The UK’s car manufacturing output for June was nearly 50 per cent below last year’s level in June, drawing to a close the weakest six months of automotive production since the mid-1950s. The coronavirus has disrupted supply chains and flattened demand, and only 381,357 cars have been made this year according to the Society of Motor Manufacturers and Traders (SMMT), which is 43 per cent less than last year.
The virus has driven automotive retailers into deep losses and forced major restructuring. Distributor Inchcape’s (INCH) shares fell 9 per cent on Thursday following the release of its interim results. Pendragon (PDG), meanwhile, announced 15 store closures and a restructuring plan that will see it shed 1,800 jobs altogether. Its shares fell 4 per cent.
The London market’s sole automotive manufacturer, Aston Martin (AML), announced a slowdown in volumes at its own half-year results earlier this week, although this decision was taken to combat an oversupply of vehicles in dealerships. Volkswagen (Ger:VOW) also reported a substantial decline in deliveries.
Coronavirus and Brexit uncertainty loom
June's automotive output sat 48 per cent below last year’s level. The month nevertheless represented a substantial improvement on production in April and May, when only a combined 5,511 cars were built.
Coronavirus isn’t the sole source of anxiety in the automotive industry, however. The SMMT underlined the importance of a free trade agreement between the UK and the European Union (EU), as the transition period nears its end. “Our factories were once set to make two million cars in 2020 but could now produce less than half that number,” SMMT chief executive Mike Hawes lamented.
In Inchcape's results announcement, it said that it did not foresee a significant impact on its business from the loss of freedom of movement and goods, should an agreement not be reached, nor would regulatory divergence prove to be a serious problem. The distributor did, however, highlight uncertainty regarding the impact of tariff and non-tariff barriers on the supply chain for new vehicles and parts.
Inchcape, which is a key retailer for German brands including Volkswagen, recorded a £188m pre-tax loss in its interim results. This was driven by £198m of exceptional charges, which included £185m in write-downs in its retail businesses. Overall revenues of £3bn represented a drop of more than a third from last year, after the virus closed all of Inchcape’s stores, most of which have now reopened.
Manufacturers will seek to align supply with reduced demand
Volkswagen only returned its 16 plants to production in June, and manufacturing output has been closely managed over the period. The automotive giant recorded a €1.4bn (£1.3bn) interim pre-tax loss, compared with a €9.6bn profit in the same period last year. Deliveries to customers dropped 27 per cent, with the rate at which this has declined having fallen since May. Volkswagen will slash its research and development expenditure for its second half and anticipates finishing the year in profit, although this level will be “severely lower” than last year.
Aston Martin, meanwhile, has delayed the reopening of its Gaydon production facility until August. The luxury manufacturer’s interim pre-tax loss widened to £227m from £80m over last year’s comparable period. It has cut its dealers’ sports car inventory by 869 cars, as it bids to rebalance supply with demand, a process that it said would "continue well into 2021". Aston is in the midst of a major turnaround after parting ways with former chief executive Andy Palmer in May. It began producing its new SUV model, the DBX, in July.
