Access to finance is key to automotive supply chain growth
A new report highlights the growth opportunity on the back of £4bn OEM investment in the UK; capital is needed to re-tool and upskill to meet global low carbon demand, and finance houses and suppliers must work together to seize the growth potential
A new report has highlighted the need to get capital into the UK’s automotive supply chain to stimulate growth and take advantage of the opportunities created by recent OEM investment announcements. It also explores the mismatch between the banking sector’s current approach and the lending needs of suppliers.
Focusing on the relationship between financial institutions and the domestic automotive supply sector, the report looks for solutions to the lack of consistency and strategic vision in lending today. The study identifies how a more effective working relationship could help to rebuild and rebalance the economy if the industry and finance providers had a better understanding of the workings of both sectors and work together to address the type of finance offered to businesses.
“Improving access to finance and credit has the potential to stimulate growth in UK automotive’s small and medium-sized companies, enabling them to develop facilities, tooling and machinery to take advantage of broader automotive growth,” said Paul Everitt, SMMT Chief Executive. “The UK is recognised globally for its strength in automotive engineering and innovation and we believe that by achieving competitive funding for UK businesses, the UK can take a larger share of the components market.”
The UK has seen a wealth of positive investment announcements throughout 2011 with international companies committing millions of pounds to the country, introducing new models, building new facilities and employing more people. These announcements have included commitments to source more components locally, capitalising on lower transportation costs and high quality output of domestic suppliers.
Despite this wave of positivity, there is still expansion potential in the UK. Earlier this year, the Automotive Council reported that the UK has the capability to supply 80% of the country’s component types, but the Smith Institute found that just 36% of an annual £7.4bn automotive component spend was purchased in the UK.
The potential for the sector is clear, but many suppliers report that financial institutions were wary of the automotive industry despite the UK manufacturing sector performing strongly, exports achieving record levels and recent investment announcements demonstrating the long-term plans to base operations in the country.
The Smith Report also identified that small and medium-sized suppliers find it difficult to target banks as many institutions were unclear about the key sectors they support and often decisions take far too long in an industry that is as dynamic as automotive. In terms of affordability, finance previously available at around 2% now costs 10%, plus banks’ understanding of the sector has room for improvement.
A two-way relationship was the Report’s ultimate recommendation. Automotive suppliers should share more information about the nature of their businesses, the state of the sector and the typical cycles of the automotive industry with relationship managers at finance providers. Equally, those institutions and organisations looking to provide finance to small and medium-sized businesses should promote the range of funding options and opportunities more effectively to enhance the sector’s understanding of key financial issues.
The Smith Institute Report was launched at an event attended by the banking and automotive sectors and government representatives.
