With car production set to take a further dive, government should step in with ‘job support’ measures until the good times return, said IMI president Professor Garel Rhys in his keynote address at this year’s Institute of the Motor Industry (IMI) dinner.
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The motor industry must brace itself for the prospect of a “full-blown depression”, with a sales recovery to the level of 2007 unlikely before 2013 at the earliest.
Professor Garel Rhys accompanied this dire forecast with a call to government to support car manufacturing in Britain. “Nurturing the UK auto sector in these difficult times becomes an economic imperative, given government realisation at last that the British based motor industry is highly efficient and sustainable,” said Rhys, who heads the automotive industry research centre at Cardiff University Business School.
“We are not in a “V” shaped recession where the economy falls sharply but quickly recovers strongly as well,” he told guests at this year’s IMI annual dinner. “The best we can hope for is a sharp decline to a lower level that lasts two years and a sharp recovery. However, it has to be said that the recovery may not be sharp and could take many years of modest year-on-year growth to recover to the levels of 2007.”
Rhys noted that the British car market would fall from the 2.13m level of 2008 to around 1.6m. The EU markets as a whole had already seen a drop from 15.8m to 14.5m units in 2008 alone, with expectations of another fall, to around 13m, perhaps 12.5m, this year. “Given the wipe out in sales, particularly in former high growth, new accession countries, as well as large markets like Spain, Italy and the UK, the 2007 level of car sales will not be seen until 2013 at the earliest,” said Rhys.
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By GlobalDataTurning to government support, he said the “peculiar nature” of the UK consumer market and the auto industry made it difficult to devise a policy that helped the retail and manufacturing sectors at the same time.
“As 86% of all cars sold in the UK are imported and 78% of all UK car production is exported, with very impressive figures for vans as well, the links between any recovery in the UK car market and the motor industry in Britain is relatively weak. That is why any attempt to reflate the UK car market will not help the British car plants, and the wider supply chain, very much. So action to help the motor industry must be focused on the manufacturers and not the market.”
That was why he believed the government’s £2.3 billion-plus aid package for carmakers was “on the right lines”. Meanwhile, attempts to boost the retail market through, for example, vehicle scrappage schemes and guarantees to vehicle finance providers would need to be co-ordinated on a European basis to prevent a distortion of the market. “Any UK specific scheme will result in the British tax payer subsidising foreign car plants,” explained Rhys.
Because the UK car industry was efficient and therefore sustainable, he believed there was a sound economic case for retaining its existing resources until the good times returned.
“The government should consider further manufacturing support and look again at the job support schemes that exist on the continent. The Germans are in the process of extending the period of (job) support to 18 months, reflecting the long-term nature of the evaporation of car demand for German cars. The existence of such a scheme in the Netherlands meant that Corus job losses there were minimal compared with the UK. Job support schemes allow firms to hit the ground running when recovery occurs.”
Even under current conditions, Rhys said that some firms would still do well. “In the vehicle retail arena, companies that have invested in first rate activities, be it skills and training, human resource management, marketing, public relations, and so on, will reap the benefits of their endeavours. However, it will also flush out the mediocre with devastating results.”
