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Summary
- Due to Covid-19 impact, the automotive sector could reduce its workforce by one-sixth
- SMMT calls for a dedicated bailout package with new policies to facilitate investment and growth
- Recent stock performances of AML, LOOK, and TIFS
The automotive sector contributes billions to the UK’s economy in terms of foreign reserves by exporting its products to the world. The automotive sector could witness job cuts by more than 16 per cent due to the economic impact of the novel coronavirus, according to the SMMT (Society of Motor Manufacturers and Traders).
The UK automotive sector has already announced more than 6,000 job cuts in June. Nearly 33 per cent of the sector’s workforce has been furloughed. The annual car and light commercial vehicle production volumes are expected to go down by 30 per cent to 920,000 units in 2020, due to the economic impact of the deadly pandemic.
Britain’s largest automotive firm Jaguar Land Rover, popularly known as JLR is likely to axe nearly a thousand non-critical roles in the United Kingdom due to the ongoing coronavirus crisis. This would provide the company an extra cushion of £5 billion and achieve operational efficiencies to ensure sustainability amid the unprecedented times. The decision came after the company incurred a loss of £539 million after taxation in Q4 2019 in contrast to a profit of £119 million after taxation in the same period last year.
The business 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 during Q4 2019, down from 159 thousand units during the same period last year. An Indian-owned company, JLR is known for its diesel powered engines, which are generally discouraged by the car makers as the industry is looking forward to transitioning to much greener technologies.
Another UK car maker, Aston Martin Lagonda Global Holdings Plc planned around 500 redundancies earlier this June. These redundancies would result in a savings of £28 million for the company. The luxury automaker plans to recover from slump in sales caused by the unprecedented crisis. Lookers Plc, a car dealership chain in UK, closed some of its dealerships and is likely to cut 1,500 jobs.
Most of the car makers in UK have resumed operations last month. According to the Society of Motor Manufacturers and Traders (SMMT), the car sales in UK dropped by nearly 90 per cent to 20 thousand in May 2020 in contrast to more than 180 thousand cars sold during May 2019. This slump is definitely leading to much lesser car production. In March 2020, SMMT had indicated that the car production in 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.
In the present scenario, a prolonged shutdown is hurting the economy badly. The businesses are dealing with severe liquidity pressures as the coronavirus has squeezed the demand out of the system. The businesses already dealt with a pot of uncertainties with respect to Brexit and shifting to greener technologies in the pre-pandemic era. With lockdown easing, the showrooms have reopened, however, a lack of consumer confidence and lessened demand have pushed the sector backwards.
SMMT calls for a dedicated relief package for the resurrection of the automotive sector. The sector is expecting government aid in terms of ease of access to funds, reduced business hours, tax cuts, and instilling consumer confidence by rolling out new policies. With the support of investment, which is needed to switch to a greener future, the sector is likely to go in for a sustainable reboot.
According to some media reports, the new car scrappage scheme 2020 is likely to be rolled out in July 2020. The car buyers would be offered discounts of up to £6,000 on buying new hybrid and electric cars and scrapping their conventional liquid fuelled cars. These schemes would not only boost the economy but also set an example for other sectors to roll out environment friendly schemes in the post-Covid era. These kinds of policies could spark investment and growth opportunities for the sector.
With the prospect of a no-deal Brexit, UK must expedite a free trade agreement with the United States and Europe. Liquidity injection and lesser tariffs could act as potential growth catalysts for the sector and eventually lead to more investments. These measures would help the sector in taking major strides towards a zero-carbon future. With FTAs in place, the industry could be back to its pre-crisis levels in just about five year’s timeframe, according to the SMMT.
Let us discuss the stock performances of some automotive businesses listed on the LSE.
- Aston Martin Lagonda Global Holdings Plc (LON:AML) shares were trading at GBX 63.60 at the time of writing before the market close (at 10:37 AM GMT+1) on 25th June 2020, down by 0.63 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 £ 972.81 million. On a Year to Date (YTD) basis, the stock delivered a negative price return of 88.31 per cent.
- Lookers Plc (LON:LOOK) shares were trading at GBX 20.20 at the time of writing before the market close (at 10:39 AM GMT+1) on 25th June 2020, up by 0.75 per cent versus the previous day closing price. Stock's 52-weeks High is GBX 64.50, and 52-weeks Low is GBX 11.00. Lookers Plc’s market capitalisation stood at £ 78.22 million. On a Year to Date (YTD) basis, the stock delivered a negative price return of 64.45 per cent.
- TI Fluid Systems Plc (LON:TIFS) shares were trading at GBX 181.00 at the time of writing before the market close (at 10:40 AM GMT+1) on 25th June 2020, down by 1.63 per cent versus the previous day closing price. Stock's 52-weeks High is GBX 273.00, and 52-weeks Low is GBX 122.80. TI Fluid Systems Plc’s market capitalisation stood at £ 957.30 million. On a Year to Date (YTD) basis, the stock delivered a negative price return of 30.43 per cent.
