Another week, another multi-million pound investment in the UK automotive industry, or so it seems. The sector is riding high on the crest of a wave of international money flooding into the country. The funding is being used to create state-of-the-art production facilities, develop new models of car and, importantly, provide jobs.
The investment in recent years tots up to an impressive £5.8 billion and has helped to propel the sector back to the forefront of industrial policy. With every new spending announcement, another politician promises that manufacturing, and automotive manufacturing in particular, is going to pull the country from the grips of a double-dip recession.
The sector produces 1.5 million cars and 2.5 million engines every year. About 80% of these vehicles and 70% of the engines are sold overseas, making this the country’s largest export industry. In an average year the industry turnover is £50 billion, delivering £10 billion in net value-added to the economy and 3% to GDP.
Production rates are not yet up to pre-recession levels, but have been steadily rising for the past three years. In 2011, 1.34 million cars were produced, up from just under one million during the height of the recession in 2009. Earlier in the decade, production peaked at 1.65 million units in 2003. Forecasting by the Society of Motor Manufacturers and Traders suggests that by the end of 2015 the UK could be making 2 million cars a year – more than ever before.
Paul Everitt, chief executive of the society, says that reaching that landmark figure will depend on the stabilisation and steady growth of the global economy as well as the continued popularity of the models that are made here. But the underlying factor driving the rising production rates has been investment in the industry from manufacturers based here, he says.
There are seven volume carmakers dotted around the country and every one has chosen to pump millions of pounds into its facilities in recent years. There are several reasons why these international giants have chosen to invest here. Everitt explains: “UK facilities have worked hard over the course of the last 10 or 15 years to make themselves globally competitive. The relationship between company and employees is very strong, and the labour force flexibility gives us a very clear and definite advantage against competitors around the world.”
A stable policy framework has also helped to boost investor confidence, adds Everitt. He explains that, towards the end of the last Labour government, in the aftermath of the financial crisis, policy makers recognised that manufacturing was of strategic importance and that they needed to build stronger relationships with industry. Strengthening ties would ensure that the government created the most competitive conditions for investment, and this notion has been taken forward by the current administration.
Everitt says: “There is no doubt that the Regional Growth Fund, and before that the scrappage incentive, have helped to attract investment but I think the thing that has made the difference is a sense of stability and consistency in approach that developed under one administration and continued under a different one.” Plants now know which models workers will produce over the next 5-10 years, a situation that Everitt says the industry has never been in before.
But Professor Peter Cooke, head of the centre for automotive management at the University of Buckingham, has concerns over where all these British-made cars will be sold. He says that if they are destined for the Far East there could be trouble ahead as various indications of economic slippage have been reported in recent months. In the second quarter of 2012, China grew at its slowest pace since 2009.
“The next 12-24 months are going to be very tough. Beyond that, assuming we can get the financial situation working again, the market might start coming back,” he says.
Cooke adds that the industry needs to watch the growth rate in sales of products coming out of the UK. “I’m concerned that we have far too much excess installed capacity. If you look across Europe we have probably got an installed 25% excess manufacturing capacity.”