In a week of political and economic turbulence, new analysis from SMMT highlighted the staggering energy costs facing automotive vehicle and component manufacturers in the UK. The industry’s collective energy bill has risen by more than £100 million over the last 12 months to at least £300 million and it’s no surprise that this is now the single biggest concern for UK automotive manufacturers, with almost seven in 10 SMMT members worried about the impact on business operations.
The government’s timely intervention to cap prices for businesses this winter has temporarily limited further increases, providing vital respite but, when the cap lifts in six months’ time, costs are expected to more than double again, with some manufacturers anticipating even steeper rises – some as high as 500%. It’s clear, therefore, that longer term solutions must be found to assure the viability of the sector over the coming months and years.
It’s not just energy that is a concern, our members are reporting rising costs across the board, with average prices of raw materials up 38%, semiconductors up 95% and logistics up 43%. While most have already implemented extensive energy saving measures and are absorbing increases where possible, the competitive and low margin nature of the industry has meant that almost nine in 10 are having to pass on costs, stoking inflation.
The news came as our latest figures revealed UK car manufacturing output rose for the fourth consecutive month in August, up 34.0% year on year to 49,901 units, while commercial vehicle (CV) production rose a remarkable 93.9% to 6,13 units. Taken at face value, this is good news. However, the car performance was -45.9% below August 2019’s pre-pandemic level of 92,158 units, while the CV increase is set against a very weak August last year when production lines were often halted as a result of dwindling semiconductor supplies and the Covid-related “pingdemic” disruption, all of which underlines the scale of recovery still needed.
Given this challenging backdrop, action is needed to restore stability and create a framework that safeguards the industry’s competitiveness as it transitions to net zero. Measures including the reform of business rates, enhanced capital allowances, the provision of affordable and secure supply of low carbon energy, and investment in new skills will all enable this critical sector to deliver the economic growth, productivity improvements, balance of trade benefits and job security the UK sorely needs.
We know our fundamentals are strong; we know that with the right competitive business environment we have the potential to grow well beyond recovery and support the UK’s growth ambitions – but recovery must come first. Rest assured, ahead of November’s next fiscal event, we are making all of this abundantly clear to government ministers and policy makers.
