Danial Jarrahi Wrote In a Note To The  International Relations Think Tank:In this report we will take a look at the Motor industry of UK in terms of competition policies. It will be provided the situation of Motor industry in the course of last five years. Moreover, it will be explored how the industry of motor could survive in the pandemic as well. The mains questions that will be asked are how Britain kept the competitiveness of motor industry? What is the competition policy of UK? How Britain could survive its competitiveness of this industry during the pandemic.

Written by: Danial Jarrahi  British Studies MA Student, Faculty of World Studies (FWS), University of Tehran

IRTT:The UK automotive industry is a vital part of the UK economy worth more than £78.9 billion turnover and adding £15.3 billion value to the UK economy. With some 180,000 people employed directly in manufacturing and in excess of 864,000 across the wider automotive industry, it accounts for 13% of total UK export of goods, worth £44 billion, and invests £3 billion each year in automotive R&D. More than 30 manufacturers build in excess of 70 models of vehicle in the UK supported by 2,500 component providers and some of the world’s most skilled engineers. Over 1.3 million cars, 78,270 commercial vehicles and 2.5 million engines were built in the UK in 2019. Eight out of 10 cars produced in the UK are exported overseas to 160 different markets worldwide. (SMMT, 2021)

What is SMMT?

The Society of Motor Manufacturers and Traders (SMMT) is one of the largest and most influential trade associations in the UK. Its resources, reputation and unrivalled automotive data place it at the heart of the UK automotive industry. It undertakes a variety of activities to support and represent the interests of the industry and has a long history of achievement. Working closely with member companies, SMMT acts as the voice of the UK motor industry, supporting and promoting its interests, at home and abroad, to government, stakeholders and the media SMMT represents more than 800 automotive companies in the UK, providing them with a forum to voice their views on issues affecting the automotive sector, helping to guide strategies and build positive relationships with government and regulatory authorities. (SMMT, 2021)

The automotive industry has worked tirelessly for years to fine-tune its efficiency and productivity to maintain its position as a successful and sustainable sector. However, the last few years have introduced new challenges. In 2019, both UK automotive production and registrations fell. This is reflected in almost all of the economic indicators for the sector. A subdued economic environment and political impasse on the UK’s withdrawal from the EU resulted in low consumer and business confidence. UK production volumes were also impacted by multiple dates of uncertainty when the UK came close to leaving the EU without a deal, as well as by weak global demand. (SMMT, Automative Production , 2019)

In 2019, UK car production fell for the third consecutive year, down by -14.2% to 1.3 million units its lowest level since 2010 and some 400,000 units off the recent 2016 peak. Output was affected by multiple factors, notably several plant shutdowns to minimize potential impacts of the UK leaving the EU without a deal. Consumer and business confidence was also weak at home, with demand for UK-built vehicles in key overseas markets moderated. A number of significant model production changes also took place.

Similarly, UK commercial vehicle (CV) manufacturing declined by -7.8% in 2019. The fall in output follows a turbulent year, as model changeovers, variable fleet buying patterns and regulatory changes combined to affect production numbers. (SMMT, Automative Production , 2019)

Covid-19

The Covid-19 pandemic delivered an immense shock to the UK and global economy. The magnitude of the recession caused by the pandemic is unprecedented in modern times. The UK economy plunged by -19.8% between April and June as social distancing restrictions shuttered economic activity. The government announced several extensive policy interventions to financially support businesses, workers and the wider public during the outbreak, as well as attempting to reduce economic uncertainty and increase resilience. Automotive has been one of the manufacturing sectors hardest hit by the outbreak, with production plants and dealerships shut for several months to help protect staff and the public both in the UK and many other parts of the world. The industry is left with a weakened demand in both the UK and many of the key export markets. 2020 is likely to see all metrics severely impacted, and these impacts may last well into the future given the as-yet unknown progress of the pandemic, as well as continued uncertainty around the UK’s future relationship with the EU and other key trading partners. (SMMT, Automative Production , 2019)

