UK automotive industry: a look ahead

Over the past year, the UK automotive industry has faced unprecedented challenges.

Disruptions throughout the supply chain, prolonged production stoppages and a slump in sales are the main issues affecting manufacturers, not just in the UK.

However, British businesses have continued to be a pillar of the UK economy, generating a total trade revenue worth £74 billion.

What are the most pressing challenges facing the sector? What are its strengths to continue to focus on for international growth?

The post-Brexit scenario is undoubtedly complex, but there are also new opportunities within it. The energy transition towards zero-emission models is certainly a cost for companies, but it is also an opportunity for growth in terms of employment and turnover.

Of course, to make this a reality, it will be necessary to develop a trade policy that supports companies’ actions and ambitions. How can we look to a future that is constantly evolving?

UK automotive industry: today’s challenges and results

Although down sharply on 2019, the sector’s sales in 2020 once again demonstrated its centrality.

At £27 billion, motor vehicles remain the most valuable UK exported commodity, the latest Society of Motor Manufacturers and Traders (SMMT) report confirms.

Underlying the result is the extraordinary breadth of supply that has always distinguished the sector: cars, vans, trucks but also luxury and sports vehicles. Great Britain designs and markets a variety of products that has few equals globally.

This is certainly a strength to build on as the UK automotive industry faces major changes.

There are a number of challenges that are increasingly driving new strategies and innovative management solutions.

On the one hand, there is the current political and economic scenario: the end of the transition period following the UK’s exit from the EU has impacted on businesses, translating into longer lead times and higher costs for the management of day-to-day activities.

This was again revealed by the SMMT study, which explains how this factor has had particular consequences for bilateral trade between the UK and the EU, historically the main partner for UK manufacturers.

In 2020, the single market continued to be the priority destination for cars and their components: around 50% of UK-made cars were destined for the EU, with Germany, France, Italy and Spain leading the ranking of trading partners.

Against this backdrop, last year’s slump in sales is compounded by the accelerating shift towards zero-emission mobility and the need to redeploy production to meet growing global demand.

This is a costly process, which requires the development of policies by authorities so that the sector can continue to play its essential role. This will require concrete support for manufacturers to develop new technologies, attracting qualified personnel and seizing opportunities.

But where should UK business focus

The international market: trade agreements and new opportunities

With global automotive production down 16.5% in 2020, there is no shortage of predictions that the market will recover over the coming years, particularly in certain economies.

Among these is China, which by 2025 could produce 5 million more vehicles than in 2019 according to SMMT estimates.

Another area set to see growth for the sector is India, with a developing public transport network and increasing demand for electrified vehicles. For the UK, this could translate into higher export quotas, provided we can reduce tariffs for businesses through appropriate trade agreements.
Negotiations currently underway with countries in the Indo-Pacific region such as Australia and New Zealand could also be decisive, as their conclusion could bring companies closer to an enormous geographical area, also in terms of business.

Membership of international free trade areas such as the CPTPP must not, however, obscure the importance of the bilateral agreements in place with various nations: these include, for example, Canada and Mexico, with the former representing the eighth largest destination market for UK-made vehicles in 2020.

Remaining in North America, the US will also continue to be a key player, being the second largest destination for UK exports after the EU.

While the responsibility of the authorities directly affects agreements and their content, companies must be ready to seize future opportunities. How?

By carefully studying new markets, identifying potential partners within them and developing valuable relationships with them that will last. This is undoubtedly another complex mission, and one that goes hand in hand with the transformation of production processes mentioned above. But it is also the only viable way forward for an industry that is undergoing radical change.