Supply chain opportunities in the UK automotive sector

Today, industry body The Society of Motor Manufacturers and Traders (SMMT) launched a new report, compiled by KPMG, that sets out why the UK has become a destination of choice for global vehicle manufacturers. The report also explains the major supply chain opportunities that exist and what makes the UK an increasingly attractive market.

“With unprecedented levels of investment committed to UK automotive in recent years, the future for our industry is bright. It is clear that domestic suppliers have the potential to benefit significantly from increasing output volumes, but they need the right mix of government support and private investment,” said Paul Everitt, SMMT Chief Executive. “With robust global markets and a diverse mix of models produced here, we are more resilient than other countries to eurozone weakness, a key factor in encouraging businesses to invest in the UK.”

The report highlights that the UK’s key strengths lie in the varied mix of manufacturers that have all built reputations for quality and engineering excellence. Additionally, with the UK exporting to more than 150 countries around the world, the broad spread of export markets was cited as a positive factor in the country’s stability and future prosperity.

Business Minister Michael Fallon said, “This report reinforces the message that investing in the UK auto sector makes good business sense. We have some of the most productive plants in Europe, a highly skilled and flexible workforce and one of the lowest corporation tax rates in Europe. We have a good track record with global vehicle manufacturers investing £6 billion in UK projects over the last two years. However, there is no room for complacency. Government and industry are working together to make sure our supply chain companies exploit the £3 billion of opportunities that have been identified by the Automotive Council.”

Despite the strong body of evidence that demonstrates how the UK is one of Europe’s most attractive automotive industry locations, there are factors that pose a risk to ongoing success. To develop and keep pace with change, urgent action is required to address an impending skills shortage in key industry areas.

As technology advances, low carbon development grows in importance and vehicles integrate communication, safety and entertainment software, skilled engineers become increasingly sought after.

The other key area of concern identified in the report centres on the need to reinvigorate the lower tiers of the domestic supply chain. While 80% of parts required for automotive manufacture can be sourced in the UK, the capacity and ability of these suppliers to meet demand is not at the required levels.

The supply chain has endured years of erosion as manufacturers looked to Eastern Europe and the Far East to source parts. With the changing requirements of vehicle manufacturers, the benefits of local sourcing are now much greater, a fact that government should capitalise on. This sector of industry needs government to develop a long-term supply chain fund that boosts access to finance and takes account of longer return on investment periods.

John Leech, KPMG UK Head of Automotive, said: “Over the past year and a half, almost all of the major UK vehicle manufacturers have announced new model production plans, capacity enhancements or workforce hires in the UK.  All of this inward investment into Britain’s automotive industry shows long term commitment by global automotive industry players. As a result, vehicle production is expected to increase for at least the next three years, in spite of weakening demand from the Eurozone.

“Expected growth in car production is starting to reverse the trend of suppliers moving abroad. To capitalise upon these opportunities, UK suppliers will be looking to attract bank finance and overseas investment.  UK’s main competitor for such supply chain investment is Germany, which is still by far the largest producer of vehicles. Lower-cost Eastern European countries have also enjoyed significant investment in recent years despite experiencing higher cost-inflation. However, the UK is now narrowing this gap in competitiveness which gives confidence that we can bolster the UK supply chain over the long-term.

“At long last, the renaissance of the UK automotive industry is showing that it is possible to rebalance the UK economy. A rekindled automotive supply chain will also strengthen UK’s competitiveness in the wider manufacturing sector.”

> Download a free copy of the report