James Walton, Head of Manufacturing, Mid-Markets, Lloyds Bank plc Commercial Banking, discusses the bank’s latest research into the prospects for automotive sector manufacturers in England and Wales.
Every year at Lloyds Bank, we survey the UK’s automotive industry as part of a series of reports that get under the skin of key manufacturing sectors in Britain’s economy, examining the core issues, from employment and innovation, to policy and productivity.
The UK is home to a diverse range of car manufacturers and supply chain firms, employing almost 800,000 people sector-wide.
And this year the report feels particularly pertinent. Seldom has an industry dominated the global news agenda like the automotive sector has in 2015.
The UK industry has continued its renaissance, having bounced back with vigour since the dark days of the late noughties’ economic downturn, outperforming the wider manufacturing sector and growing on average 3.1% every quarter.
Automotive manufacturers told us they expect to grow revenues by an average 14% over the next two years – creating on average 33 new jobs in the process – and 58% plan to achieve that growth by innovating new products.
Research respondents said they want to expand across the globe, with 74% investing in or planning to engage new international customers, but inevitably, given the international markets many already operate in, global instability threatens to drag on their prospects.
When asked what they felt were the biggest challenges for the automotive industry in the next two years, the top concern remained the global economy for the second year running, mentioned by 43% of respondents in both 2014 and 2015.
China, in particular, has been a hugely successful and profitable market for premium UK marques, but the slowdown in that economy has the potential to permanently impact margins.
Subsequently, 27% said they were targeting the Far East and Asia, down from 41% a year ago.
Return to sender
One positive impact of the instability has been the move to reshore manufacturing that had previously been taken overseas, primarily to take advantage of cheaper labour costs, with 58% now planning to reshore some element of manufacturing back to the UK.
Manufacturers are reshoring for a wide range of reasons, from an altruistic desire to see UK PLC succeed, to wanting better control over quality.
As in so many sectors, skills is also an issue for automotive manufacturers. We’re doing our bit to tackle that concern and have invested in a £1m-ayear sponsorship of the Advanced Manufacturing Training Centre in Coventry.
The centre will develop more than 1,000 engineering apprentices and trainees during the initial partnership period.
The future on four wheels
Looking even further into the future, the falling cost of intelligent robots has the potential to accelerate the repatriation of more car manufacturing away from low-cost locations like China, back to hi-tech factories in the UK.
Firms are also planning fundamental changes to cars themselves, which are primarily being driven by advances in innovation that are making vehicles cleaner, safer and more fuel efficient.
Currently, one in every three cars on UK roads is fuelled by diesel, a technology with an uncertain future because of the level of pollution now accepted it produces.
UK manufacturers are set to scale back their investment in diesel, opening the door for more hybrid, electric, lightweight and even driverless vehicle innovation.
Who knows what kind of cars we will be driving in 20 years’ time, and how they will be manufactured? Whatever the future holds, we can be confident that the UK will remain a driving force in the industry.