RSM’s outlook for the automotive industry

Unprecedented drop in UK car production 

The recent SMMT statistics, showing that UK car production was down by 29.3 per cent in 2020, highlight a stark and worrying outlook for the automotive sector. A global health pandemic and the UK leaving the EU, combined with a seismic shift in government policy toward electric vehicles has fundamentally changed the future landscape for car manufacturers in the UK; but what does 2021 hold for the industry? 

Brexit and coronavirus – the impact on supply chains

The impacts of coronavirus have highlighted the fragility of the ‘just in time’ manufacturing process, fracturing supply chains and challenging demand planning. The agility for manufacturers to source parts from the EU and further afield has been further undermined by Brexit and what many are hoping will be short-term consequences of leaving the EU.

Despite the UK agreeing a trade and cooperation deal with the EU, we have already seen delays at ports and supply chain disruption due to changes in tax, increased paperwork, and in turn cost.

The impacts of coronavirus on supply routes and ports are further adding to the issue, with freight costs spiralling northwards due to higher demand globally for container shipments and congestion in international ports due to delayed shipments now flowing from the far east.

Add to this a continuing global pandemic as well as shortages of key components, such as microchips, and large-scale production can stall.

In November and December, the latest ONS stockpiling statistics show that manufacturers in the UK were most likely to be stockpiling materials and goods to mitigate any risk ahead of the Brexit deadline at the end of the year. This approach is prudent; but with low production levels and supply chain issues mounting we may not be at the tip of the iceberg regarding challenges for UK production.  

High volume brands to bear the brunt

The full impact of coronavirus from an economic perspective is still unknown as governmental support remains in place to help preserve jobs and businesses through unprecedented times. Premium brand consumers are probably less likely to be impacted economically by the effects of the epidemic in the coming months, and are more likely to be tolerant of additional lead times for vehicles that have been impacted by supply chain disruption. It may be volume brands that bear the brunt of reduced disposable income throughout 2021.  

The road ahead 

The impacts of the coronavirus on consumer demand are hard to determine currently. The anxieties of lock down may encourage many to avoid the use of public transport and rely more heavily on personal vehicles, potentially driving demand. 

However, the sharp shock of coronavirus may have changed working practices for good, making many rethink their current needs. In the longer term, we may see  two car families move to one car as more people work from home; while other consumers may move towards smaller platforms or even electric as journeys become shorter, less frequent and they look to reduce cost.

Looking longer term

One thing is for certain, the environmental pressures on the industry are here to stay and the environmental benefits seen throughout the pandemic due to less travel will only accelerate this change. However, the minerals required to produce electric vehicles are difficult to access, finite and in demand by multiple industries; inevitably the cost ends up with the consumer. 

The market for personal transportation has been evolving for many years, and perhaps the latest changes will see an acceleration towards mobility as a service rather than car ownership. Perhaps consumers will just have a rental agreement to have use of a fleet of vehicles rather than a credit agreement to own the vehicle itself. This also presupposes that people will be driving, who knows where automation and self-driving vehicles will take the industry. There are more questions than answers for automotive manufacturers at the moment, but the sector is full of innovative people who will be being relied upon more than ever before. 

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