Strategy& UK AutoIndex Q2 2016

A MOT* for the UK Automotive Sector

UK Automotive Industry − good progress, but a challenging road ahead

This year, UK automotive industry health is, according to our new measure, at its highest ever, having enjoyed sustained improvement for several years. Sales and production are at record levels, and since 1980 market capitalisation has grown by more than 1,000 percent in real terms.

Thus, the industry enters the turbulent times of Brexit from a position of strength, but also shows how much it could lose if industry footprint is reconsidered.

We at Strategy&, PwC’s strategy consulting business, have created this AutoIndex to provide a comprehensive view of the health of the UK automotive sector. We looked at (1) the total value of the UK production of suppliers and original equipment manufacturers (OEMs), (2) the total value of sales, and (3) the valuation of automotive companies listed on the London Stock Exchange. This is detailed further in the ‘Challenge and Change’ section of this AutoIndex.

AutoIndex

Innovate & Compete

Aggregate UK AutoIndex

Together, these three measures provide a comprehensive and balanced index of the sector in totality.

All three elements in our AutoIndex have grown in recent quarters. A significant amount of growth came from an increase in market capitalisation, which has risen by 281 percent in real terms since 2009.

This stock market optimism has been mirrored by automotive companies themselves; £2.5 billion of investment was committed to the UK car industry in 2015; significant investment was committed to Wales Q1 2016 (resulting in the return of car production to this region after a 43-year absence); and Nissan has recently committed to build its next generation Qashqai and X-Trail models at Britain’s biggest car plant – Sunderland.

This AutoIndex represents a Q2 2016 analysis and includes an infographic on the UK automotive industry in historical context. Please read on to learn more or reach out to us if you would like to discuss the content included here.

History of the UK automotive industry

UK automotive industry health has been steadily improving since 2011

UK automotive sales of £128 billion represent the highest level recorded, having increased in real terms by 6 percent since Q1 2015, by 78 percent since 2000, and by 200 percent since 1980.

The value of UK automotive production is also at record levels of £60 billion. This has grown in real terms by more than 50 percent since 2009, and by over 100 percent since 1980.

Market capitalisation has fallen by 15 percent since Q4 2015, but has had rapid real growth since 1990 (more than 300 percent) and 1980 (more than 1,000 percent).

UK automotive market value

UK automotive market value has increased without interruption since 2011

This positive trajectory has been driven by the value of new vehicle sales, which are up more than 40 percent compared with 2011. This is primarily driven by volumes, which are up by 38 percent. Registrations are at record levels. Between 2011 and 2015 the price of the average new car rose approximately 3 percent in real terms. The other components of sales (repair and maintenance revenues, and the value added in finance and used vehicle sales) represent the remainder.

UK automotive production value

UK automotive production, thousands of vehicles

Market capitalisation of UK automotive companies

UK automotive production value

UK automotive production value (vehicles and parts) has recovered from a low point in 2009, but it has seen modest growth of just over 10 percent since 2012. Nearly all of this growth has come from an increase in total vehicle production value. Since 2009, the value of vehicle production has increased by more than 60 percent. The value of components has grown by a slightly lower 50 percent.

Despite the modest growth in value, 2015 saw vehicle manufacturing reach its highest level in a decade, with nearly 1.6 million vehicles being produced. Q2 2016 production value remained at record-high levels, and in pre-Brexit forecasts, total vehicle production was predicted to reach 2 million vehicles by 2020, fuelled by £2.5 billion of investment in 2015.

A record number of cars were exported in 2015, thanks to significant foreign demand for Britishmade cars. The impact of Brexit-related uncertainty (i.e., footprint decisions being made before the endgame is clear) and any potential changes in the rules governing movement of goods and people (e.g., European nationals working in the UK industry) will be key to the ability to meet these forecasts.

Challenge and Change

There has been an overall increase in the real market capitalisation of automotive companies quoted in the UK (component manufacturers, insurance companies, downstream retail companies, and breakdown companies) of 281 percent since 2009. The makeup of companies in the UK differs from that of other countries: much of the market capitalisation in the UK comes from insurance companies, whereas in Germany the majority comes from manufacturers.

In the most recent quarter examined, the values of downstream automotive retailers, insurance companies, and manufacturers have all fallen.

This first AutoIndex shows the progress that has been made by the UK automotive industry over the last 30 years.

The industry therefore confronts the challenges on Brexit from a position of relative strength. Future issues of this AutoIndex will appear every six months, together with our deep dive on one of the key issues affecting the industry. Stay tuned.