United Kingdom Autos Report Q2 2008

The UK's automotive industry is abuzz with activity, demonstrating the ongoing attractiveness of doing business there. As BMI illustrates in the latest UK Automotives Report, industry majors have earmarked significant investment for the sector, which augurs well for long-term growth. Moreover, the UK has reported positive gains in terms of output, despite facing a threat from manufacturing bases in Eastern Europe.

Vehicle production and exports in the UK reached record levels in 2007 and all indications are that the country is on its way to re-establishing itself once again as a leading manufacturing hub. According to data from the UK's Society of Motor Manufacturers and Traders (SMMT), total output reached 1,750,259 units in 2007, up by 6.1% on the previous year. Total exports climbed by 6% year-on-year (y-o-y) to 1,317,027 units. The positive results show that producing vehicles in the UK can still be profitable for carmakers vis--vis Eastern European countries.

BMI expects vehicle production to reach 2mn units in 2008. However, although key players such as Nissan have expressed a long-term commitment to manufacturing in the UK, rising material and fuel costs on top of unfavourable exchange rates could still erode the competitiveness of UK output, especially against Central and Eastern Europe, which offer manufacturers relatively cheaper manufacturing costs and facilitate access to burgeoning markets.

Fresh investment this quarter comes from Honda and Toyota. Honda has earmarked investment of GBP80mn in order to upgrade its plant in Swindon. Around GBP20mn will be spent on plastic operations, GBP16mn on casting and GBP50mn on welding and painting production technology. A significant number of new jobs are expected to be created as a direct result of the investment.

Toyota, for its part, has announced investment of EUR115mn (GBP88mn) for the UK. The capital will be used by the manufacturer to produce a new 4-cylinder, 1.3-litre petrol engine at its plant in Deeside, north Wales. The importance of this development for the UK's automotive industry was summed up by Tokuichi Uranishi, Executive Vice-President of Toyota Motor Corporation, who said, 'This announcement recognises the quality of the UK workforce and demonstrates Toyota's confidence in our UK investment and continued efforts towards local production'.

With respect to car sales, results so far this year demonstrate the resilience of the country's new car market against a challenging economic backdrop. Growth in the new car market was better than expected in March 2008, with sales edging up by 0.5% y-o-y to 451,642 units. Sales for the first three months of the year dipped, however, by 0.7% to 683,349 units. In BMI's view, a fall in consumer confidence on the back of tighter lending controls may hold down new car sales this year. Our forecast for sales in 2008 currently stands at 2.33mn units.