The perfect storm continues to hit the UK motor industry. For all the problems that had accumulated, the energy is out of control and has a very negative impact on operating costs. Recovery is not in sight.
The motor industry in the United Kingdom does not stop accumulating problems. After reaching a peak of production in 2017, problems began to occur. First, the uncertainties of “Brexit” began, then the effects came, Honda closed its Swindon factory, COVID arrived, and then the supply crisis.
Production has continued to fall and fall, but has begun to recover in the last three months. Apparently this is good news, but energy prices are absolutely out of control. Costs are rising for manufacturers and it doesn’t look like they’re going to go down any time soon.
current production levels They are still almost half compared to the pre-pandemic years, but as can be seen in the following graph, the blame is not exclusively on the coronavirus. The country already shot itself in the foot when it narrowly voted to leave the European Union in 2016. It was the beginning of the catastrophe.
UK passenger car production since 2016 – Source: SMMT/Bloomberg
Now that manufacturers are beginning to weather the storm of a chronic shortage of parts from foreign suppliers, the energy crisis may be a major blow. And it is that the electricity pricesif they continue to fire, they are going to have a hard impact on the competitiveness of manufacturers.
The problem is by no means unique to the UK. The pulse between Vladimir Putin and the European powers is having very negative consequences for the economies on both sides of Ukraine. Energy is being used as a form of blackmail by Russiaand Europe remains firm in its support for the country invaded by force, despite the fatigue and accumulated cost.
But the situation in the United Kingdom is especially delicate, it depends on foreign investment to survive now and in the future. If high energy prices become chronic, and considering that prices cannot be raised indefinitely, the loss of competitiveness it can also be chronic.
The loss of competitiveness has a direct consequence, investors are scared away
The UK is highly dependent on exports. During 2021, 82.1% of its passenger car production was for export. This is not so much the case when it comes to commercial vehicles, 51.2% was exported, while 57.8% of the engines manufactured went to countries other than the United Kingdom. 2021 was a disastrous year for them, the worst since 1956.
If it weren’t for the crisis in Ukraine and energy prices beyond Earth’s orbit, it was expected to be a good year for its industry, between the relief of logistical problems and the increased production of electrified models. Well, it won’t be possible. Solving energy problems is anything but simple or fast.
For the SMMT, the British employers association for manufacturers, energy prices are “alarming”are 10 times above normal for this time of year, and politicians are reminding us day after day that winter will be harsh. There will surely be some cut or another of industrial energyas is already happening in China on time.
If Brexit had not happened, this would be a bit more manageable. The British are already discovering in practice that maybe it wasn’t such a good idea: traffic jams in ports, problems with the supply of basic foodstuffs or fuel, less professional mobility and unfilled jobs, even problems going on vacation in Europe.
Production planners may have to juggle, try to produce more when energy prices drop, and change their component stocking policy to have more flexibility. And while the lack of competitiveness is feared, the threat of the arrival of thousands of Chinese cars is no longer so diffuse.
Right now the motor industry in the United Kingdom is one of the most annoyed in all of Europe, without forgetting Germany, the leading producer, highly dependent on Russian gas, and which is preparing its population for a very harsh and cold winter. Where will the light be at the end of the tunnel?