Brexit fears cause car investment slump

PLUNGING: UK car spending on hold. Photo credit: Autoevolution

IN a sure sign that the many companies are either holding back or scrapping their spending altogether as the UK leaves the EU, investment in the UK car industry has plunged to just £322m in the first six-months of 2017.

In 2016, the total investment in the UK car industry last year was £1.66bn, which in itself was down from the £2.5bn figure in the previous year.

However, according to figures compiled by the Society of Motor Manufacturers and Traders (SMMT) industry body, investment looks to have slipped back to even further in the first half of 2017.

If similar levels are reported in the second half of the year, it would take total annual spend on the UK car industry to just £644m — less than half of the amount invested last year and nearly one-quarter of the amount invested in 2015.

In the absence of any major car makers that planned to make spending decisions on new models in the first half of this year, the amount of investment in the six-month period had been expected to be quite low.

However the reported drop is much sharper than many in the industry had expected.

“It’s very difficult to cost investment if you don’t know what your output price is going to be,” said Mike Hawes, chief executive of the SMMT, pointing to Brexit-related uncertainty.

“The industry wants a lot more certainty.”

The SMMT has lobbied for an interim agreement for the UK to remain in the customs union for “as long as it takes” to allow the UK to fully negotiate a comprehensive trade deal with the EU, warning that the oft-talked about “cliff edge” where Britain leaves the customs union and single market in 2019 would “permanently damage” the UK car industry.

Fuelled by international investment and record car sales across Europe and the UK, the British car industry has enjoyed an upbeat trend over the past few years.

Last year, car production rose to 1.7m vehicles, but last week the SMMT reported that output of UK cars had fallen almost 10 per cent in May compared with the same month in 2016, the second consecutive month showing year-on-year decline.

The result of the EU Referendum just over a year ago has thrown future investment decisions by many of the big-named international companies into a period of uncertainty.

BMW recently announced that it may begin making the electric Mini outside of the UK, saying that “the result of the EU referendum creates uncertainty for the automotive sector in general and for overseas investors in particular. Uncertainty is not helpful when it comes to making long-term business decisions,” BMW said.

The SMMT compiled the latest investment figures from publicly-available announcements by car makers and suppliers.

The trade body has kept records of investment totals since 2011. Last year’s total of £1.66bn was the lowest on record.

The vast majority of the £322m spent in the first half of 2017 came from a £240m investment to install new tooling in Toyota’s Burnaston plant in Derbyshire.