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UK automotive sector looks to future with caution

Staff Writer |
The UK automotive industry remains resilient despite ongoing uncertainty presented by the global economy and the UK’s future relationship with the EU.

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This is according to new research released today by Lloyds Bank Commercial Banking.

Lloyds Bank’s third annual survey of the UK automotive manufacturing sector and its supply chain analyses the state of the industry today and the opportunities and challenges it faces in the future.

The research revealed average investment over the next two years is due to hold firm at 19 percent of turnover and forecast a 15 percent growth in turnover over the next two years, providing there are no political or economic shocks affecting demand or supply.

Almost four in ten businesses (39 percent) expect growth to come from new product development.

While some plan to support growth by investing in infrastructure (22 percent) and pursuing mergers and acquisitions (20 percent), this fell back significantly on last year, from 43 percent and 35 percent, respectively.

Almost a third of automotive manufacturers (30 percent) consider the exit from the EU as the biggest threat to supply security over the next two years, while a similar number (29 percent) said that leaving the EU was one of the biggest challenges facing the industry in the next two years.

The weakness of sterling is also a challenge for manufacturers with more than a quarter (26 percent) identifying it as a potential issue. However, more than a third of businesses (34 percent) expect to benefit from a more competitive export environment.

Automotive firms appear determined to pursue new international opportunities as, over three quarters of firms (77 percent) are investing or planning to engage with new international customers in the next two years.

The number of firms planning to engage new customers in Western Europe rose slightly to 65 percent, from 61 percent last year. The number of firms targeting North America grew more strongly, from 46 percent to 53 percent.

The vast majority (87 percent) of automotive manufacturers plan to create new jobs over the next two years. If their plans are replicated across the UK’s automotive manufacturing firms, it would create almost 85,000 new jobs – a figure that remains unchanged year-on-year.

These job creation plans are underpinned by manufacturers’ reshoring activity. The last time the research was carried out 58 percent of firms said they planned to bring some manufacturing back to the UK within two years, growing to 64 percent in the latest report.

Technological innovation will continue to shape the sector over the coming years. Much of this innovation is to help cut vehicle emissions, addressing the fact that 62 percent of firms thought the 2015 emissions issue had a negative impact on consumer confidence.

UK manufacturers’ commitment to innovation has increased, with firms planning to invest an average of 24 percent of current turnover into R&D over the next two years, up from 17 percent.

Firms say this is due to manufacturers’ reinforcing their plans to upskill their staff or change their processes to develop low carbon or electric vehicle technology. This is being pursued by 64 percent of firms, up from 52 percent last year.

In particular, 57 percent of respondents said they had already made moves to develop driverless technology despite the field increasingly being occupied by new competitors such as Google, Apple and Uber.

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