UK car production drops to lowest July level in 65 years

Global microchip shortage and reduced staffing levels due to 'pingdemic' leads to 37.6% dip in manufacturing

Britain's Prime Minister Boris Johnson tours Japanese auto giant Nissan's production plant in Sunderland, north-east England. UK car production is still 28.7 per cent down on pre-pandemic levels in 2019. AFPShow less

UK car production plunged to its lowest July level since 1956 as the global microchip shortage hit the industry.

Only 53,438 cars were built over the month, a drop of 37.6 per cent on July last year, the Society of Motor Manufacturers and Traders said. Supply chain challenges have hampered production and carmakers have struggled with a wave of workers being “pinged” by the National Health Service Covid-19 tracing app.

SMMT chief executive Mike Hawes said the July numbers “laid bare the extremely tough conditions UK car manufacturers continue to face”.

“While the pingdemic will lessen as self-isolation rules change, the worldwide shortage of semiconductors shows little sign of abating,” he said.

Although car production for the year to date is almost one fifth higher at 552,361 than in 2020, it remains 28.7 per cent down on pre-pandemic levels in 2019 when 774,760 cars rolled off the production line.

The chip shortage has slowed car assembly lines across the globe because new vehicles often include dozens of microchips, also known as semiconductors.

The dearth is not only putting pressure on carmakers but also on tech companies and the consumer electronics sector, which are also competing for supply.

Up to $20 billion could be wiped off global carmakers’ operating profits in 2021 because of the chip shortage, Goldman Sachs said.

Carmakers across the globe are suffering. The supply-chain challenges cut short a run of positive profits for Jaguar Land Rover owner Tata Motors, which posted a bigger than expected net loss for the quarter that ended in June after warning last month that deliveries in the current quarter would be about 50 per cent lower than planned.

In Germany, Volkswagen’s Wolfsburg plant – the world’s largest car factory, employing about 60,000 people – restarted from its traditional summer with only one shift.

Meanwhile, Audi extended the summer break at its two factories in the country by a week. Toyota warned this month it was suspending output at 14 plants across Japan, slashing production by 40 per cent because of supply disruption including chip shortages.

In contrast to the low production numbers in the UK, the second-hand car market is booming, with buyers having to hustle to secure a vehicle.

For new cars, production for the UK market dropped 38.7 per cent to 8,233 vehicles, while manufacturing for export was down 37.4 per cent with 45,205 cars shipped.

“The UK automotive industry is doing what it can to keep production lines going,” Mr Hawes said.

He urged the government to help the sector by continuing the Covid support measures in place, such as the furlough scheme, which will end on September 30, and “boosting our competitiveness with a reduction in energy levies and business rates for a sector that is strategically important in delivering net zero (emissions)".

On a brighter note, demand for alternatively fuelled cars picked up in July with more than a quarter of all vehicles produced during the month either battery electric, plug-in hybrid or hybrid electric – representing their highest share on record.

This falls in line with the government's plans to shift drivers to electric vehicles before the 2030 ban on the production of new petrol and diesel cars.

However, the supply chain crunch affecting the automotive sector may extend into next year as the surging Delta variant upends factory production in Asia and disrupts shipping.

Manufacturers across the globe are reeling from shortages of vital components and higher raw material and energy costs, forcing them into bidding wars to secure space on ships, pushing freight rates to record highs and prompting some exporters to raise prices or simply cancel shipments.

Richard Peberdy, UK head of automotive at KPMG, said the supply chain pressures weigh heavily on British manufacturers as the wider economy edges into recovery mode.

“Carmakers will be cursing a mix of factors stifling their ability to produce more vehicles, namely materials and labour shortages and increases to shipping costs,” he said.

“Manufacturers are absorbing the costs for now, but we could soon see price rises being passed on to consumers should problems persist, which runs the risk of dampening the sales recovery.”