UK automotive robust yet cautious

Production at the McLaren Technology Centre - image courtesy of McLaren Automotive.
- image courtesy of McLaren Automotive.

The UK automotive industry remains resilient despite ongoing uncertainty presented by the global economy and the UK’s future relationship with the EU, according to new research released today by Lloyds Bank Commercial Banking.

Lloyds Bank’s third annual survey of the UK automotive manufacturing sector and its supply chain analyses the state of the industry today, alongside the opportunities and challenges it faces in the future.

Investment & growth

The research revealed average investment over the next two years is due to hold firm at 19% of turnover and forecast a 15% growth in turnover over the same time period, providing there are no political or economic shocks affecting demand or supply.

Almost four in ten businesses (39%) expect growth to come from new product development. While some plan to support growth by investing in infrastructure (22%) and pursuing mergers and acquisitions (20%), this fell back significantly on last year, from 43% and 35%, respectively.

Lloyds Commercial Bank UK Automotive Research Report 2017
– image courtesy of Lloyds Commercial Bank.

 

EU exit remains biggest threat

Almost a third of UK automotive manufacturers (30%) consider the potential exit from the EU as the biggest threat to supply security over the next two years, while a similar number (29%) said that leaving the EU was one of the biggest challenges facing the industry as a whole.

The weakness of sterling is also a challenge for manufacturers with more than a quarter (26%) identifying it as a potential issue. However, more than a third of businesses (34%) expect to benefit from a more competitive export environment.

International Opportunities

UK automotive firms appear determined to pursue new international opportunities as, more than three quarters of firms (77%) are investing or planning to engage with new international customers in the next two years.

The number of firms planning to engage new customers in Western Europe rose slightly to 65%, from 61% last year. The number of firms targeting North America grew more strongly, from 46% to 53%.

Job creation

The vast majority (87%) of automotive manufacturers plan to create new jobs over the next two years. If their plans are replicated across the UK’s automotive manufacturing firms, it would create almost 85,000 new jobs – a figure that remains unchanged year-on-year.

These job creation plans are underpinned by manufacturers’ reshoring activity. The last time the research was carried out, 58% of firms said they planned to bring some manufacturing back to the UK within two years, growing to 64% in the latest report.

Lloyds Commercial Bank UK Automotive Research Report 2017 - Innovation Infographic
– image courtesy of Lloyds Commercial Bank.

 

R&D investment

Technological innovation will continue to shape the sector over the coming years. Much of this innovation is to help cut vehicle emissions, addressing the fact that 62% of firms thought the 2015 emissions issue had a negative impact on consumer confidence.

UK manufacturers’ commitment to innovation has increased, with firms planning to invest an average of 24% of current turnover into R&D over the next two years, up from 17%.

David Atkinson, head of UK Manufacturing - SME, Lloyds Bank Commercial Banking.
David Atkinson, head of UK manufacturing, Lloyds Bank Commercial Banking.

Firms say this is due to manufacturers’ reinforcing their plans to upskill their staff or change their processes to develop low carbon or electric vehicle technology. This is being pursued by 64% of firms, up from 52% last year.

In particular, 57% of respondents said they had already made moves to develop driverless technology despite the field increasingly being occupied by new competitors such as Google, Apple and Uber.

UK head of manufacturing at Lloyds Bank Commercial Banking and report co-author, David Atkinson, said: “The automotive industry remains the UK’s largest manufacturing export sector with a national supply chain and a presence in every UK region. This report highlights an industry looking to the future, eager to put any uncertainty generated by the EU referendum behind it.

“Encouragingly, job creation is forecast to hold firm over the next two years. However, much rests on the nature of the UK’s future trading relationships with some firms continuing to put plans on hold as they await the full details of Britain’s exit from the EU.”

Read the full report here.