Article:

The road narrows ahead - for the UK automotive supply chain

20 April 2021

The UK automotive industry built on a firm foundation and rich heritage of engineering innovation and cutting-edge design, is now entering a period of significant upheaval. After several years of substantial growth, investment and production, consumer demand started to decline in 2018 further accelerating in 2020 as a result of COVID-19 resulting in significant job losses and plant closures. 

In the coming years, the industry will have to navigate further challenges and reimagine its future – through technology changes, more stringent emissions legislation, post Brexit rules of origin requirements and changing consumer habits. 

Key issues facing the UK Automotive Supply Chain

Legislation

  • Emissions legislation – CO2/km target for new cars 95 gm in 2021 (to 50 gm by 2030). EU stage IV emissions requiring engine manufacturers to reduce the NOx and PM 
  • UK Low Emission Zones (LEZ) restricting use of vehicles with higher pollutant rates 
  • UK ban on petrol and diesel cars from 2030.

Trends

  • Autonomous vehicles 
  • The green agenda and decline of the internal combustion engine – EU 2030 forecast is 29% of total vehicles produced, from 95% in 2018 
  • Industry consolidation. 

Global Trade

  • Global slow down and trade tension between China and the US 
  • EU-Japan economic trade partnership (February 2019) removing tariffs between parties.

Brexit

  • Although a last minute trade deal reduced the risk of major supply chain disruption, increased bureaucracy and red-tape at the UK / France border has caused delays and some OEM plants to temporary halt production 
  • Rules of origin requirements – 40% (45% from 2023, 55% from 2027) of the value parts must be manufactured in the EU or UK 
  • Ongoing reduction in OEMs placing new model variants into UK. 

COVID-19 

  • Virtual closure of all automotive manufacturing in April – June 2020 
  • Significant decline in consumer and commercial demand 
  • Volumes likely to take up to three years to recover to pre COVID-19 volumes.

The road ahead

Understanding these challenges but looking for the opportunities through lessons learnt from comparable situations is important. The article illustrates the story to date, identifies which businesses are considered most at risk and explores what winning moves are available to management teams to successfully navigate the road ahead.

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If you would like to discuss anything you have read please contact Ryan Grant or Stephen Cooney. You may also be interested in referring to The future of the UK manufacturing sector: surviving in the new reality data analysis of the impact of COVID-19, actions for recovery and cash management to provide you with a broader picture of the industry.