Editor's letter: Sucking the energy out of the UK car industry
Raw-material costs have increased by 38% and semiconductors have almost doubled in price
UK car production fell 46% in August as manufacturers delayed investments, reduced shifts and cut jobs
A gloomy report from the Society of Motor Manufacturers and Traders (SMMT) last week painted a very bleak picture of the latest crisis engulfing the automotive industry.
Hot on the heels of Covid and the semiconductor shortage comes the energy cost crisis, which is now directly impacting the investment decisions of SMMT members. Some 41% of members surveyed said they had delayed or cancelled planned investments and around 10% were already cutting shifts or even jobs.
Automotive vehicle and component manufacturers have already seen their collective bills rise by more than £100 million to surpass £300m in the past year. Government support over the winter will stop further increases in energy bills for six months, yet the cliff edge is there when this ends, and costs are expected to more than double again next year.
It’s not just energy bills going up, either. The SMMT report shows raw-material costs have increased by 38%, logistics costs by a similar amount, and – your friend and mine – semiconductors almost doubling in cost.
Costs are being passed onto consumers – consumers who are ever poorer, due to the cost of living crisis, the latest strain of which is a rise in interest rates that will make new car purchases even more expensive.
A glimmer of good news is hard to find, even for your eternally optimistic correspondent. How to solve it, then? The SMMT suggests a whole series of reforms to put the industry back on stable ground and to look at growth rather than survival once more.
"Reform of business rates, enhanced capital allowances, an affordable and secure supply of low-carbon energy and investment in new skills can enable this critical sector to deliver the economic growth, productivity improvements, balance of trade benefits and job security the UK sorely needs," said SMMT boss Mike Hawes.
Will the government heed the warning and respond positively to this wish list? The stakes are as high as they've ever been, as it feels increasingly like a real crunch time for the manufacturing base in this country, in an industry already well under way with the generational change of electrification.
The anchor is being pulled up on the electrification ship, and it's ready to go with or without the UK aboard it. Act now on some of these reforms and the government can make the UK automotive industry an attractive investment proposition once more in the electrification era.
As the SMMT stats show, far from investing, those affected businesses are now even cutting. The tanking of the pound this week has only exacerbated the crisis in many areas for businesses, with any potential boost for export-price competitiveness more than swallowed by the increase in commodities used to build the products in the first place.
Rather than reforms, what this government does seem to have found so far is plenty of money down the back of the sofa, costed or otherwise. Yet throwing money at this particular problem – the energy crisis – won't solve it, merely kick it down the road and provide respite.
The issues and solutions that Hawes has proposed are long-term ones, requiring strategic planning, thinking and staying power, not whimsical change or boom-or-bust policies from behind the revolving doors at Numbers 10 and 11. Time for some grown-up thinking – and actions.