Can we pin our hopes on the auto industry?

Following its notable boost in production last year, the car manufacturer Nissan had more good news today for the UK with the announcement that its new line of cars will be built at the flagship Sunderland plant.

Producing an estimated 100,000 of the new Invitation models at the Sunderland plant will result in 400 new jobs on location, and a further 1,600 jobs throughout the supply chain.

Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said the move was a “vote of confidence” in the UK auto industry, adding: “Growth in manufacturing is leading the current recovery and clearly demonstrating the benefits of a rebalanced economy.”

Nissan’s success

For those who do not know their Vauxhalls from their Volkswagens, part of Nissan’s recent success has been down to its popular crossover model, the Qashqai, and the smaller Juke – environmentally friendly cars but with the “high ride” of 4x4s.

One of the challenges ahead is to capture major growth abroad and export to the emerging economies, including China. Anna Leach, CBI’s head of economic analysis

Nissan itself has had great success over the past two years, with record production in 2011 and increasing its European market by four per cent even at a time of economic crisis.

But elsewhere, at Ellesmere Port in the Wirral, workers are currently waiting on the results of a review of General Motors’ European operations, that could result in the factory’s closure and the loss of 2,800 jobs.

Bigger picture

So can we pin our hopes for growth on the wider auto industry? Business Secretary Vince Cable certainly thinks so. “This latest announcement highlights the UK’s track record of attracting inward investment,” he said. “Global vehicle manufacturers are beating a path to the UK’s door.”

The automotive industry accounts for nine per cent of the UK’s total exports and employs around 145,000 people making cars. According to the SSMT, every UK job within vehicle production generates another seven and a half are supported in the supply chain elsewhere in the economy. Mr Cable last year also pointed out that eleven of the global volume manufacturers have bases here, backed by 19 of the world’s top 20 suppliers.

One of the reasons for the strength of UK manufacturing is a highly-skilled, flexible workforce as well as advanced productivity, says Mr Everitt. This was cited by Nissan’s senior vice president for manufacturing in Europe, Trevor Mann, as a chief reason for choosing the Sunderland plant, despite “competitive bidding” from other Nissan plants across the world.

“It is a testament to the workforce, the ongoing support from the UK Government and all of our regional partners and suppliers,” he added.

Government support

Another factor is the government’s support of manufacturing in an attempt to rebalance the economy: Nissan’s huge £125m investment programme will be boosted by £9.3m from the government’s regional growth fund.

Last year saw numerous investments by Toyota, Honda, JLR and others in the UK market, all of which has strengthened the industry, John Leech, UK Head of Automotive at KPMG told Channel 4 News.

“Really it is fair to say that in the last three decades, it has never been a rosier picture for the next decade,” he said. “But the government needs to consolidate the supply chain, as it has basically been hollowed out – suppliers previously left the country because of lack of confidence in the UK as a manufacturing base.

“The UK economic picture remains somewhat uncertain and is making dealers more cautious than usual before taking investment decisions in staff and facilities.”

Exporting to emerging economies

And while we are expert at making vehicles, UK consumers are not in the habit of buying them in the current climate – while the SMMT’s new car registration figures were up at the end of 2011, the most recent figures for this year were more disappointing.

Instead, the sector is hugely reliant on its exports. Around 75 per cent of vehicles made in the UK are exported, and with the eurozone crisis showing few signs of abating, the industry has to look further afield to survive, Anna Leach, CBI’s head of economic analysis told Channel 4 News.

“At the moment, the UK’s largest export market is Europe and one of the challenges, especially given the uncertainty in the eurozone, is to capture new growth abroad by exporting more to the emerging economies like China.” she said.

The UK economic picture… is making dealers more cautious than usual before taking investment decisions in staff and facilities. John Leech, KPMG.

This was backed up by KPMG’s Global Automotive Executive Survey, in which 80 per cent of respondents saw China as the biggest potential market.

“The UK has a strong knowledge base and a potential for innovation, which make it an attractive location for inward investment, as shown by today’s welcome Nissan announcement,” Ms Leach told Channel 4 News.

“I don’t think any sector can be certain of its outlook. There are still reasons to be cautious because of the ongoing uncertainty in the eurozone.”