UK car output edged down in 2017 under the weight of a declining domestic market, but it nevertheless stood at the second highest annual total so far this century – 1.67m cars were produced.
The SMMT said that factories in the UK produced 1,671,166 cars last year. The 3% annual decline was the first decline for eight years and driven by a near 10% decline in output destined for the UK market. The SMMT said the UK market was impacted by declining business and economic confidence and confusion over government’s policy on diesel (which causes diesel car owners to put off new purchases). Exports also fell, though at a much lower rate, by -1.1%.
Go deeper with GlobalData
Overseas demand continued to dominate production, accounting for 79.9% of all UK car output – the highest proportion for five years. The EU remained the UK’s biggest trading partner, taking more than half (53.9%) of exports, while the appetite for British-built cars rose in several key markets, notably Japan (+25.4%), China (+19.7%), Canada (+19.5%) and the US, where demand increased 7.0%.
The SMMT said the significant decline in production ‘underscores the importance of government and industry working together to ensure the right conditions for the sector’. The Industrial Strategy and, in particular, a Sector Deal for automotive are important but must be supported across government ensuring all policies align to the goal of a vibrant and growing industry, the SMMT said.
Engine production up
The UK’s growing reputation as a centre for excellence in powertrain design and manufacturing, meanwhile, helped drive engine production to record levels. Demand for UK-built engines grew at home and overseas, with overall output up 6.9% to more than 2.7m – with 54.7% destined for car and van plants around the world, the majority in the EU. The growth is the result of significant investment in plants now producing high tech, low emission petrol and diesel engines. Last year, more than 1m diesel and 1.7m petrol units were built in Britain, delivering an estimated GBP8.5bn to the economy.
The SMMT said the engine output figures highlight the importance of diesel and petrol engine manufacturing in the UK – with some 8,000 people employed in engine production and 3,350directly employed in diesel engine production.
Brexit clarity sought
The SMMT also said – once again – that the UK automotive sector needs an ‘urgent agreement on the terms of a post-Brexit transition deal’. This, it said, must be comprehensive, result in no change and allow business to continue as usual until a new trading relationship with the EU is in place. This, it said, means maintaining the UK’s membership of the single market and customs union and addressing critical details that, if ignored, could have a damaging effect on the industry’s competitiveness.
The agreement must include guarantees that the UK will continue to benefit from EU Free Trade Agreements (FTAs) and Customs Union arrangements with third countries, for the full duration of transition. Latest SMMT calculations show more than 10% of UK car exports go to countries with which the EU has advantageous trading arrangements including South Korea, Canada, Turkey and, soon, Japan.
The SMMT also said that vehicle certifications that have been issued in the UK must remain valid at home and abroad so that vehicles can continue to be sold across the EU.
The SMMT also pleaded for no new customs checks during the transition, which it said would add cost, cause delays and disrupt manufacturing.
Mike Hawes, SMMT Chief Executive, said: “The UK automotive industry continues to produce cars that are in strong demand across the world and it’s encouraging to see growth in many markets. However, we urgently need clarity on the transitional arrangements for Brexit, arrangements which must retain all the current benefits else around 10% of our exports could be threatened overnight.
“We compete in a global race to produce the best cars and must continue to attract investment to remain competitive. Whilst such investment is often cyclical, the evidence is that it is now stalling so we need rapid progress on trade discussions to safeguard jobs and stimulate future growth.”
Investment down
Hawes spoke as SMMT also released new figures showing that UK automotive investment fell by 33.7% in 2017. Some GBP1.1bn of investment earmarked for vehicle and supply chain manufacturing was publicly announced last year, down from GBP1.66 billion in 2016.
Analysts say that investment decisions to UK plants are being put on hold until more is known about post-Brexit trading arrangements between the UK and EU, as well as the impact of Brexit on the UK economy generally.
‘Headwinds’ set up a ‘challenging 2018’
Stuart Apperley, Director and Head of UK Automotive at Lloyds Bank Commercial Banking, noted that car producers in the UK faces a number of headwinds, especially uncertainties around diesel and Brexit. He said: “The UK car production industry faced some strong headwinds last year. The negative noise around diesel and confusion about the impact of Clean Air Zones is clearly influencing consumer demand for diesel cars at home, and we’re starting to see the knock-on effect on production levels.
“There are a number of plants in the UK which are manufacturing a good range of petrol and electric or hybrid vehicles, but we also have big producers with a product range weighted heavily towards diesel.
“Brexit uncertainty also continues to hamper investment. Until the industry has clarity around our future relationship with Europe, it’s unlikely that we’ll see any significant levels of investment in UK plants.
“2018 could be a challenging year for car manufacturers, but it’s worth remembering that we are coming off the back of peak growth in the sector. A degree of normalisation was always going to happen, but it is being exaggerated by the backlash against diesel, a more cautious UK consumer and an industry somewhat in limbo as it waits for the Brexit cards to fall.”
Jaguar Land Rover biggest UK carmaker
Jaguar Land Rover was – again – the largest UK carmaker in 2017 (though Nissan’s Sunderland plant is the UK’s highest volume car manufacturing facility). The Tata-owned company said that it produced 532,107 vehicles last year, a 2.3% fall from a record high in 2016, at its three plants in Birmingham and Liverpool. It also produced 305,907 Ingenium engines at its engine plant in Wolverhampton. JLR recently said it is trimming car output in Britain in the second quarter, citing market conditions and the need to re-balance supply schedules for certain models.
