The slowdown from Brexit has not yet materialised in the UK automotive sector, according to trade credit insurer Atradius.
Analysing data from the International Organization of Motor Vehicle Manufacturers (OICA) and the European Automotive Manufacturers Organisation (ACEA), Atradius found that in 2016 the sector recorded the biggest increase in output since 1999, with an 8% year-on-year increase. Registrations for passenger cars rose 2.3%, while ones for commercial cars grew 1.2%.
Exports also set a record with 1.35m vehicles coming out of the UK, or 75% of total production.
While the sector may not have felt the full impact of Brexit yet, Atradius warned that British producers could not consider themselves in the clear.
The report sounded a warning over the uncertainty in future trade relations and the volatility of the pound, which in the long term might hurt imports more than it would benefit exports, eventually squeezing margins, even for those producers willing to absorb costs.
It added that slower GDP growth and higher inflation, put by PwC at 1.4% (down 0.4% from 2016) and 2.9% respectively for next year, could result in a slowdown in UK domestic sales.
Adding to the possibility of a brake on car sales is the rebate in consumer spending growth, which PwC forecast to grow only 0.9% in 2018, compared to 1.8% this year.
Default and insolvency rates for the automotive industry were found to be “good” and “stable” in the short term, with payments taking 60 days on average, the same as the last two years. Non-payments were noted to have increased, but this was largely attributed to “a large car parts distributor” going into administration in 2016.
Richard Reynolds, regional manager for Atradius Midlands, commented: “A major strength of the British car manufacturing industry is its diversity with a good mix of volume, premium and specialist producers. It is these strengths that have led to a robust performance in the last year despite the backdrop of Brexit.
“However, as the full ramifications of Brexit remain undefined the continuing uncertainty is weighing down upon business confidence. There are fears that an end to access to the single market could severely hurt both producers and suppliers and that increased tariffs will make producing cars in the UK more expensive.
“The full implications of Brexit for the UK automotive sector still remain to be seen and businesses have no real alternative than to pursue a ‘business as usual’ approach. Trade must continue and businesses are advised to adopt a robust risk and credit management strategy to protect themselves from any unforeseen changes in the economic outlook and trading environment.
“It has never been more important to have reliable and up-to-date knowledge about your customers, sector and the trading economy as a whole, and accurate information is equally important whether your business focus is in the domestic market or overseas. If you don’t have the resource or aren’t confident in the information you have, be proactive and seek advice.