Government backing of car industry puts economy on the right road say analysts

THE Government’s commitment to inject £500m into the UK automotive industry – which will be match-funded by a further £500m from the industry itself – sends out a powerful message to the manufacturing sector, a Birmingham-based analyst has said.

The commitment to support the growth of vehicle manufacture and component supply comes as part of a joint automotive strategy between the government and industry in support of multi-billion pound investments announced in the last few years by global automotive companies to boost production levels and develop new technologies and models.

The move promises to pump £1bn in additional funds into the industry over the next decade to ensure the sector maintains its current advantage.

Developed under Automotive Council (AC) guidance, industry and government will fund and resource investments in a range of projects including the creation of an Advanced Propulsion Centre, thousands of new motor industry apprenticeships and the creation of an Automotive Investment Organisation.

The development of the strategy also sees the provision of finance for tooling investments in the supply chain, and a renewed commitment to encourage the UK as a lead market in the production and sale of low emission vehicles.

John Leech, Birmingham-based UK head of automotive for KPMG, said: “This announcement sends a powerful message in support of the UK automotive industry’s ambitions.  This is a further commitment from the Government (it announced a £500m injection of funds into key sectors in March 2013) that it is right behind the UK’s booming automotive industry, which according to figures from the SMMT, saw double digit growth of 13% in the last year, and now employs 275,000 employees.  

“The UK has a strong automotive heritage and is now home to many companies working on advanced technologies, most notably low-carbon vehicles and lightweight materials where the Government is focussing its support.”

He said the creation of the Advanced Propulsion Centre would further reinforce the UK’s position as the leading centre for the technological development of low emission engines and help create a forum for collaborative working across the industry similar to the structures seen in Germany.

“The Government has done a good job at getting the buy-in of all the major automotive companies based here in the UK. Yet, others outside the industry may query why it is necessary to provide further government support, given that car manufacturers have announced over £6bn of private investment, which will create a large £3bn commercial opportunity for suppliers and lead to recent UK investments by suppliers such as BorgWarner, Lear Corp, TRW and GKN to name but a few,” said Leech, left. 

“The answer is that suppliers are looking for confidence in the long-term future of the UK automotive industry. Government financial backing of emerging propulsion technologies, together with a forum for ongoing collaboration between Government and the industry, sets an environment for investment to flourish not just today but for the rest of this decade and beyond.
 
“However, if the UK is to continue to play an important role in the automotive supply chain then it needs to begin investing to achieve a global footprint.  The anticipated new tooling loans being developed by some of the UK’s corporate banks will assist in helping those companies ambitious enough to take this step forward and help reserve a future.”

The key elements of the AC strategy include:
•    Technology – the creation of an Advanced Propulsion Centre to support and enhance the UK’s expertise in research and development.
•    Inward investment – the creation of the Automotive Investment Organisation to drive UK investment by global automotive component companies.
•    Skills – an industry framework for skills and a skills roadmap, including the creation of 7,600 apprenticeships and 1,700 graduate opportunities in the automotive industry.
•    Supply chain – driving growth and competitiveness including creating a framework with suppliers, vehicle manufacturers and banking organisations to solve the problem of financing tooling investment.
•    Low carbon – financial support to encourage consumers into lower emission vehicles, and to grow investment in the manufacture of low and ultra-low emissions vehicles and components.
•    Business environment – establishing better cross-government relationships by including HM Treasury on the Automotive Council to ensure the UK remains an attractive place to invest.

Mike Baunton, SMMT Interim Chief Executive, supported Leech’s comments, saying the motor industry was a major contributor to the UK economy and as an industry, had been increasing that contribution in a challenging economic environment.

“In partnership with government, we have now developed a roadmap to secure further long-term growth that is detailed in the strategy document launched today. Our goals are to grow vehicle production and component supply with more investment, jobs and advanced technology developed in the UK,” he said.

“The AC is an exemplar of industry and government working together to build long-term success and it is through the council that we will implement the roadmap.
“I am confident that the strategy and the joint investment by government and the industry will make the UK an even more attractive place to design, build and sell automotive components and vehicles.”

The strategy has also won the backing of the CBI.

Katja Hall, the confederation’s chief policy director, said: “This strategy sets out a bold vision for long-term growth right across the automotive sector, which is at the front line of the drive to rebalance our economy.

“The investment should go a long way towards making the UK a globally-competitive place for automotive research and development.

“Strengthening the supply chain is rightly identified as a major priority. The creation of the new Automotive Investment Organisation will help, alongside action to improve suppliers’ access to finance and delivering on the skills roadmap so firms of all sizes can access a wider pool of talented graduates and apprentices.”