United Kingdom Autos Report Q4 2009

The UK automotive industry has gone from one of the worst hit markets in Western Europe to seeing its first growth in fifteen months, thanks to the scrappage scheme introduced by the government in May this year. Although the scheme has brought temporary relief to demand, BMI examines in its Q409 UK Autos Report how carmakers remain uncertain about the possible funding they could receive under the assistance programme announced for the industry in January this year.

Amid uncertainty encircling the aforementioned aid and plunge in vehicle sales domestically, UK car manufacturers were prompted to reduce production by nearly 18% year-on-year (y-o-y) in July this year, leading to a cumulative drop of 45.8% y-o-y over 7M09. However, this worsened with the fall in commercial vehicle output which was down a staggering 64% y-o-y mainly as the segment received little or no support from the vehicle scrappage schemes introduced both domestically and across Europe. BMI therefore maintains its production forecast of a 30% y-o-y fall, to 1.15mn units by end-2009, which is expected to be followed by a marginal 1% y-o-y increase in 2010.

In terms of sales, we are comparatively less optimistic than the overall industry consensus as we forecast vehicle sales to fall by 17% y-o-y this year, a much reserved outlook than the Society of Motor Manufacturers and Traders (SMMT) forecast of a 14.4% y-o-y contraction this year. For 2010, however, we expect the market to perform better than its other Western European counterparts such as Germany and France. But it is still likely to end 4.5% lower than 2009, mainly as an aftermath of the speeding vehicle sales in 2009.

Faced with the criticism for delayed-policy implementation, the government received a major blow with the rejection of its approved funding of GBP450mn (US$713.5mn) to Jaguar and Land Rover by its parent Tata Motors. The latter has finally sealed off its need for emergency government aid by securing a three-year debt facility of GBP75mn (US$124mn) from London-based Burdale Financial. On the brighter side, the funding portrays the strong image of the two British brands and the confidence that the market has about its future development. The market tasted another cake of optimism with Toyota announcing plans to produce a gasoline-electric hybrid version of its Auris hatchback in the UK from 2012, making it the carmaker's first hybrid to be manufactured and sold in Europe.

Although such announcements clearly prove carmakers' enthusiasm to invest and grow in the country, events such as the discontinuation of Ford Transit production in the country remind that the market remains quite vulnerable to erosion of production eastward. Some of this confidence however could be reinforced by a more-pro-active government support for the industry.