UK Automotive Sector

How has the global economic downturn impacted the British automotive industry?

The major Original Equipment Manufacturers (O.E.M.s) reacted too slowly to the economic downturn and only started cutting production in the UK around the Christmas period, which meant there was a severe oversupply of vehicles in the marketplace. The year to date has seen a period of mass de-stocking, with the industry buoyed by the success of the scrappage scheme. In September 2009 new car sales rose by 11.4% compared with the same month last year. This was also the first time in 5 years that sales of new cars had been higher than in March, when the year’s other new registration number is released. The aftermarket has fared better during the downturn, as owners of larger family cars have chosen to maintain their existing vehicle instead of upgrading or buying a new one.

What is the current trend in payment delays, payment defaults and insolvencies?

With the oversupply of vehicles, extended terms will be sought as manufacturers seek to reduce stocks. The biggest dealerships are currently cutting costs to cope with the downturn. However, a number of smaller dealers have already fallen by the wayside. The scrappage scheme has ensured that the industry in general has avoided major insolvencies, although the recent announcement of the closure of a Jaguar plant reminds us that major manufacturers continue to strive to increase their efficiency and competitiveness in this sector.

What should companies selling products into the automotive sector pay particular attention to?

Identifying the part that a company plays in the supply chain is key. We have seen that the aftermarket has held up reasonably well, and the scrappage scheme has boosted the sale of new cars. UK design engineering, which generates a turnover of some £ 650 million, with around 65% exported, has been able to benefit from the success of the scrappage schemes throughout Europe. However, it is also clear that the scheme has benefited almost exclusively smaller more efficient cars bought by consumers while, outside of the city car and supermini sectors, sales remain poor, and corporate sales - which previously accounted for half of the new car market - have not benefited at all.

What is Atradius’ short term (6 month) outlook for the automotive industry?

The industry recently welcomed the Government’s announcement that it would be extending the fundingavailable under the scrappage scheme to £400 million from £300 million to run to February 2010. However, despite this, we believe the marketplace will remain difficult in 2010 as new car sales will come under pressure, as many consumers will already have bought their new vehicles earlier than planned because of the incentive of the scrappage scheme in 2009, and because thatscheme will eventually be wound up.  Moreover, the VAT rate returns to 17.5% on January 1st.