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Atradius Analyses Automotive Performance PDF Print E-mail
Wednesday, 18 October 2017
Fears of a Brexit slowdown have failed to materialise in the British automotive sector but the consequences of an EU split loom on the horizon, reports trade credit insurer Atradius. 

A new industry report by Atradius reveals that following the UK’s Brexit decision any significant negative impact on demand or on insolvency levels has not yet surfaced. In 2016 the sector recorded the highest automotive output level since 1999[3], an 8% year-on-year increase, with new passenger car registrations increasing 2.3% and commercial car registrations by 1.2%. A[4] record number of cars were exported from the UK at 1.35m amounting to 75% of total production.

However, for 2017 the Atradius report warns of growing business uncertainty over the outcome of Brexit negotiations, and notes a drop in automotive production investments for the first half of this year. While demand for British cars from outside Europe has grown in the last decade, particularly for premium and specialist cars, EU markets still account for 56% of automotive exports and the potential future impact of Brexit continues to give rise to concerns.

Richard Reynolds, Regional Manager for Atradius Midlands, commented: “A major strength of the British car manufacturing industry is its diversity with a good mix of volume, premium and specialist producers. It is these strengths that have led to a robust performance in the last year despite the backdrop of Brexit. However, as the full ramifications of Brexit remain undefined the continuing uncertainty is weighing down upon business confidence. There are fears that an end to access to the single market could severely hurt both producers and suppliers and that increased tariffs will make producing cars in the UK more expensive.”

Atradius reports that currency volatility is an ongoing and serious issue. While the depreciation of the pound [since the EU referendum] has helped exporters, it has pushed up the cost of importing both vehicles and components. Any significant long-term cost increase will have a negative impact on sales, and for those dealers and manufacturers willing to absorb a share of higher costs, margins will be squeezed. In addition, the expected slowdown in UK GDP growth (to 1.4% in 2018) and rising inflation could significantly slow down domestic car sales, affecting both retailers and producers.

The Atradius Market Monitor reports that payments in the UK automotive industry now take 60 days on average and that notifications of non-payments have increased, albeit largely due to the administration of a large car part distributor in late 2016. However, compared to other UK industries, the sector’s default and insolvency rate is still rated as ‘good’ with a ‘stable’ short-term outlook.

Richard Reynolds continued: “The full implications of Brexit for the UK automotive sector still remain to be seen and businesses have no real alternative than to pursue a ‘business as usual’ approach. Trade must continue and businesses are advised to adopt a robust risk and credit management strategy to protect themselves from any unforeseen changes in the economic outlook and trading environment. It has never been more important to have reliable and up-to-date knowledge about your customers, sector and the trading economy as a whole, and accurate information is equally important whether your business focus is in the domestic market or overseas. If you don’t have the resource or aren’t confident in the information you have, be proactive and seek advice. Atradius not only protects firms from the risk of non-payment by paying out claims but, with business intelligence on 200 million companies worldwide, works with its customers from the beginning of a trade relationship to mitigate risk and identify the most promising opportunities.”
 

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