Introduction to competition law

The primary purpose of competition law is to remedy some of the situations in which the free market system breaks down. The point was well made in the House of Lords debate during the passage of the competition Act 1998 that “competition law provides the framework for competitive activity. It protects the process of competition. As such it is a vital importance. The invisible hand that Adam smith identified in 1776 in sure in most situations that free market economies left to their own devices will produce results more beneficial than can be realized by intervening in the markets. This conclusion has been supported by evidence put forward by economist over the last 200 years, and, since the collapse of East European planned economies, forms the basis for most of the world’s economic systems. the process of competition is seen as being of value and meriting protection. In is white paper Productivity and Enterprise the UK government argued that the importance of competition in an increasingly innovative and globalized economy is clear? Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing putting downward pressure on costs and providing incentives for the efficient organization of production. As such, competition is a central driver for productivity growth in the economy, and hence the UK’s international competitiveness. (Furse, 2008)

Similar sentiments, albeit on a less grand scale, were expressed by the UK Competition Commission (CC) in a recent report into the contemplated merger (examined under the now defunct merger provisions of the Fair Trading Act 1973) between Safeway plc and any one of a number of supermarket chains: When working effectively, competition involves a process of rivalry between firms that strive to win customers’ business by achieving the lowest level of costs and prices, developing new products or services or exploiting particular strengths, skills or other advantages to meet customer needs more effectively than competitors. (Safeway plc and Asda Group Ltd (owned by Wal—Mart Stores Inc),- Wm Morrison Supermarkets plc; I. Sainsbury plc; and T esco plc: A report on the mergers in contemplation. (Furse, 2008)

It is often said, however, that ‘competition sows the seeds of its own destruction’; encouraged to compete, successful entrepreneurs may achieve positions where they are able to prevent others from competing and thereby damage the process as a whole. A variant on this problem is that there may be some situations in which there is only room for a single firm in a market, and, unless steps are taken to regulate the conduct of this firm, it too may act to the detriment of the economy. The fact that in both the EC and the UK a competitor harmed by another’s unlawful anti—competitive conduct may go to court to seek damages or another suitable remedy also serves to place stress on the right of business people to conduct their affairs in a fair and reasonable commercial environment. Competition law is not, directly, about consumer protection, or trading standards, although both may benefit from the application of competition law (see, however, Averitt, N. W., and Lande, R. H., ‘Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law. (Furse, 2008)

In the United Kingdom there are two systems of competition law: domestic law and the law of the European Community (EC). The relationship between these two regimes is examined in Chapter 3. With the passage of the Competition Act 1998 the domestic regime was strengthened and, following the demands of both the business community and consumer groups, brought into much closer alignment with EC law. An examination of these two regimes forms the basis of this book. Most of the law dealt with here is based on statutes or other public enactments. In both systems lawyers and regulators are likely to look for guidance to the Operation of the antitrust law of the United States, which is briefly introduced. (Furse, 2008)

To the frustration of many lawyers competition law is heavily reliant on economics, and it is not only those new to the subject who may be hesitant when dealing with a different discipline with its own language and ‘rules’. In practice lawyers handling the more complex cases are likely to rely on expert witnesses and documentation provided either by companies themselves or by firms of economic consultants. However, without some understanding of what questions should be raised, and what significance the answers then have, such communication becomes difficult and inefficient. It is for this reason that the reader of this book is faced with economics both later in this introduction, and in Chapters 8 and 18. It might be possible to pass these by, but the case law that is discussed elsewhere will be clearer if they are read, and then returned to as necessary. (Furse, 2008)

Method

The topic of this research has historical resources which are annually reports and background. Hence, the researcher decided to choose “documentary method” as the methodology of this article. More to explain, documentary-methods are the techniques used to categorize, investigate, interpret and identify the limitations of physical sources, most commonly written documents, whether in the private or public domain (personal papers, books, commercial records, or state archives, communications or legislation).

The Scope of Competition Policy

The deviation of monopolistic from competitive prices has in principle two effects. (A) By raising prices above average costs, thereby generating pure profits, monopolistic pricing leads to a redistribution of income in society, away from that which would materialize under perfect competition. (B) By raising prices above marginal costs a monopoly distorts the efficiency properties of the competitive equilibrium, the normal implication being that the use of the monopolized commodity in consumption or production becomes too low. This is illustrated in Figure 1.1, which assumes that the demand function is linear and

