Atradius, which provides expert advice in order to facilitate trade while providing protection, has warned of a bumpy road for the British automotive sector.
Citing economic uncertainty amid the ongoing talks between the UK and the European Union, the credit insurer reported a 6% slide in new car registrations in the first half of 2018 as well as a significant decline in investment to a mere £347 million in the period from 2016’s £1.7 billion. Industry-wide, this year is forecast to witness a rise in non-payments and insolvencies.
Examining the likely hit from a no-deal Brexit, the Automotive Market Monitor by Atradius pointed to possible drivers such as a tariffs-led climb in UK car production costs; stricter customs controls that would affect delivery of components; and the loss of benefits from EU funds for manufacturing research and development.
“Uncertainty isn’t just a frustration to business, it is a potential catalyst for failure as it diminishes confidence and undermines the foundation for future growth,” commented Tom Danson, head of commercial for the Atradius Midlands region. “The industry has not only been impacted by uncertainty caused by the government’s plans to cut emission targets but also by the limbo of the ongoing Brexit negotiations, which continue to fuel concerns in the sector.
“UK automotive manufacturers are reliant on access to free and frictionless trade with the EU, and there is therefore concern that manufacturers could decide to divert further investment outside the UK. A hard Brexit outcome ending access to the single market and customs union without any interim arrangement would severely hurt both producers and suppliers.”
Danson believes the focus on risk is becoming more acute amid the more uncertain economic climate. In addition, he said “all too common” non-payments and business failures are becoming increasingly difficult for companies to predict.
“What’s more, the current economic challenges come at a time when there are significant sector-related issues on the horizon such as emission curbing, new technologies, and changing consumer habits,” noted the Atradius executive. “The concern is that even without trade tariffs, the sector could face a challenging period ahead over the next five years.”