UK car production plunges 20% in first half of 2019 due to Brexit uncertainty

UK car production fell for a 13th consecutive month in June new data showed, with companies left holding a £330m 'no deal' mitigation bill.

The Society of Motor Manufacturers and Traders (SMMT) revealed in a report released on Wednesday that British car manufacturing output fell by over a fifth in the first half of 2019 and by-15.2% in June.

The report revealed 666,521 cars rolled off production lines in the first six months of the year, a year-on-year reduction of 168,052 units due largely to falling demand in key markets.

In June, output in the UK rose by 2,791 units; however, the underlying trend continued to point downwards, with year-to-date production for the domestic market off by -16.4%.

Meanwhile, the number of cars built for export dropped by -19.8% in June and by -21.0% in the first half of the year.

Exports to the sector’s top global markets fell by double digits, with the US down -12.9%, China down -53.1%, Japan declining by -10.5% and Turkey by -93.0%. Demand in the UK’s biggest market, the EU, also fell, by -15.6%.

The news comes after costs for the sector of at least £330m for Brexit contingency plans.

These contingency plans include tying up working capital, stockpiling materials and components, securing warehousing capacity and investing in new logistics solutions, additional insurance and training in new customs procedures. Significantly, many manufacturers had already moved annual plant shutdowns from the summer to April, a measure which cannot be repeated for the proposed October departure date.

Mike Hawes, SMMT Chief Executive, said, “Today’s figures are the result of global instability compounded by ongoing fear of ‘no deal’. This fear is causing investment to stall, as hundreds of millions of pounds are diverted to Brexit cliff-edge mitigation – money that would be better spent tackling technological and environmental challenges.

“The industry’s foundations are fundamentally strong, however, and we’re ready to work with the new government to build on these through the industrial strategy. We need an internationally competitive business environment to encourage more investment, more innovation and more growth. That starts with an ambitious Brexit deal that maintains frictionless trade and we look to the new administration to get a deal done quickly so manufacturers can get back to the business of building cars and helping deliver a brighter future for Britain.”

Hawes and the sector are concerned about how Brexit will impact investment. Hawes said: “But the most worrying figure is investment. The fear of no deal is causing investors to sit on their hands. There is political uncertainty. There is economic uncertainty.

“The worst outcome would be no deal, that’s what they fear and that is why they are not investing. In terms of underlying trends, undoubtedly £90m is pitiful.”

He added: “Investment-wise, over the last seven years we’ve averaged about £2.5bn to £2.7bn per annum. That fall [to £90m] is precipitous.”