Car Output in The United Kingdom Slump to Its Lowest Since 2009

The coronavirus pandemic has taken a toll on every industrial sector in the United Kingdom. While some industries have been less effected on account of being able to provide services that are essential in the current situation, some industries are facing the risk of massive layoffs and companies going bankrupt. One of the major spaces is the passenger car segment of the automobile sector in the British economy, which has got a special significance not only on the economy but related segments like the auto parts as well. The industry is the largest exporter in the United Kingdom and one of the largest foreign revenue earners for the country. The sector while also being one of the largest employers in the country is also the one which is facing a risk of massive fall in its global competitiveness because of the pandemic. Many of the reputed companies in this industry were already in the red even before the onset of the pandemic. With the short to medium term scenario of the passenger car market looking bleak, these companies are now faced with the challenge of survival. The Society of Motor Manufacturers and Traders (SMMT), the industry body for automakers in the country has stated that the industry faces an output loss of nearly £8 billion this March, which is its lowest since 2009, because of the outbreak of coronavirus.

As per the SMMT’s latest data, car manufacturing in the month of March 2020 stood at 78,767, a massive 37.6 per cent decline from the figure of 126,195 for the month of March 2019. There was somewhat similar kind of fall witnessed for Home and Export manufacturing, the number of car manufacturing for Home segment stood at 16.969, down by 36.8 per cent from 26,867 for March 2019, while the car manufacturing for Export segment was down by 37.8 per cent to 61,798 as compared to 99,328 reported in the month of March 2019.

The industry, though, has furloughed a significant number of its employees taking advantage of the scheme announced by the government, but the industry body SMMT feels that it is not enough. The industry body feels that the government should come out with a separate package for the industry which will contain not only the workplace protocols regarding social distancing and other measures but should also include stimulus measures that will ease cash flow in the industry, and issue guidelines to progressively open up production lines and also take steps so that the customers are encouraged back to come back to the market. There are several car majors who have announced to open their production lines in the first week of May but with the lockdown conditions extending that now seems a distant possibility. The estimates given by several industries observes is that between March when the production lines were shut and mid-May by which time production lines were expected to be rolling the losses sustained by the industry, would be around £8.2 billion and the time extension could add up at least half as much.

The coronavirus pandemic has impacted the British car industry in more ways than one. Even when the pandemic had not touched the shores of the country, several auto companies had started issuing production warnings and revenue warnings. The industry is a large importer of automobile components in the country from China. Since the pandemic first broke out in the early weeks of January, factories and other establishments in China were shut down temporarily, resulting in restriction in movement in goods from that country. Automobile manufacturers in the United Kingdom who were scheduled to receive these components did not receive these components on time resulting in production losses. Again, when the pandemic did enter the shores of the country, a nationwide lockdown was imposed, resulting in a total stoppage of production. Now what the state of the economy is and what is expected from it when it opens up again leaves little scope for the industry to recoup its past losses. The loses of this industry will not only lead to a significant number of highly trained workers rendered unemployed but will also mean substantial tax revenue losses for the government.

During the past couple of years, the industry has been going through several transformative changes which had been causing considerable hardship to its participants. The advent of the lithium-ion technology has brought with it the possibility of electrically powered cars and several new start-ups who are vying to eat into the market of the existing players. In response to these threats, the current players each have launched multi-billion-dollar electric vehicle development programme, with some already launching several such vehicles in recent past and several other having their models in the pipeline. The year 2020 would have been a crucial year for many of these companies as their investments in this new technology would have started to yield returns. Apart from that, the problem of components has been a long-standing issue with the industry. The industry had been importing these components form smaller European union countries for many years; however, the British withdrawal from the European Union pushed many car manufacturers to tap suppliers from far off China, whose disadvantages are getting apparent now. The industry does not have any ready source of component manufacturers in the country which can fully take care of all its requirements. This problem threatens the industry to rip off its international competitive advantage, which has made it the largest exporter of the world.

The request of the industry for a separate package is apt in many ways. Not only will a package help in the industry rolling its production lines at the earliest, but it will also ensure that the exports for the country resume as soon as possible. In the post-pandemic period, it is very crucial that the country picks up its exports at the earliest, as this will be a major confidence booster for the rest of the economy, as well as consolidate the standing of the country internationally. It is also critical for the industry that it retains its technological edge and does not fall behind competing manufacturers from other countries, and for that, it will also require the support of the government, a fact that is very well portrayed by the industry body and understood by the government over the past couple of years. The importance of this support has never been so accentuated than it is now.

The British government has been making an all-out effort to support every business and job in the country. The car industry in the country just prior to the advent of the pandemic had been marred by a large debt burden on its books due to the new technology investments they made in the past few years. Support from the government, which provides financial backing as well as measures to spur demand in the country will go a long way in pulling out the industry from this turmoil.