The road back to normality

6 min read

Automotive

This is the latest weekly update from Santander’s automotive team on how the coronavirus pandemic is affecting our clients and the sector as a whole.

Automotive

As the automotive sector in the UK, Europe and North America takes tentative steps towards restarting, many questions remain over how sustainable any return to normal operations will be. There are a number of concerns over global supply chains, as well as signs that the recession caused by global lockdown policies is likely to be deeper and longer than was originally envisaged.

The Society of Motor Manufacturers and Traders (SMMT) hosted its latest webinar on this very subject last week. It looked at topics such as how to ramp up production levels as well as what practical risk-reduction measures manufacturers need to introduce on the shop floor. View webinar.

SMMT figures published earlier this month show the UK’s new car market slumped by more than 97% in April: at 4,321, this was the lowest number of new registrations in a month since 1946. It should be noted, however, that many of these vehicles were delivered to key workers as well as front-line public services and businesses, reaffirming the sector’s importance in the fight against coronavirus.

On 17 June, Santander is hosting a virtual roundtable event with the SMMT and the Department for International Trade, looking at opportunities for UK businesses in central and eastern Europe – specifically Slovakia, Hungary and the Czech Republic. Further details and joining information will be published later this month.

Santander is also working closely with the SMMT and South African supply chain trade body NACAAM to identify opportunities in South Africa. We’ll be hosting a webinar with these organisations, as well as market entry specialist TMF Group, on 9 June. Register to view the webinar.

Santander is hosting a virtual round table event with the SMMT and the Department of International Trade on 17 June. The event will focus on opportunities for the automotive supply chain in central and eastern Europe, the event follows the webinar we hosted on the region in February.
 

Supply chain concerns to the force

Volkswagen has sounded a warning about production costs, saying that the price of vital components has risen sharply as a result of the pandemic: this will depress profits further, the firm said. VW, which has now restarted production at its Wolfsburg headquarters, says its German plants rely on 6,500 parts from Europe alone and is concerned about supply chain gaps opening up if smaller producers cease trading.

Daimler boss Ola Kallenius has echoed this warning, saying that many small firms simply do not have the liquidity to cope with a prolonged downturn, while Bosch said it expected an auto recession deeper than that which followed the financial crisis of 2008.

In China, the government has rolled out support for auto manufacturers, extending subsidies for electric vehicles – but subsidies for premium EVs are being withdrawn. In response, Tesla has cut the price of its Shanghai-build Model 3 in order to continue to qualify for the support measure.

Aston Martin has worked with trade unions to develop return-to-work protocols for its facility at St Athan in Wales. These measures will be rolled out to the company’s global headquarters in Gaydon, Warwickshire, as well as other sites in due course.
 

Manufacturing sector news

The majority of manufacturing organisations across the whole sector remain subject to lockdown restrictions but are aiming to move back towards normal operations this month and next. These plans were boosted by the Prime Minister’s announcement that the lockdown in England would start to be relaxed from 11 May.

Santander recently hosted a podcast with MakeUK CEO Stephen Phipson, which examined the current state of UK manufacturing.

Stephen Phipson noted that businesses in areas such as food & drink, med-tech / pharma, and defence had generally fared better during the crisis so far than their counterparts in aerospace and construction equipment, for example. Stephen Phipson also discussed the challenges ahead and the supply chain issues that are likely to emerge, as well as the lessons that firms in Europe might be able to learn from Asian economies which have lifted restrictions already. He highlighted the importance of international trade, especially exports by UK producers, in helping businesses return to normal – and this is an area in which Santander can offer particularly strong support. At present, for example, we’re developing trade activity across several sub-sectors in North and South America.

Stephen Phipson also set out MakeUK’s three-point coronavirus recovery plan for the manufacturing sector. The plan covers the steps needed to get the sector back on track, specifically:

  1. Boost economic support: including government incentives for technological investment and assistance for smaller companies to get started in ecommerce.
  2. A safe return to work: ensuring access to PPE (personal protective equipment) for employees that doesn’t affect supply to the NHS or other frontline workers, and greater flexibility of the Job Retention Scheme to support part- or short-time working patterns.
  3. Build resilience: this entails increasing supply chain visibility to better understand potential vulnerabilities and boosting incentives to safeguard R&D activity.

For more information about the plan visit MakeUK.

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