Midlands automotive sector resilient but cautious as it looks to the future

  • Midlands automotive sector’s growth and investment plans on track despite ongoing uncertainty
  • EU exit still seen as biggest threat to the sector
  • Growing appetite for international trade, especially in Western Europe and South America
  • Heavier investment planned in developing electric and driverless car technology

Automotive manufacturers in the Midlands remain resilient despite ongoing uncertainty presented by the global economy and the UK’s future relationship with the EU, according to new research released today by Lloyds Bank Commercial Banking.

Lloyds Bank’s third annual report on the UK automotive sector analyses the state of the industry, as well as the challenges and opportunities it faces.

The report, which gathered views from across the region’s automotive supply chain, found that firms’ growth and investment plans are on track despite ongoing uncertainty.

Investment and growth

The research revealed Midlands manufacturers’ average investment over the next two years is due to hold firm at 19 per cent of turnover, a figure that remains unchanged on the last time the research was conducted.

The region’s manufacturers are forecasting a 13 per cent growth in turnover over the next two years – slightly lower than the national average of 15 per cent – providing there are no political or economic shocks affecting demand or supply.

More than half of businesses (56 per cent) expect growth to come from new product development, while others plan to support growth by investing in existing products (41 per cent) and by creating new jobs (36 per cent).

EU exit remains biggest threat to UK automotive firms

More than a third of automotive manufacturers (38 per cent) consider the exit from the EU as the biggest threat to supply security over the next two years, while the same proportion said that leaving the EU was one of the biggest challenges facing the industry in the next two years.

However, Midlands manufacturers are also looking forward to a number of benefits from Britain’s exit from the EU, chiefly through more competitive exports from the ongoing weakness of sterling (38 per cent), more opportunities for mergers and acquisitions (29 per cent) and less bureaucracy and regulation (25 per cent).

International opportunities

Midlands automotive firms appear determined to pursue new international opportunities, with two thirds (67 per cent) investing in or planning to engage new international customers in the next two years.

Interestingly, the number of firms targeting new customers in Western Europe rose to 75 per cent, from 53 per cent a year earlier.

Those targeting North America – the biggest single market for UK-built cars after the EU – fell back slightly, from 53 per cent to 50 per cent.

Firms in the region are also diversifying their international targets, with firms looking at South America (up from three per cent to 38 per cent), the Middle East (up from 12 per cent to 32 per cent), Russia (up from six per cent to 12 per cent) and Africa (up from zero per cent to 12 per cent). Plans to export to the Far East/Asia fell from 35 per cent to 19 per cent.

Electric and driverless cars

Firms said they had ramped up their planned R&D investment from 15 per cent of turnover the last time the research was conducted to 24 per cent this year.

Companies plan to use this investment to develop low carbon or electric vehicle technology, with two thirds (67 per cent) focusing on this area, up from 54 per cent in the last report.

This could be a result of the 2015 emissions issue that 42 per cent of firms said had negatively impacted consumer confidence in the industry.

The sector has also set its sights on driverless vehicles, with 58 per cent of manufacturers stating they are already developing this technology, while a further eight per cent hold plans to do so.

David Atkinson, head of manufacturing, Lloyds Bank Commercial Banking, said:

“The automotive industry remains the UK’s largest manufacturing export sector with a national supply chain and a presence in every UK region.

“This report highlights an industry looking to the future, eager to put any uncertainty generated by the EU Referendum behind it.

“However, much rests on the nature of the UK’s future trading relationships with some firms continuing to put plans on hold as they await the full details of Britain’s exit from the EU.

“As the industry continues to experience its biggest period of transition for a generation, Lloyds Bank is well placed to support the sector’s plans and investment in new technology, as part of our Helping Britain Prosper plan.” 

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