cars. Currently demand for alternatively fuelled vehicles is growing but still at a very low level as consumers have concerns over affordability, range and charging points,” added Hawes.

A hybrid Mini.

Mini win

On Tuesday, the UK motor industry celebrated BMW´s decision to manufacture its new fully electric Mini in the UK. There had been fears that the German auto giant would cite production in continental Europe given the uncertainty over Brexit.

Central to BMW´s plans is the ongoing use of its existing UK assembly line in Cowley Oxfordshire, where relatively few modifications will be required.

Nevertheless, supporting the scepticism over the UK´s readiness for a full-blown shift towards alternative vehicle power, vital components such as the battery and electric motor will be made in Germany.