CEO Update

The worst six months since rationing ended

31 July 2020 #CEO Update

Production figures released this week by SMMT reaffirm the difficulties that all automotive businesses are facing as they try to restart while major markets attempt simultaneously to recover from a pandemic and tackle unprecedented sectoral challenges.

Whilst June marked an improvement on April and May (when only 5,511 cars were built), production still declined by -48.2%, with only 56,594 models rolling off production lines. Since January just over 380,000 cars have been built, a decline of -42.8% and, in monetary terms, a loss worth nearly £8 billion.

Engine production also declined by -24.3% in June and -38.8% over the year. Commercial vehicles, however, fared better with production growing for the first time this year by 23.9% as new model uplift helped to reverse heavy losses in 2019. However, this has failed to offset the impact of Covid with half year CV output falling by -24.8%.

Recovery has been made more complicated due to the continued uncertainty over the UK’s future trading relations with the EU. New independent analysis suggests that without an FTA, and the industry trading on WTO 10% tariff terms, output could stay around the 800,000 mark to 2025, whereas, a zero tariff FTA would see car volumes recovering to pre-crisis levels of 1.2 million units within the next few years and all to play for thereafter.

SMMT also this week released results from a new member survey, which sought to assess where businesses are with preparations for Brexit. Perhaps unsurprisingly given ongoing uncertainties, the lack of clarity as to future trading conditions is severely hampering companies’ ability to prepare for the end of the transition. Nine out 10 companies (93.5%) cited this as a major problem, with six in 10 (61.3%) saying Covid-19 has diverted resources away from Brexit preparations. Meanwhile, more than seven out of 10 (77.4%) view securing a tariff and quota free FTA as crucial to their future success.

The long-term future of the industry – which has proved its inherent competitiveness and global excellence over the past decade – therefore depends on securing an FTA with the EU this year, as well as a long-term strategy that fully supports it.

More immediately, we are still dealing with the impact of coronavirus on day to day operations, not just in manufacturing but in retail and aftermarket too. Demand for MOTs, for instance, has been significantly affected and SMMT has been supporting the DVSA with its new campaign, launched today, to encourage motorists to beat the rush and get their test done this summer.

Although the six-month MOT extension provision ends on 1 August, deferred tests have created increased demand this Autumn, so it is important that owners are strongly encouraged to get their vehicle’s test done as soon as possible to avoid disappointment.

Finally, keep an eye out for a new series of SMMT webinars, starting in August, which will focus on preparing companies for the end of the transition period and new trade implications from 1 January.