Updated: 4th March 2020
The Importance of Innovation in the Automotive Sector
Recent months have been particularly tough for companies within the UK’s automotive sector but there are still good reasons for them to be optimistic about the future, if they can get their strategies right, according to Julie Palmer, partner at RBR Advisory.
The automotive industry is often taken to be an indicator of how the wider British economy is performing and what its prospects are for the coming quarters. That’s no surprise perhaps given that the industry employs more than 180,000 people, contributes close to £20 billion to the Treasury on an annual basis and accounts for roughly 12 per cent of all exports heading out of the UK.
But the travails of the sector in recent months and years have been well documented. According to figures from the Society of Motor Manufacturers and Traders (SMMT), there were declines in new car registrations of 5 per cent in 2017 and 6 per cent in 2018. Signs so far this year are that 2019 will see another fall in new car registrations, with challenging operating conditions continuing for car companies, both manufacturers and retailers, across the country.
Part of the problem for automotive companies is that they’ve seen a sharp decline in demand for diesel-powered vehicles, with consumers increasingly inclined to seek out potentially more eco-friendly alternatives. Only a few years ago, diesel cars made up roughly 50 per cent of the UK market but that share has fallen significantly and diesels now only account for around a third of the nationwide market for new vehicles. Scandals relating to emissions testing and tougher regulations on the eco credentials of diesel cars have also contributed to their quite precipitous decline in popularity.
Meanwhile, car companies based in the UK have been faced with very significant uncertainty as a result of Brexit and the political wrangling over Britain’s departure from the EU. Carmakers rely to such an extent on their complex and often multi-national supply chains that they have been struggling to protect their operations and their finances from the impact of Brexit and particularly from the threat of a No Deal Brexit.
As Mike Hawes, chief executive of the SMMT has said: “It’s still hard to see any upside to Brexit. Everyone recognises that Brexit is an existential threat to the UK automotive industry, and we hope a practical solution will prevail.”