Wales and the Automotive Sector
Wales is now on the verge of being a serious player in the Motor Industry after a momentous 2016.
The first quarter saw significant announcements by Aston Martin and TVR to build a plant in the Cardiff Airport and Bro Tathan and Ebbw Vale Enterprise Zones respectively. Around 1,000 people will be employed initially. Output will add to the UK’s 'super' up-market cluster, which is the largest in the world. In addition, major investment was announced by Toyota in its Deeside plant to make hybrid engines.
Wales’ green credentials have been further enhanced with the launch of Llandrindod Wells based River Simple’s prototype hydrogen fuel cell car. This is in addition to the publication of the report of the Low Carbon Expert Steering Group to the Welsh Government.
This has been a strong year for the 150 or so Wales-based components and systems suppliers. There has been growth in vehicle output, with a number of manufacturers reporting increased half-year output. This is on the back of a 5.2% rise in UK vehicle production in 2015, the sixth successive year of growth. In addition, some 2.3 million engines were made in the UK with around one third of these made in Wales.
The UK voting to leave the European Union in 2016 means a year of momentous change. Like many, the automotive industry holds its breath and awaits the implications of this decision.
The UK accounts for over 18% of the EU car market and 23% of the commercial vehicle market. In one way or another Germany accounts for 38% of the UK car market and France for 15%). In the case of medium and heavy commercial vehicles, Germany and Sweden together with DAF (Dutch controlled but US owned) rely hugely on UK sales. By value, German and Swedish imports are even more significant. Clearly, a free trade agreement is not only in the UK’s interests. Add to this that 60% by value of components used in UK-built vehicles (except buses) come mainly from Germany and this point is only reinforced.
If there is a permanent marginal reduction in the influence of the ‘City’ on the UK’s balance of payments then the long-term exchange rate may better reflect the interests of manufacturing in the UK. This lower rate will help exports. Despite so much of a UK vehicle being imported, this will be neutralised when the vehicle is exported, as over 77% of vehicles and 60% of engines are. This can be an incentive to increase UK-supplied content of UK-made vehicles.
These are interesting times. As part of the fastest growing major EU economy, there are many reasons to be optimistic about the future of the automotive industry.
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