UK car production hammered by Chinese lockdowns and Russia war- 100,000 less vehicles

China: Shanghai sees protests against Covid-19 lockdown

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Car production has already been beset by problems from a worldwide shortage in semiconductors since the pandemic which has continued to hit production capacity. The vital chips, which are used in all areas of vehicles from braking systems to dashboard displays, are heavily dependent on key metals such as palladium and nickel which have soared in cost due to heavy export reliance from Russia. Figures from the Society of Motor Manufacturers and Traders (SMMT) for March now give the first full picture of the impact of the conflict on car production with output for the month down by 33.4 percent. So far the first quarter of 2022 has seen nearly 100,000 fewer vehicles produced compared to the same period in 2021.

Mike Hawes, SMMT Chief Executive, warned urgent action would be needed to safeguard jobs and livelihoods.

So far a number of car companies have been forced to temporarily suspend production however this has not yet escalated to longer term closures and lay offs.

Mr Hawes said: “Two years after the start of the pandemic, automotive production is still suffering badly, with nearly 100,000 units lost in the first quarter.

“Recovery has not yet begun and, with a backdrop of an increasingly difficult economic environment, including escalating energy costs, urgent action is needed to protect the competitiveness of UK manufacturing.”

The timing of a further squeeze on materials due to Russia also comes as global shipping is once again disrupted by Covid with a number of important Chinese hubs going into lockdown.

Under China’s zero Covid policy Shanghai’s 26 million residents have been placed under strict restrictions with a shortage of trucking capacity leading to backlogs in the city’s ports.

Richard Bartlett-Rawlings, partner and automotive manufacturing specialist at consultancy RSM, said: “New Covid lockdowns in China will further disrupt the flow of parts and goods throughout 2022, so manufacturers will need to brace for more supply chain disruption ahead.

“This again highlights the need to increase investment in UK car manufacturing with giga-factories and even technology driven micro factories to bolster our domestic capacity, reduce our reliance on global networks – simplifying the supply chain for UK manufacturers and allowing them to focus on innovation to spearhead real change as we transition to electric vehicles.”

The SMMT have called for relief on energy costs for the car industry similar to the relief the government has previously announced for high energy usage businesses.

Earlier this month the government doubled the budget for the scheme which provides funding to sectors such as iron and steel and paper and cardboard manufacturing.

The challenges to car makers are not unique to Britain with Mercedes this week reporting that “the COVID-19 pandemic, semiconductor supply-chain bottlenecks and war in Ukraine continued to impact business” despite an increase in return on sales.

One area of resilience for the car industry has been electric vehicles which have seen soaring numbers of new registrations in the face of a decline in both petrol and diesel.

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In March Tesla took both first and second place for UK best sellers with its Model Y and Model 3.

The surge in electric vehicle sales has been linked to record fuel prices which has made driving petrol vehicles increasingly costly for motorists, while for those able to afford the upfront cost of an electric vehicle there can be considerable savings in running costs.

Rising costs for drivers is also a key concern for sales as the growing cost of living crisis is expected to dent appetite among consumers for a new vehicle.

Seán Kemple, Managing Director at Close Brothers Motor Finance, said: “The ongoing shortages, coupled with the ever-increasing fuel prices and cost of living, means the next few months will continue to be a ‘watch and wait’ situation.”

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