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Challenges ahead for the motor trade‚ Leonard Curtis join industry body's support scheme to provide assistance in uncertain times
The Automotive industry has weathered some pretty serious storms over recent years but remains resilient however, there are further challenges ahead. Leonard Curtis Director and Automotive sector lead, Andrew Duncan, considers what businesses in the motor industry should be doing to protect themselves.
A sector with challenges
In common with a number of economic sectors, the Automotive industry from OEMs and supply chain manufacturers through to car dealerships has and is continuing to face a significant number of serious challenges. One such issue is the ongoing impact of Brexit and the possibility of a trade war due to the UK governmentes threat to unilaterally alter the terms of the EU-UK Withdrawal Agreement. Further pressures have arisen as a result of supply chain disruptions and component shortages as well as increasing costs of materials, labour and energy due to the Covid19 pandemic, the Russian invasion of Ukraine and the cost of living crisis. Additionally, the sector is still grappling with the UKes target to transition to 100% electric vehicles by 2030 and is probably going to have to weather a recession which is looking more likely by the day.
Indeed, recent statistics do not make pleasant reading UK car production is down 32% in the first quarter of 2022, new van registrations have fallen for the 5th consecutive month due to a supply squeeze, May new car deliveries declined by 20% due to a components shortage, car ownership is falling, bus and coach registrations are still well below pre-pandemic levels and the government is ending the Plug-in Car grant which would appear to be sending the wrong message. However, the percentage of electric vehicles being sold has increased by 70%. Used car sales are up by 5% but this may indicate the start of the UK car buyer tightening their belts which is not a positive sign for the Automotive sector. Fuel prices have also increased by approximately 70p per litre since January 2022 and early data suggests that consumers are driving less to save money.
Despite these headwinds and negative data trends, the UK car industry has remained resilient and is facing up to these challenges. However, in times like these, it is necessary for businesses across the sector to plan, adapt and have a strong focus on costs, efficiency and working capital requirements. It is much better to act early and address potential and actual issues time enables a more extensive range of options to be considered and implemented. But hope is not a strategy.
Help is available
The team at Leonard Curtis have helped business owners and their funders across the Automotive industry facing a whole range of challenges to retain control and achieve a positive outcome wherever possible in what can be very difficult and stressful circumstances. In recognition of this track record for helping to resolve difficult issues, Leonard Curtis has recently been added to the Society of Motor Manufacturers and Traders (SMMT) Independent Third Party adviser panel. The panel has been set up by the industry body to provide business owners with access to invaluable professional advice when dealing with such challenges.
An industry perspective
David Kendrick, Head of Automotive at UHY Hacker Young said:
The industry has seen a remarkable couple of years. COVID clearly enabled a lot of business owners to review their business cost base and strategy, which has then been coupled with a significant pent-up demand and stock shortages. The profitability in 2021 and YTD in 2022 is nothing short of remarkable and whilst there are undoubtedly headwinds ahead with recessionary pressures and the agency model, we envisage this year to be another strong performance.
Dealers and OEMs need to be keeping a watchful eye on working capital and cashflow when supply does return as many businesses have been operating with unprecedented levels of low stock and large cash balances which simply isnt sustainable. Ensuring appropriate planning and controls are in place will be critical over the next couple of years.
The SMMTes Safe Harbour Scheme is a hugely valuable resource for those businesses in the sector who need expert advice to navigate financial and operational challenges and ites great to see that Leonard Curtis are now part of that support network.
There are clearly further challenges to come that are likely to affect all manner of businesses within the Automotive sector. Our advice would always be to talk to an expert sooner rather than later in order to maximise options available to find a positive outcome.
For further information get in touch with Andrew Duncan on 0207 535 7000 or andrew.duncan@leonardcurtis.co.uk
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