More support for suppliers to UK automotive sector

A rebalancing of the supply chain from the Far East to local based suppliers and those with spare manufacturing capacity is having a dramatic effect on the health of the UK automotive sector.

A new report from Euler Hermes, the world’s largest credit insurer, says that the challenge now is whether those local suppliers can gear up sufficiently to meet demand, and whether they can obtain the necessary funding to exploit the opportunity.

“Smaller companies will find it more difficult to get finance and that needs to change,” says Shannon Murphy, Risk Underwriting Manager for Euler Hermes. “The global re-trenching by the UK based OEMs back to a localised supply base following the Tsunami in March 2011 is a clear trend, and that is encouraging. A phrase we hear increasingly today is ‘best cost, not low cost’ and to this end UK based suppliers are definitely back in favour, but they will need support.”

Shannon says that Euler Hermes’ exposure to the UK Automotive sector increased by almost 30 percent to £812.6m throughout 2011 – a clear indication both of the dynamism of the industry, and the credit insurer’s appetite for risk: “We are clearly playing our part in supporting our clients supplying to the sector,” he says. “It is now up to the Government and the Banks to ensure that similar support is available in terms of funding.”

With press commentary about the stalling economy, company failures and job losses, Shannon says that it is easy to forget that there are some sectors that are currently performing well: “The automotive industry has shifted into top gear with last year’s figures showing car production in the UK ahead by nearly six percent with 1,343,810 new cars rolling off the production lines,” he says.

“Last year was certainly a significant year for the UK motor industry following a series of major investment announcements by the global vehicle manufacturers with a total of £4bn of investment planned for the UK, securing new model programmes, production facilities and jobs.”

Shannon points to announcements from Toyota, Honda and Rover about plans to increase their workforces substantially, and a clear cultural shift in favour of ‘Made in Britain’ as a strong selling point for vehicles such as the new Range Rover Evoque. Jaguar Landrover (JLR) recently announced record results for the last quarter of 2011, and an especially buoyant export market in Asia. This is in turn good news for the supply chain: “We have seen significant requests for increased cover on suppliers into JLR as productions levels surge with the level of demand,” Shannon adds.

Recent figures revealed that the positive trend has continued into 2012 with 127,382 cars rolling off the production lines, 15.6 percent ahead of January last year. The majority of the cars produced in the UK – 83.4 percent – were exported.