That unit costs are constant. The monopolist’s optimal output is x’”, which corresponds to the intersection of the marginal cost and marginal revenue curves, and this is to be contrasted with the competitive output of x*. With it being the monopolistic mark-up (the difference between price and unit cost), the monopolist‘s profit is It = px’”, while the efficiency loss from monopolistic pricing is the triangular area e = (I/2)y(x*—-x’”). In general, both monopoly profit and the efficiency loss depend on the elasticity of demand as well as on elasticity of supply (which in the case shown is infinitive). It is perhaps worth noting that in the special case represented in Figure 1.1 it will always be the case that the efficiency loss is exactly equal to half the monopoly profit“ e = (1/2)”. (Hope, 2000)

While private agents who try to create a monopoly (sometimes with the support of politicians) are motivated by (A), competition policy is mainly motivated by the efficiency losses implicit in (B). An interesting question is now whether competition policy should be designed with both objectives in mind, just like tax policy has to be designed with a View both to efficiency and justice. I take the standard answer to this question, just as m the formulation of the Norwegian Competition Act, to be no, implying that competition Policy should be formulated solely with regard to efficiency. Whether the answer is a good one will be discussed further below. (Hope, 2000)

To which sectors of the economy should competition policy be extended? The view from welfare economics is clear: to all of them! The aim to strive for is clearly to have price equal to marginal cost in all markets. In the markets for consumer goods and services the implication of this would be the equality between consumer prices and the marginal costs of production, while in factor markets the rule would have to be formulated as equality between the prices of factors of production, as facing consumers, and their marginal value products. Thus, the general principle would apply to markets for primary commodities like agriculture as well as to labor markets As a matter of fact, these are both examples of sectors of the economy which are fairly well protected from competition policy, and I shall maintain later on that this is basically because of distributional considerations. It follows that competition policy must limit its scope to certain although large sectors of the economy. In the next section I discuss some problems that follow from this limitation. Even when efficiency is taken as the sole aim of competition policy. (Hope, 2000)

Another area which traditionally has been well protected from interference by competition policy is the public sector. Some decades ago the prevailing view was that competition was not an issue in the evaluation of the public sector’s activities; in fact, in many cases it was maintained that private competition was harmful and should be forbidden. This has changed. It has increasingly come to be realized that actual governments are far from the picture of the night-watchman state which supplies a small set of public goods, including basic administrative infrastructure. To a large extent the public sector has become a supplier of private goods, like education, health, energy and communications, and in these are private firms present government organizations with both real and potential competition. The prevailing opinion is now that this competitive pressure should be utilized to make the public sector more efficient. Increasingly, therefore, competition policy has had to concern itself with the interface between the private and public sectors of the economy. (Hope, 2000)

Competition and efficiency

In Its everyday work on implementation of competition policy, a competition authority must necessarily work on a market-by-market basis. Faced with monopolistic price-setting in a given sector, the aim of the authority should be to take measures which will lead to a reduction in price towards the competitive level. This will promote effective competition. But will it lead to a more efficient allocation of resources? The, answer to this question depends crucially on what is assumed about the nature of market equilibrium in the rest of the economy. To begin with, I shall focus especially on the conditions in the parts of the economy which lie outside the domain of the competition authority. If some sectors of the economy are taken as being protected from interference. From competition policy, how then should competition policy be designed inside its own dominant? (Hope, 2000)

This is a classic problem in the welfare economics of the second best. Indeed, it is one of the central applications of the theory in the original formulation of that problem by Lipsey and Lancaster (1956—57). What they showed was basically that partial or piecemeal reform which appears to move the economy in the direction of efficiency, may not in fact do so. In particular, suppose that there is one market where there is an exogenously given deviation of consumer price from marginal cost. This could be either because there is an institutional monopoly which cannot be removed or perhaps more convincingly a tax .wedge which is motivated by overriding distributional concerns. Then it cannot in general be taken as desirable to have prices equal to marginal costs in other markets in the economy. (Hope, 2000)

Why is this? There are two related explanations, one mathematical and one economic. To take the mathematical interpretation first, the classic conclusion about the effic1ency properties of marginal cost prices can be seen as derived from the solution to a welfare maximization problem. In that problem the only constraint on the maximization of consumer welfare is production feasibility. If in addition it is assumed that there is one price which must be taken as different from the relevant marginal cost, this introduces an additional constraint into the problem. This constraint obviously prevents one of the first order conditions to be attained. But because of the interdependence of the variables in the overall maximization problem this also means that all the first order conditions will be affected by the additional constraint. Hence the conclusion. (Hope, 2000)

