Having just published my first analysis of the Automotive sector, I wanted to share my thoughts on some of the key trends and market forces this important sector is facing.

In 1978, while the country was beset by strikes during the infamous ‘Winter of Discontent’, Prime Minister Jim Callaghan ordered a couple of UK-designed and produced Rover cars from British Leyland.

Despite the fact that the vehicles were for the Prime Minister, this neither focussed the minds of the strike-happy British Leyland team, nor improved the quality of their work. Numerous faults were identified after they eventually arrived and the cars were duly sent back to the factory for a second attempt.  

When the cars returned to Downing Street, all seemed to be finally in order, so it was with some confidence that the Prime Minister asked his chauffeur to take him and his new pride of joy out for a short drive. After just a couple of minutes, the Prime Minister enthusiastically pressed the button to lower one of the car’s new-fangled electrical windows. The descent of the window was swiftly followed by the descent of something far gloomier as the window promptly fell out and onto the London street below. For an industry that had, as recently as the early 1950s, exported more cars than any other country in the world, this was the spectacular nadir of an even more spectacular fall from grace.

"The UK Automotive industry adds over £15.3bn in value to the UK economy."

Source: SMMT

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These days, the UK automotive industry is in a far healthier state, adding over £15.3bn in value to the UK economy while employing more than 864,000 across the sector and accounting for 13% of UK exports. Housing world-leading R&D facilities, manufacturing centres and design hubs, it has evolved to become a key supplier of vehicles, engines and components to hundreds of countries across the globe.

The UK’s transport industry, meanwhile, is as frequently used and as densely populated as the country itself - 873 billion passenger kilometres were travelled in Britain in 2019 (an increase of 11% from 2009), while logistics alone saw £9.3 billion of investment in 2020 (up from £7.7 billion in 2019).

Green Revolution

In terms of issues affecting the automotive, transport and logistics sector, in 2019 the UK became the first major economy in the world to pass laws to bring all greenhouse gas emissions to net zero by 2050, compared with the previous target of at least 80% reduction from 1990 levels.

This is obviously a global issue and one which is now receiving substantial legislative support in an attempt to arrest global warming and reduce emissions. The majority of clients we speak to now have this firmly in their sights and are already on a sustainable path having introduced ‘green’ measures such as low-cost energy and process efficiency measures. Of course, there is undoubtedly some way to go, particularly in transport which accounts for 50% of UK domestic nitrogen oxide emissions. Much of this will require material investment, and there are currently some tax breaks on capital expenditure together with various government backed grant and loan schemes which will help encourage investments in these areas, but it is clear that this is a long-term play and a longer term investment strategy will be required.  

The Supply Chain and Inflation Threat

As we have seen across all sectors, the global supply chain crisis has been having a hugely detrimental impact, aligned as it is with a rapid rise in the price of goods to create something of a ‘perfect storm’. For example, the ongoing global shortage in semiconductors has already caused a 27% drop in UK car production year on year to August. Significant price rises include those in raw commodities such as steel where the year on year price was up an extraordinary 70% in May. This price was seen as ‘toppish’ and, much to everyone’s relief it started to fall back over the summer. However, ominously, it is once again creeping back up to that level.  

The Future

In terms of the future, for the logistics sector there is the opportunity provided by changes in consumer behaviour such as the Covid boom in online retailing (online sales rose by £34bn in 2020), while in transport it is the requirement to provide the infrastructure for new forms of transport such as Connected and Autonomous Vehicles (CAVs).

In automotive, CAVS are also particularly key as the UK is playing a central role in their actual development, having joined countries such as Japan, USA, Germany and South Korea as a world leader. The Society of Motor Manufacturers and Traders (SMMT) estimates that, by 2030, CAVs will have boosted the UK economy by £62bn and added over 420,000 new jobs, 55% of which are expected to be high-skilled.

Sources used in this article:

SMMT Motor Industry Facts June 2020

www.smmt.co.uk

Knight Frank UK Logistics Market Outlook 2021

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