Car-makers need support like hospitality sector, RSM warns

With the UK’s automotive manufacturers seeing a massive hole in finances, experts have urged action from the Government to prop up the ailing industry. According to RSM Partner Richard Bartlett-Rawlings, the tax holidays or targeted extensions of furloughs seen in the hospitality and property sectors should also be provided to the automotive sector.

2020 has been a tough year for businesses across the industrial gamut, however, not least in the automotive sector. With companies still recovering from an extended period where the coronavirus saw activity grind to a halt, car-makers have seen cash reserves severely deplete amid the pandemic.

Earlier in the year meanwhile, the UK’s Society of Motor Manufacturers and Traders (SMMT) predicted that fewer than 1,680,000 new cars would be registered in 2020. Based on surveys of carmakers in the SMMT, the group has since forecast a 700,000 unit hole in new car supply and demand, representing a 30% year-on-year slump.

According to experts, the situation is swiftly deteriorating, and failure to support the automotive manufacturing sector could cost the UK dearly whenever the recovery period commences in the economic cycle.

Richard Bartlett-Rawlings, a Partner at RSM, commented, “The automotive manufacturing industry in the UK is worth more than £100 billion per year supporting a wide supply chain and is a world leader for research and development. What is clear is the sector needs targeted Government support, as the next few months will be make or break for many in the industry.”

There has been an upturn in the UK’s figures for car production since the nation’s easing of the lockdown measures – something which could see exports help boost the ailing economy. Units produced in July rose by 51% compared to June, however, with year on year production down 40%, and domestic demand still flagging, the industry remains at a tipping point. Without targeted Government support similar to that received by the property and hospitality sectors, there could soon be a leap in the number of insolvency cases currently seen in the industry.

Bartlett-Rawlings explained, “Manufacturers are getting back to production which is obviously great news. However, they are not yet at full production, while facing huge operational and capital investment costs. At the moment, the pent-up demand for cars that has built up over the past few months is filtering through into the production and sales statistics. However, with the end of the furlough scheme in October and the looming uncertainty of Brexit, there will likely be a downturn in consumer demand.”

According to the RSM expert, this could mean people may well delay discretionary spending, including investing in a new car, until they have more certainty about jobs and the wider economy. In the meantime, Government support – be it an excise duty holiday, temporary VAT cuts or an extension of the flexible furlough scheme – could hand the automotive sector a lifeline.

“There are many forms that can be explored,” Bartlett-Rawlings concluded, “from re-introducing the subsidy for electric and hybrid vehicles, a cut of VAT to 5% as seen for food and drink, a tax holiday such as property or a targeted extension of flexible furlough. This will allow manufactures to balance supply and demand, protect jobs and cash flow and get back to full operational capacity at the right time.”