The UK automotive industry has experienced a recent upsurge as market proximity, increased efficiency and quality become progressively important for international investors. According to the Society of Motor Manufacturers and Traders (SMMT), the UK automotive sector recorded its first trade surplus since the 1970s in the first quarter of 2012. In the past 18 months, the sector has received investments totalling more than £15.5bn ($23.02bn).
The UK automotive industry was set back by the global financial crisis and, in 2009, it produced fewer than 1 million units – less than half of its 1999 output. Despite the setback, projections for 2016 suggest that output could reach 2.2 million units, which would be the highest level of production ever recorded in the sector.
The latest trends have seen the UK automotive industry increase both its productivity and the quality of its output, supported by foreign investors expanding facilities across the country. Sunderland, home to one of the UK’s seven major car manufacturers, Nissan, is now the source of more than one in three UK-made cars, and Nissan recently announced plans to further boost its workforce in the city to 6225. It is not the only manufacturer expanding its UK presence – Toyota has announced $155m of new investment in Derby, which will see 1500 new jobs created.
Right place, right time
David Bailey, professor of international business strategy and economics at Coventry University Business School, believes that there are numerous reasons for the upsurge in foreign investment in the UK's automotive industry. “A combination of a more competitive exchange rate, increased transport costs, rising wages in key areas of China and a greater awareness of supply chain resilience have all contributed to a perceived change in some business fundamentals," he says.
A report on the UK automotive industry by greenfield investment monitor fDi Markets shows that proximity to markets or consumers is a top priority for automotive companies. “Proximity lowers the cost of transport and complexity of logistics and can easily become a key competitive strength as it often matters in just-in-time manufacturing processes,” says Mr Bailey.
Tony Walker, UK deputy managing director of Toyota, says: “Being close to consumers brings many benefits such as understanding the market. You can design a better product if you receive feedback from the consumers. Plus you have to transport it somehow." A 2012 UK automotive supply chain insight survey by Barclays supported this claim, with 76% of respondents agreeing that transport costs were impacting their decisions.
Despite the popular belief that labour costs are key determinants in investment decisions, automotive companies are not driven purely by the cost of labour. “The UK is not a low-cost country, but that is not a key point. Labour constitutes only 6% of the total cost of making a car. There is absolutely no reason why [the UK] should not deliver the same results as Germany, the most successful car producer in Europe,” says Mr Walker.
The UK auto sector has the lowest labour cost of any western European country and has the second highest productivity in Europe, just after Germany. According to the Barclays report, the quality of the product was an essential factor in winning business to 57% of respondents, with price cited by just 17% of respondents.
The SMMT has also reported that the automotive industry accounts for 9% of the UK’s total exports, with an annual turnover of £40bn and a workforce of more than 700,000 people. However, eurozone sales are still down and rapid technological change combined with immense global pressures mean present successes in manufacturing are no guarantee for the longer-term future.