Covid-19 Impact: More Job Cuts at UK Automakers to Cope-Up with Unprecedented Crisis

Summary

• UK’s Automotive industry has planned several job cuts during the Coronavirus crisis
• SMMT has reported nearly 90 per cent fall in UK Car sales during the month of May
• The Automotive industry is in dire need of rescue packages from the government

Britain’s largest automotive firm Jaguar Land Rover, popularly known as JLR is likely to axe nearly thousand non-critical roles in the United Kingdom due to the economic impact of the novel coronavirus. The job reductions are likely to provide the company an extra cushion of £5 billion and achieve operational efficiencies to ensure sustainability amid the unprecedented crisis caused by the pandemic. The decision came after the company incurred a loss of £539 million after taxation in the fourth quarter of 2020 in contrast to a profit of £119 million after taxation in the same period last year.

The unprecedented crisis induced by the pandemic wreaked havoc on the company’s quarterly sales. The retail volumes of the company dropped by nearly 31 per cent to 110 thousand units in the fourth quarter of 2020 from 159 thousand units in the same period last year. The Indian company, JLR is known for its Diesel-powered engines, and diesel engines are being discouraged by the carmakers as the industry is looking forward to transitioning to much greener technologies.

However, JLR has reportedly resumed operations in the UK. The company witnessed encouraging retail sales in Chinese markets. In addition, JLR managed to borrow £560 million from Chinese banks recently.

Another UK car maker, Aston Martin Lagonda Global Holdings Plc planned around 500 redundancies earlier this month. These redundancies would result in savings of £28 million for the company. The luxury automaker plans to recover from the slump in sales caused by the unprecedented crisis. Lookers Plc, a car dealership chain in the UK, closed some of its dealerships and is likely to cut 1,500 jobs.

Most of the carmakers in the UK resumed operations last month. According to the Society of Motor Manufacturers and Traders (SMMT), the car sales in the UK dropped by nearly 90 per cent to 20 thousand in May 2020 in contrast to more than 180 thousand in May 2019. This slump will lead to lesser car production. In March, SMMT indicated that the car production in the UK is likely to plunge to its lowest level since the financial crisis of 2008 due to the shutdown of factories amid lockdown induced by the deadly pandemic.

The factories have commenced operations. However, it is difficult to estimate as to when the demand and the production output would reach the pre-pandemic levels. Meanwhile, the automakers are accumulating a lot of debt to stay afloat during the unprecedented crisis.

The automotive industry is experiencing unprecedented and multiple headwinds. On one end, the industry is devasted by the economic impact of Covid-19. The industry is coping up with several challenges while switching to greener technologies from conventional technologies on the other end.

With the backdrop of uncertainties over an FTA with the US, trade tensions and Brexit, the UK automotive industry seems to be in dire need of sector-specific support schemes from the British Government. Let us discuss some recent business performances of Automobiles businesses operating in the UK.

• Aston Martin Lagonda Global Holdings Plc (LON:AML)

Aston Martin Lagonda Global Holdings Plc expects the trading to remain challenging for the remaining year and is chalking out strategies to control costs and ensure liquidity. In the first quarter of 2020, the luxury carmaker was able to raise the capital of £536 million. Due to the economic carnage caused by the pandemic, the group suffered a loss in revenue of 60 per cent to GBP 79 million in the first quarter of 2020 as compared with the corresponding period of the last year. The core retail sales of the company were down by 31 per cent year on year.

Aston Martin Lagonda Global Holdings Plc shares were trading at GBX 74.80 at the time of writing before the market close (at 08:20 AM GMT+1) on 17th June 2020, up by 0.81 per cent versus the previous day closing price.

Stock's 52-weeks High is GBX 1,067.00, and 52-weeks Low is GBX 30.70. Aston Martin Lagonda Global Holdings Plc’s market capitalisation stood at £ 1,127.85 million. On a Year to Date (YTD) basis, the stock delivered a negative price return of 86.45 per cent.

• Lookers Plc (LON:LOOK)

The UK based Lookers Plc is into the business of sales & service of automobiles. The group was already facing headwinds due to fraud investigation in one of its business divisions. This led to postponement in the release of the FY19 results. The situation was further aggravated by the economic impact of the novel coronavirus. However, the investigation is nearing completion. The FY19 results are expected to release in June upon successful validation and audit. In the prevalent circumstances, the Group is focused on safeguarding the health of its representatives and customers from the deadly virus.

Last month, the trading resumed across the group, according to Group’s recent trading statement. The company is operating its car dealerships with limited capacity. The headcount reduction and closure of sites would lead to savings of £50 million approximately. The company recorded a net debt of £57 million by the end of last month.

The company has been facing challenges in the prevalent market conditions due to retail cost inflation and weak customer confidence. The group is closely monitoring the impact of the novel coronavirus and is adhering to the social distancing and other safety protocols issued by the British Government.

Lookers Plc shares were trading at GBX 24.20 at the time of writing before the market close (at 08:23 AM GMT+1) on 17th June 2020, down by 2.81 per cent versus the previous day closing price.

Stock's 52-weeks High is GBX 72.60, and 52-weeks Low is GBX 11.00. Lookers Plc’s market capitalisation stood at £97.14 million. On a Year to Date (YTD) basis, the stock delivered a negative price return of 55.85 per cent. The stock has been highly volatile in comparison to the benchmark index as its beta stood at 2.04.