Diversification has provided important boost for automotive sector during pandemic

Analysis of new ONS data¹ by Institute of the Motor Industry reveals 13% of automotive businesses have diversified for long-term sustainability – but further government support would be welcome

The Institute of the Motor Industry (IMI), which represents the interests of those working in the automotive sector - which in 2019 comprised 790,000 jobs in 98,000 establishments covering 196 occupations - has analysed the latest ONS data on UK business performance.  

Key data:

• By early August, 97.5% of automotive businesses were trading, with a further 1.5% planning to reopen by the middle of the month
• The automotive sector is performing well compared to other sectors, with the highest percentage of businesses (20%) reporting an increase in turnover in the last week of July and first week of August
• 36% of automotive businesses said that their cash reserves would last more than 6 months; 6% said they had no cash reserves or less than a month, potentially putting 5,700 businesses at risk
• 73% of businesses said their operating costs have increased; 9% said that these costs had significantly increased
• However, demonstrating resilience and flexibility, 13% of automotive businesses stated that they have diversified to provide new goods or services as a result of COVID-19
• The government’s coronavirus job retention scheme (CJRS) has assisted in keeping redundancies at a low rate so far - about 1% of the sector workforce – with 120,000 still furloughed
• But automotive employers are predicting a potentially additional 7,000 redundancies by the end of August
• 5% businesses in the sector are intending to permanently close business sites in the next 3 months, and 76% of these stated that this would lead to permanent redundancies
• And automotive businesses, on average, are advertising external vacancies at lower levels than many other industries

Steve Nash, CEO of the IMI comments:  “There is a real mixed story from the latest ONS data – showing on the one hand the inventiveness and flexibility of the sector in the face of severe challenges. More than one in ten automotive employers have diversified their range of services to ensure they can sustain their business long-term. However, the impact of additional hygiene measures and other business changes appears to be taking its toll with 73% of automotive businesses saying their operating costs have increased.

“The other big issue is, of course, the impending end of the furlough scheme – albeit there is much lobbying currently for this to be extended.  The latest data shows there is no hiding from the fact that the hangover of lockdown – and the continued restrictions on movement – is hard to overcome for many. We have already seen several automotive employers announce significant redundancies and there is potential for even bigger numbers in the next month or so.

“September 1st and everything that a new plate normally brings will be a key point in showing just how hard our sector has been hit by COVID-19 – and how quickly it can recover. Again, we would call on the Chancellor to move quickly now – rather than wait for his Autumn budget – to make a cut in VAT on car sales. Just as his ‘meal deal’ has done for the hospitality sector, it could make a big difference in encouraging consumers to get back into the showrooms – virtual or physical.”

¹ ONS Data for the period 29th July to 9th August 2020