The UK automotive sector may be seeing its sharpest downturn in business conditions for six and a half years but an imminent switch from drivers and fleets to electric vehicles will bring opportunities.

Lombard says rising interest in ULEVs could bring the start of an evolution for the UK automotive sector

That’s one of the findings of the new NatWest UK Automotive PMI report, which calls for the industry to work on collaborative solutions as it explores the economic landscape faced by UK automotive sector manufacturers.

The research is based on responses from such firms and benchmarked against equivalent indices for Europe and the rest of the world.

According to the report, the headline seasonally adjusted UK Automobiles & Auto Parts PMI – a single-figure measure of developments in manufacturing conditions – registered at 43.5 in May; putting it below the crucial 50.0 no-change threshold for the second month running. The latest figure was down from 48.9 in April and signalled the sharpest downturn in business conditions across the UK automotive sector for six-and-a-half years.

Aside from a brief upturn during March amid a Brexit-related surge in production volumes and stockpiling, the index has signalled softer operating conditions in each month since June 2018.

The research found that the downturn in UK automotive sector output, order books and employment in the second quarter of 2019 has been amplified by a payback from extended production schedules in March. Survey respondents widely commented on softer domestic demand following production stoppages at volume manufacturers and a reversal of stock building across the supply chain.

As such, the recent PMI figures indicate the worst period of underlying demand since late-2012. Export sales were especially subdued in May, with automotive sector manufacturers pointing to the steepest drop in new orders from abroad since April 2009.

And, comparisons of the UK Automobiles & Auto Parts PMI data against international benchmarks illustrate that manufacturers have faced declines in order books of a similar scale to those seen across Europe and further afield.

As well as Brexit, the report says a wider set of challenges are holding back the automotive sector, with major geopolitical disruption in the form of US-China trade frictions and the prospect of new tariffs having rippled through international supply chains.

In response, Richard Hill, head of automotive & manufacturing, NatWest, said the industry “must accelerate efforts to collaborate across the critical elements of the auto sector ecosystem – OEMs, supply chain, policymakers, investment and finance communities”.

He added: “The coming global shift towards electric powertrains is opening up huge rewards for value creation across the supply chain, while the technologies underpinning the future of mobility may create new geographic hubs for industrial innovation.

“It is my firm belief that the UK is well placed to thrive in an environment of technology-driven automotive trends, but we must act fast and think collaboratively to maximise the opportunities ahead.”

Stephen Blackman, NatWest principal economist, also said that the automotive industry is facing a “range of distinct headwinds, each of which is weakening consumer demand for cars” as well as a period of profound structural change, “driven by developments in automotive technology, automation and shifts in consumer preferences”.

He pointed out that while vehicle production and sales are down, registrations of electric and alternative fuel vehicles increased by 13.8% in the year to May, reaching a 6% market share.

And Ian Isaac, managing director, Lombard, agreed that the electric vehicle will bring major opportunities.

He said: “What we are experiencing in asset finance, whether this is through our funding of business customer fleets, unit stocking for dealers or support for our rental and contract hire customers, suggests we may in fact be experiencing the start of an evolution – driven by the electric vehicle.

“We are teetering on the edge of the ‘first to move’ precipice. Ultimately, while we are seeing the demand and desire for electric vehicles begin to grow, consumers and businesses are hesitant to take the plunge and make the purchase. This stems from the speed at which the technology is improving – what may be the best-in-class electric vehicle today may very quickly be outdated in just a matter of months.

“This hesitancy is contributing to the industry downturn highlighted by the report. However it won’t last forever; in fact, people are already starting to make the leap. There has also been a huge increase in the number of pure-electric and plug-in hybrid models available in the UK with many of the top manufacturers in the UK now offering a number of EVs as part of their model range.

“Our front-line feedback is that as the electric vehicle becomes more common place, and the young people of today become the vehicle purchasers of tomorrow, British manufacturers must ensure they are best placed to capitalise on the opportunity.”