Faced with supply chain disruption, closed markets and furloughing, manufacturing output has decreased significantly since lockdown began in late March. However, the loosening of social distancing regulations means the sector may start to reopen over the next several months.
In particular, the UK’s £18.6 billion automobile manufacturing sector faces serious risks in the wake of the pandemic.
Last week, the UK auto industry warned that 1 in 6 manufacturing jobs are under threat and called for a dedicated ‘restart package’ to get the sector back on its feet as the lockdown begins to end. With around a third of automotive workers still furloughed, the need for support is critical with the job retention scheme set to end in November. The signs of further trouble are already evident: in June, 6,000 automotive jobs were cut, as markets remained closed and supply chains disrupted, although the reopening of car showrooms in England and Wales on 1 June may represent a lifeline.
Meanwhile, figures released by the Society of Motor Manufacturers and Traders (SMMT) this week reveal that UK car manufacturing output fell by an astonishing -95.4% in May, with a mere 5,314 being produced. Although an improvement on April’s numbers, exports have remained low, and the domestic market remained all but closed throughout the month.
SMMT also highlighted the risk of a no-deal Brexit, with the government committing to its unlikely 31 December deadline for negotiating a trade deal with the European Union. The report predicted a £40 billion cut in revenues by 2025 as a result of a no-deal—in addition to the £33.5 billion cost of COVID-19 production losses over the period. According to Mike Hawes, SMMT chief executive, a tariff of just ten per cent would add about £1,500 to the cost of a vehicle.
The automotive industry is just one front. A report produced this week by Santander UK and Make UK called Responding, Re-setting and Re-inventing UK Manufacturing Post-Covid reveals the serious hit manufacturing has taken, but tempers this with the opportunities for refocusing the post-COVID economy on the sector. The report notes that a quarter of manufacturing firms are still planning to make redundancy in the next six months, with over 40% believing normal trading conditions will not return for at least another twelve months. The forecast is less optimistic, predicting that it will take until at least 2022 for manufacturing to return to pre-COVID levels.
But firms are adapting to the new reality. For instance, 53% of firms are already reviewing their supply chains to reduce risk—particularly those reliant on components sourced from China.
In addition, the report gave a series of recommendations for placing manufacturing at the heart of the UK’s economic recovery, such as developing a National Skills Taskforce, safeguarding R&D spending and committing to make the UK a top five manufacturing nation. Meanwhile, a number of firms have called for UK manufacturing to “reshore” its supply chains to add domestic jobs and reduce reliance on uncertain international markets.
Is there any cause for optimism? Research by Cushman & Wakefield published on 30 June suggests there is—but not necessarily in the UK. The report identifies and ranks the countries best placed to restart their manufacturing sectors and return to normal once lockdown measures or associated restrictions are lifted. China, the United States, India, Czechia and Canada make up the list’s top five, noting, however, that there is still significant uncertainty surrounding global manufacturing.
The report also ranked countries by economic and political risk factors—in which Canada, the United States, Singapore, Germany and China came out on top—and overall cost ranking, including labour and operating costs. This latter category was led by developing economies in China, Vietnam, India, Malaysia and Indonesia.
Earlier this month, however, IHS Markit and the Chartered Institute of Procurement and Supply reported the seeds of recovery within UK manufacturing. Its monthly report revealed that the manufacturing purchasing managers’ index (PMI) rose to 40.7 in May from 32.6 in April, although this is below the 50 benchmark for overall economic growth. Much of the growth was linked to the manufacture of medical equipment and PPE. However, the report did note the continued uncertainty not just of the lockdown, but also of Brexit.
In addition, the automotive sector may be buoyed by the government’s plans to offer invest £73.5 million for advanced technology to cut carbon emissions. This, it says, will contribute to the automotive sector’s recovery and safeguard 14,000 jobs by contributing to the development of recyclable batteries, advanced electrical systems and ultra-lightweight components involved in the construction of electric vehicles. Companies including Ford Technologies, BMW Motorsport, Jaguar Land Rover and the London Electric Vehicle Company are set to benefit from the investment. It highlights a shift towards green technology as a vehicle for driving UK manufacturing growth—as well as protecting the environment.
It has, therefore, been a month of mixed news for the UK manufacturing industry, with uncertainty still hitting the sector hard. Manufacturing has been a hot political issue, and we can expect the government to offer further assistance as part of its evolving industrial strategy. However, with the risks of a no-deal Brexit still high and the end of lockdown not assured, it is still a tense time for businesses.