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THE INVESTOR
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flooded with European vehicles, often with very attractive finance
packages,’ says Phil Harrold,Automotive Partner at consultancy PwC.
Nonetheless, even if most UK motorists are buying overseas models,
British car manufacturing is thriving.
A healthy car industry is good for the economy – the sector employs
almost 800,000 people
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, including those in dealerships.Add in those
employed in component manufacturing and that figure doubles to 1.6
million, according to the SMMT. But it is not entirely a home-grown
success story, as most of the manufacturers are foreign-owned.
Three of them – Nissan, Honda andToyota – are Japanese; General
Motors isAmerican; Jaguar Land Rover is owned byTata of India; and
Mini is part of the BMW portfolio
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.
Historically, British brands such as Rolls-Royce,Aston Martin and
McLaren are primarily at the super-luxury end. Looking ahead, most
commentators believe that production will continue to rise, both at the
premium end and among volume manufacturers.
‘Exports of Japanese marques are expected to grow as European
economies recover. Even now, we are only seeing a return to pre-
recession levels so there’s plenty of room for growth,’ says Harrold.
Indeed, while Nissan and Jaguar Land Rover have seen volumes
grow by 43% and 56% respectively since 2007 – such that the two
marques now account for more than 60% of UK
output – Mini, Honda,Toyota and General Motors
are still well below pre-crisis levels
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. However,
investment patterns suggest that UK-based
carmakers are optimistic.
‘Over the past two years, more than £8 billion
has been invested in the UK car manufacturing
industry,’ saysTamzen Isacsson, Director of
Communications and International at the SMMT.
In one month alone (March 2015), more than
£1 billion of investment was announced – £600
million from Jaguar Land Rover in itsWest
Midlands plant, £200 million fromHonda in Swindon and £250 million
from Geely, the Chinese owner of the LondonTaxi Company.
There are high hopes that at least two million cars will be produced
in the UK by 2020
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. Car production is rising, newmodels are set to
come into production over the next few years and, encouragingly,
manufacturers are increasingly keen to source UK-made components
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.
Headwinds in China could curtail demand at the premium end, while
economic conditions around the world remain highly unpredictable.
Whatever the outcome, there is little doubt that the UK car market is in
a better shape than it has been for years.And with productivity growing
on the manufacturing side and PCP plans keeping motorists keen at the
consumption end, the mood is at least cautiously optimistic.
1, 2, 3, 4, 5, 7, 8 SMMT
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9, 10The Motor Industry in the UK –A Cool Shower of Reality
11The Future of UKAutomotive Manufacturing in 2025 and Beyond
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Ten to 20 years ago
it was all about car
ownership. Today,
leasing is the
dominant form
As the trade body for the industry, the SMMT would be expected to
put a rosy gloss on car data. But there is little doubt that the industry has
picked up substantially since the dark days of the 1980s.
In 1972 the UK produced 1.92 million cars, an all-time record. But
by 1982, production had more than halved to below 900,000
3
. British
Leyland disappeared as a car-manufacturing name and the UK industry
was widely considered to be on its knees.
Yet in recent years, manufacturing has staged a significant recovery.
In the first nine months of 2015, 1.17 million cars were made in
this country, an increase of 3.3% on the corresponding period in
2014. In September alone, output rose 15.5% year on year to more
than 158,000 vehicles.Moreover, the industry is leading the way in
productivity, with individual employees contributing twice as much
value to the economy as the national average
4
.
While impressive, these statistics mask a complex story. In 2014,
car-manufacturing output amounted to just over 1.5 million vehicles
– still significantly lower than the 1970s peak – while 80% of those
were exported. Furthermore, most of the new cars being bought in this
country are imported – almost 80% according to the SMMT
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.
‘There is an intriguing dichotomy between the industry and the
market. Car manufacturing is growing and new registrations are
increasing, but there is little overlap between
the two,’ says Professor Garel Rhys of Cardiff
Business School, Cardiff University. In other
words, manufacturing and consumption are
growing in parallel, but without there being a
direct link between the two.
The growth in new registrations has been
driven by both economic recovery and a
dramatic shift in how consumers buy vehicles.
Today, three in every four cars are bought using
personal contract purchase (PCP) plans
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, by
which motorists put down a deposit, pay a
monthly amount and, at the end of a certain period, either buy the car
outright with a balloon payment or swap it for a new one.
‘Ten to 20 years ago it was all about car ownership. People either
took out unsecured loans to buy a car or used hire purchase to
acquire their vehicle. It was the same with phones,TVs and other
electronic equipment. But today, leasing is the dominant form of
ownership,’ saysAdrian Dally, Head of Motor Finance at the Finance
and LeasingAssociation.
Annual figures highlight this trend. In the 12 months to September
2015, PCP loans amounted to £11.75 billion – 75% of the total new
car finance market. Hire purchase accounted for 17%, while personal
loans and leasing accounted for just 8% of the total
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.
PCPs also encourage motorists to trade in their cars for a new
model after around three years, which helps to drive new car volumes.
Their popularity has been bolstered by several years of exceptionally
low interest rates, which have kept costs low. But consumers have also
benefited from trends dating back to the financial crisis.
‘After the recession, car volumes slumped. British-based
manufacturers were able to take out capacity but Continental European
carmakers found it much harder because their labour laws are more
rigid.Their cars needed to go somewhere so the [UK] market was
Balance sheet
Although not quite back to its 70s heyday, the British car industry has
enjoyed a renaissance over the past few years, thanks to a change in buying habits and
economic recovery.
ANALYSIS
SECTOR FOCUS
