Auto Supply Chain Re-shoring To UK

273214-157By Professor David Bailey, Professor Of Industry, Aston University

Over the last few decades, the UK’s automotive supply chain – including that in and around the Midlands – has taken a big hit. One well respected analyst, John Leach at KPMG, recently went as far as saying that the UK’s 2,300+ supply chain companies had been “ravaged”, with the proportion of parts sourced from British auto suppliers falling to as low as 35%.

But now things are starting to change. On the back of a major upturn in auto assembly in the UK – up by over 50% from a low point of around a million cars in 2009 – combined with a change in economic fundamentals which are encouraging firms to source more components locally, the sector is now experiencing investment on an unprecedented scale.  Over £6bn has been invested by major auto assemblers over the last 3 years, with more to come in the supply chain.

 I’ve talked before about how 1 in 6 manufacturing firms locally – including automotive firms – are re-shoring some of their activity, driven by rising costs overseas, increasing transportations costs, a desire to boost supply chain resilience, to improve quality, and to have a faster turnaround time for production. Local firms like RDM, Cab Auto and Lander are winning orders and bringing activity back to the UK.

Given the investment taking place, in part supported by a more intelligent industrial policy and a big effort by unions, assemblers and bodies such as the Manufacturing Advisory Service (MAS) and the Society of Manufacturers and Traders, the proportion of parts in UK-assembled cars sourced from UK suppliers is likely to rise – maybe to above 40 per cent by 2017.

A big question for government and LEPs is whether this surge of interest in investment in UK auto and localisation of more sourcing will feed through to more jobs. It should do, with the upswing likely to add “tens of thousands” jobs according to Leach.

 That figure has been reinforced by a recent survey of over 900 small manufacturers by MAS which found small firms bullish about prospects. They expect to see staffing levels increase almost a third over the next four years. More than half of firms were looking to recruit and create new jobs.

More than two-thirds of the firms surveyed saw concentrating on the domestic markets to be most fruitful in expanding business, linking in with the desire by UK-based auto assemblers to source more locally.

The survey also reinforced other intelligence suggesting skills shortages as the major challenge for firms in growing. Nevertheless, small manufacturers were confident about short-term prospects, with confidence measures on sales, future growth, jobs and investment all positive.

One dark cloud on the horizon is the state of the Eurozone economy, which is showing signs of stagnating again under the weight of excessive austerity. If that continues, it will impact on job creation in UK manufacturing.

Nevertheless, the auto industry looks set for continued growth in the UK, partly on the back of 55% of its exports going beyond the Europe. Total UK car production rose to just over 1.5 million in 2013, but is expected to rise to 2 million or more by 2017. If that happens, the UK will be on track to be making more cars than ever before. That’s quite a turnaround from just a few years ago.

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