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Declining demand in Europe puts the brakes on car manufacturing

23 October 2012

Car output fell in Britain for the second month according to the latest Society of Motor Manufacturers and Traders (SMMT) data. The decline has been blamed on a weakening demand for cars and vans across Europe.

The output saw a drop of 5.8 per cent in September but the good news is that 2012 still remains up 10.2 per cent over the year to date. Manufacturers will need to consider looking to the global market to maximise opportunities for growth if they are to survive.  

Matthew Freeman, Automotive Intelligence Specialist at CAP, analysed the data, "It is important to remember that the UK produces a relatively limited number of models, so changes on model cycles, such as retooling for a new or face- lifted model can impact volume for the entire industry.

"For this reason it is important not to attach too much importance on short term production figures but to concentrate on the longer term trends, which in this case, are far more encouraging."

Compared to 2011, SMMT forecast a 1.6 per cent growth in new car registration in 2012, with a further 1 per cent increase predicted in 2013. Automotive manufacturing levels are expected to reach pre-recession levels by 2014.

Mr Freeman added, "Looking to the future, and at SMMT's 2014 forecast, continuing global economic uncertainty, particularly in the major European markets makes this a challenge and demand in the key European markets is likely to remain subdued for some time yet which is leading to concerns about manufacturing over capacity."

He noted that over the last three years the amount of automotives being exported to non-EU markets had increased. By broadening the market, UK based car producers may be able to 'weather the storm'.

Engineering group GKN is one such company to expand its market. Despite being the largest faller in the FTSE 100 on Tuesday, 16 October, the Telegraph's Questor column gave it a 'hold' rating.   

The rating reflects GKN's strategy to sell its products into emerging markets that are likely to grow significantly in the future.

Paul Everitt, SMMT Chief Executive, agreed with this view, "The strong demand for UK products outside of Europe and the investment committed by major vehicle manufacturers will secure future growth, although the coming months will be challenging for companies at all levels in the supply chain."

Commercial Vehicle output also fell (20.2 per cent) in September, as did engine production (12.8 per cent).

The decrease followed a fall in car output of 8.9 per cent in August. Prior to this car output had risen for thirteen consecutive months leading to hope that the sector was well on its way to recovery.

With the European market remaining uncertain it's important for businesses to protect their financial assets by assessing the credit risk along the supply chain.  Continual monitoring of suppliers and customers will enable them to transact with confidence regionally, nationally and internationally.

 

This entry was written by Ranjna, posted on 23 October 2012 Bookmark the permalink. Follow any comments here with the RSS feed for this post. You can post a comment.

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