http://blogs.birminghampost.co.uk/business/

From Autos' 'Location of Choice' to Supply Chain Rebuilding?

By David Bailey on Oct 6, 12 11:57 AM in Automotive


The UK is the 'destination of choice' for global vehicle assemblers according to an excellent recent report by KPMG for the Society of Motor Manufacturers and Traders (SMMT), which also highlights major opportunities for suppliers as vehicle output in Britain rises (the report is well worth a read and can be found by clicking here).

The report suggests that vehicle output in the UK will grow by around 9% a year to over 2.2m units a year by 2016, despite the weakness in the Eurozone which is impacting on sales in Europe.

The report highlights the UK's key strengths in terms of the mix of manufacturers here and in terms of the variety of countries to which the UK exports - some 150 countries around the world, with 55% of exports by value going to non-EU countries (which is critical given the state of the Eurozone economy).

But the report highlights that this success poses a major challenge in terms of urgent action being needed to address an impending skills shortage. As cars become technologically more complicated (think of the communications, safety and entertainment software in cars today) and as the low carbon agenda takes off, the demand for skilled engineers increases.

The other key area of concern identified in the report centres on the need to reinvigorate the lower tiers of the domestic supply chain. The Automotive Council has identified some £3bn of opportunities for the supply chain here in the UK. But the report notes that while 80% of parts required for automotive manufacture can be sourced in the UK, the capacity and ability of suppliers to meet demand needs improving.

That capacity has been eroded over recent years as big manufacturers - and indeed Tier 1 suppliers - have looked to Eastern Europe and the Far East to source components, and in so doing have hollowed out the UK's auto supply chain.

But with the changing requirements of vehicle manufacturers, a change in some broader economic fundamentals (exchange rates, transport costs, wages overseas) and changing perceptions of supply chain resilience issues, then the benefits of local sourcing are now seen as much greater, a fact that government could and should build on.

The government has already contributed to the 'mini renaissance' of the industry through the scrappage scheme, loan-guarantees, the use of regional growth fund money, the Advanced Manufacturing Supply Chain Initiative, the Automotive Council and more.

But that can be taken further, and the 'bottom line' of the report for me is that the auto sector needs government support to develop a long-term supply chain fund that boosts access to finance and takes account of longer return on investment periods. It's something I've been banging on about for a while.

Meanwhile, at the recent Paris Motor Show the UK government made a pitch to international automotive companies for supply chain investment, marketing the UK as a better place to do business than the Eurozone. One wonders how receptive the European auto industry will be to this sales pitch. Few if any European auto firms are building new plants in Europe given the state of the market and the amount of over-capacity at present.

Yet firms from China and other emerging economies are looking to set up shop, and on that the UK could be an attractive option. Interestingly, the KPMG report notes that the UK can now offer relatively low wage costs and high productivity: at around €23 an hour, the UK's auto sector has the lowest labour cost of any west European country, while at the same time having the second highest productivity in Europe after Germany.

Overall, translating assembly-line success in into a lasting growth in the capacity of the automotive supply chain will be key to the long-term health of the industry and its contribution to rebalancing the UK more generally.

A targeted industrial policy to push this along has started to emerge, but more is needed, and the KPMG report makes an intelligent contribution to the debate on where the industry stands and what needs to be done.

Professor David Bailey works at Coventry University Business School

Business authors

David Bailey

David Bailey - Professor of Industrial Strategy at the Aston Business School, Birmingham
My postings | David Bailey's RSS feed My feed

Stuart Pemble

Stuart Pemble - Construction Lawyer, Mills & Reeve
My postings | Stuart Pemble's RSS feed My feed

John Clancy

John Clancy - Birmingham City Councillor and director of mediafuturesalert.com and justliteracy.com
My postings | John Clancy's RSS feed My feed

John Samuels

John Samuels - Professor of Business Finance, Birmingham Business School
My postings | John Samuels's RSS feed My feed

Chris Tomlinson

Chris Tomlinson - Chris Tomlinson is the founder of social media and online PR agency Friend (frienddigital.com)
My postings | Chris Tomlinson's RSS feed My feed

Andrew Whitehead

Andrew Whitehead - Senior partner at law firm SGH Martineau, leading the firm's Energy & Climate Change practice.
My postings | Andrew Whitehead's RSS feed My feed

Keith Gabriel

Keith Gabriel - A Birmingham-based PR Account Manager
My postings | Keith Gabriel's RSS feed My feed

Beverley Nielsen

Beverley Nielsen - Lecturer, Design Management, at the Birmingham Institute of Art & Design, BCU
My postings  | Beverley Nielsen'a RSS feed My feed

Mike Loftus

Mike Loftus - Director of News from the Future Ltd. Writing on the trials of setting up your own business
My postings | Mike Loftus's RSS feed My feed

Richard Halstead

Richard Halstead - Midlands region director for EEF, the manufacturers organisation.
My postings | Richard Halstead's RSS feed My feed

Karl Edge

Karl Edge - partner at KPMG in Birmingham, specialising in automotive, manufacturing and house building sectors.
My postings | Karl Edge's RSS feed My feed

Peter Owen

Peter Owen - Managing director for construction firm Willmott Dixon Midlands.
My postings | Peter Owen's RSS feed My feed

Dr Steven McCabe

Dr Steven McCabe - director of research degrees for Birmingham City Business School.
My postings | Dr Steven McCabe's RSS feed My feed

Francis Greene

Francis Greene - Professor of Small Business and Entrepreneurship, at the University of Birmingham.
My postings

Alan Gilmour

Alan Gilmour - Director at Cogent Elliott, experienced in marketing, brand development and customer relationship management.
My postings

Paul Noon

Paul Noon - Paul Noon, OBE, West Midlands International Trade Director at UK Trade & Investment.
My postings

Latest Birmingham Post Lifestyle blog

Lifestyle Blog

Birmingham Post staff and guest bloggers from the midlands give you the lowdown on what's happening in your region and some musings on culture in the UK and beyond.

Keep up to date

Sponsored Links