Pedestrian Albion: how stopping automobile production could affect the UK economy

In April 2020, car production in the UK almost stopped. So, for a month the country's enterprises produced a total of 197 vehicles, compared with 71 thousand a year earlier. Such data on Friday, May 29, was published by the British Society of car manufacturers and sellers (SMMT).

“Since the British car factories were mothballed in April, these numbers are not surprising, but they do indicate the enormous problems that the industry is facing - last month its revenues actually dropped to zero,” said SMMT Executive Director Mike Hawes.

According to the organization, in 2020 less than 1 million cars will be produced in the UK.

The main reason for the negative dynamics was the consequences of the coronavirus pandemic. According to Johns Hopkins University, in the UK the total number of infected with COVID-19 exceeded 270 thousand people, of which more than 38 thousand died. At the same time, the country ranks fourth in the world in terms of the number of infected.

As a quarantine measure, the government closed its borders. This decision actually stopped exports and hit the auto industry. About this RT said the director of the Academy of Finance and Investment Management Arseny Dadashev.

“Only according to the most optimistic estimates, quarantine cost the industry about £ 9 billion, but in reality the losses can be much higher. A large number of infected and severe restrictions have led to the situation in the British car industry turned out to be much worse than in other auto-producing countries, ”Dadashev emphasized.

The decline in auto production is observed in most countries of the world. According to the Argus analytical agency, in April, the output of vehicles in Japan decreased by 47% in annual terms to 412.5 thousand. According to the calculations of the Avtostat analytical agency, in Russia the value decreased by 79% to 30 thousand. In Germany and the USA, the fall exceeded 90%, but production volumes also remained higher than the British - 10.9 and 10.3 thousand, respectively. These statistics are provided by the TradingEconomics website.

“The global market was negatively affected by the massive shutdown of factories in the first quarter of 2020 in Germany, France, the United States and other countries that acted as major global suppliers of machinery. Recovery to former capacities may take about a year, ”said Maxim Shein, chief investment strategist at BCS Broker.

At the same time, reaching the pre-crisis level in the British car industry may take more than three years, says Artyom Deev, head of the analytical department at AMarkets. According to him, in addition to the consequences of the pandemic, the industry is negatively affected by problems with the sale of finished products.

“The British market began to record losses in 2019 due to a new round of trade confrontation between China and the United States. Chinese motorists over the past ten years have been one of the main buyers of British cars. However, the trade wars somewhat reduced the income of the Chinese, who began to switch to more economical Chinese cars. As a result, over the past year, the production of cars in the UK fell by 14%, and now it is actually working in wartime mode, ”said Deev in an interview with RT.

Moreover, the additional pressure on the automotive industry of the kingdom is exerted by the effects of Brexitis, says Maxim Shane.

“Automakers have been in critical situations due to a downturn in industry and global demand, as well as growing competition from Chinese partners. In addition, Britain’s final exit from the EU deprived the auto industry of an additional loyal sales market, to which the British supplied almost half of the total volume of cars produced, ”Shane explained.

According to him, the sale of cars is one of the key articles of British exports. About 80% of all cars produced are sold on foreign markets, and the automotive industry accounts for 10% of all deliveries abroad. Against this background, the collapse of this sector may adversely affect the economy of the country as a whole. This point of view in an interview with RT was expressed by Anastasia Nevskaya, senior researcher at IMEMO RAS.

“Up to 30% of the national industry is tied to car production. At the same time, unlike other industries, auto-production includes many intermediate links, such as component assembly, painting, component delivery, and more. The reduction in production is fraught with a decrease in the number of jobs, which may become an additional burden on the economic indicators of the kingdom, ”the expert noted. 

According to the Bank of England, by the end of 2020, the country's unemployment rate will rise to 8%. At the same time, the country's GDP may decline by 14%.