Sustained drop in UK automotive sector output highlights need for collaborative solutions

26-Jun-2019


The new NatWest UK Automotive PMI® report, produced in partnership between NatWest and IHS Markit has been released.

Automotive sector manufacturers

UK automotive sector manufacturers continue to play an outsized role in the trajectory of regional economies and the outlook for international trade. It is against this backdrop that we have compiled new PMI data to examine the economic landscape faced by UK automotive sector manufacturers.

At 43.5 in May, the headline seasonally adjusted UK Automobiles & Auto Parts PMI® - a single figure measure of developments in manufacturing conditions - registered below the crucial 50.0 no-change threshold for the second month running. The latest figure was down from 48.9 in April and signalled the sharpest downturn in business conditions across the UK automotive sector for six-and-a-half years. 

Aside from a brief upturn during March amid a Brexit-related surge in production volumes and stockpiling, the index has signalled softer operating conditions in each month since June 2018.

Downturn in UK automotive sector

The downturn in UK automotive sector output, order books and employment in the second quarter of 2019 has been amplified by a payback from extended production schedules in March. Survey respondents widely commented on softer domestic demand following production stoppages at volume manufacturers and a reversal of stock building across the supply chain.

Looking through the noise of unseasonal production shutdowns, the recent PMI figures indicate the worst period of underlying demand since late-2012. Export sales were especially subdued in May, with automotive sector manufacturers pointing to the steepest drop in new orders from abroad since April 2009.

Comparisons of the UK Automobiles & Auto Parts PMI data against international benchmarks illustrate that manufacturers have faced declines in order books of a similar scale to those seen across Europe and further afield.

Wider challenges

A wider set of challenges are holding back the automotive sector, which are systemic in nature and global in scope. In fact, the Global Automobiles & Auto Parts PMI figure for May was the lowest since February 2013 and the weakest of all sectors monitored by the IHS Markit data.

Major geopolitical disruption in the form of US-China trade frictions and the prospect of new tariffs has rippled through international supply chains. A subsequent rise in risk aversion and lower appetite for capital spending has added to industry-specific challenges for automotive manufacturers.

Survey respondents to the Manufacturing PMIs across the world overwhelmingly cited trade uncertainty as a threat to the business outlook in May. Disruption from global trade frictions adds to the challenges faced by global automotive producers from new diesel regulations, transition to electric vehicle production and subdued consumer demand in key markets such as China.

Recovery in automotive production

Despite the current malaise across the global automotive sector, the economic impact of UK-based light vehicle manufacturers has expanded strongly over the past decade. In fact, NatWest's UK Regional PMI® surveys illustrate that the recovery in automotive production has been a key factor behind rising order books, employment and productivity across the North of England, Wales and the West Midlands in recent years.

The contribution of vehicle sales to UK goods exports still stands at an elevated level, which has helped to boost growth across the domestic supply chain. We estimate that the automotive sector's employment footprint accounts for more than 40% of the manufacturing workforce in several local authorities, and the majority of these are in the West Midlands region. In fact, the West Midlands accounts for one-in-three manufacturing jobs in the automotive sector.