Car industry investment slumps on back of Brexit fears

Inward investment into the UK car industry effectively stopped in the first half of the year as the sector spent heavily on preparations for a no-deal Brexit.

In the period January-June, newly pledged investment was down more than 70% to £90m, contrasting with the average annual investment figure of £2.7bn over the previous seven years, according to the Society for Motor Manufacturers and Traders (SMMT).

While the SMMT said Jaguar Land Rover’s announcement earlier this month that it will manufacture a range of new electrified vehicles at its manufacturing plant in Castle Bromwich, safeguarding several thousand jobs, was “exceptional good news”, it is “something of an outlier” as the vast majority of manufacturers have suspended plant and product spending in the UK amid ongoing uncertainty.

At least £330m has already been spent by the sector on contingency plans.Most major UK manufacturers have tied up working capital stockpiling materials and components, securing warehousing capacity and investing in new logistics solutions, additional insurance and training in new customs procedures.

Many manufacturers have moved annual plant shutdowns from the summer to April, a measure which cannot be repeated for the proposed October departure date.

The SMMT also released figures for British car manufacturing output, which fell by more than a fifth in the first half of 2019, with a -15.2% decline in June marking the 13th consecutive month of negative growth.

666,521 cars rolled off production lines in the first six months, a year-on-year loss of 168,052 units.

In June, output for the UK rose by 2,791 units following an anomalous -47.2% decline in the same month last year when preparation for the new WLTP emissions test impacted volumes. The underlying trend, however, remains downward, with year-to-date production for the domestic market down -16.4%.

Meanwhile, the number of cars built for export fell by -19.8% in June and by -21.0% in the first half of the year, with just over half a million units shipped overseas given softening of key overseas markets and global trade tensions.

Mike Hawes, SMMT chief executive, said: “Today’s figures are the result of global instability compounded by ongoing fear of ‘no deal’. This fear is causing investment to stall, as hundreds of millions of pounds are diverted to Brexit cliff-edge mitigation – money that would be better spent tackling technological and environmental challenges.

“The industry’s foundations are fundamentally strong, however, and we’re ready to work with the new government to build on these through the industrial strategy. We need an internationally competitive business environment to encourage more investment, more innovation and more growth. That starts with an ambitious Brexit deal that maintains frictionless trade and we look to the new administration to get a deal done quickly so manufacturers can get back to the business of building cars and helping deliver a brighter future for Britain.”