This line of interpretation does not give us a good feel for the economics of the second-best problem. To achieve this, let us consider. The problem Within a Specific model in which the structure is so simple that it can be analyses by purely verbal arguments. To be concrete, let us think of a model in which there are three goods: leisure, energy and a generalized consumption good which serves as the numeraire. For redistributive reasons there is a distortionary income tax, so that the consumer price of leisure, i.e. the after—tax wage rate, is below labor’s marginal productivity. The assumption is that this price distortion is one that competition policy cannot touch. I shall also assume that the substitution effects on leisure demand are larger than the income effects, so that the consumption of leisure is too high relative to the first best, i.e. labor supply is too low. (Hope, 2000)

Suppose now that it is found that the consumer price of energy is higher than its marginal cost and that energy use for this reason is too low. This is within the-domain of competition policy, and various measures are therefore considered which will lower the price of energy towards its marginal cost. The question is when such a measure welfare improving? (Hope, 2000)

Focusing on the consumer side of the economy, assume first that energy and leisure are complements. A decrease in the price of energy will increase energy consumption, which is fine from the point of View of efficiency- However because of the complementarity a fall in the price of energy will also lead to an increase in the demand for leisure. But the consumption of leisure was already too low in the initial situation; hence the efficiency loss from the distortion of the wage rate has become larger. And this has to be set against the efficiency gain in the energy market. There is no guarantee that there is an overall efficiency gain for the economy as a whole, although the price structure has apparently moved closer to the competitive ideal. (Hope, 2000)

If instead we suppose that energy and leisure are substitutes, the conclusion will be a different one. A lower price of energy will now generate a lower demand for leisure, i.e. an increase in labor supply. The price reform in the energy market will counteract the distortion of the wage rate and lead to efficiency gains in both markets and therefore for the whole economy as well. (Hope, 2000)

The point of this analysis has not been to make recommendations for competition policy in the energy market. I have named the commodities leisure and energy rather than A and B or apples and bananas in part to convey the view that price reforms as a result of competition policy may be very important in terms of its consequences for the economy and certainly comparable in this respect to major changes of the tax system. i should also stress that I have simplified the analysis in some important respects from what one would do on the basis of a fully specified general equilibrium model; e.g. I have taken no account of the effect of a lower energy price on the demand for labor. But this is really beside the central point of the example, which has simply been to show the fundamental implication of second-best welfare analysis, namely, that piecemeal reforms do not necessarily lead to efficiency gains for the economy as a whole. We can identify additional theoretical restrictions which are sufficient to ensure that such gains will indeed emerge (Dixit, 1975), but these are very restrictive. Consider as an example Dixit’s Theorem. Lowering the price of any one commodity towards its marginal cost will increase welfare if the commodity is complementary to all those with a greater proportional distortion and substitute for all others including the numeraire. (Hope, 2000)

This analysis suggests that competition policy becomes extremely complicated once we move away from the unrealistic world of first-best policy instruments. Regulators must always think in a general equilibrium perspective, which introduces a number of interdependencies among different areas of economic policy. Thus, in the example above the estimate of the efficient price of energy should be sensitive to the magnitude of the marginal tax rate on labor income. A way out of this difficulty is to institutionalize a decentralization of objectives by which the task of the competition authority is limited to that of achieving competitive conditions, with prices being equal to marginal costs. It is then left to other institutions of public policy, e.g. the ministry of finance, to decide on additional measures in order to internalize the externalizes between different policy areas. To return to the leisure energy example above: if a careful analysis shows that the optimal consumer price of energy is above marginal cost, the task of the competition authority should still be to ensure that the producer price equals marginal cost. It will then be the duty of the ministry of finance to propose a tax on energy use that is optimal relative to the income tax distortion. This tax should be determined on the basis of the same kinds of considerations as were sketched above concerning the optimal deviation of the consumer price from marginal cost. (Hope, 2000)

This division of responsibilities has a number of attractive features. Allowing each policy authority to concentrate on doing what it knows best. Its appeal is strongest when in fact there exist a number of other policy tools that can be used to pursue other objectives. If, on the other hand, there are numerous political constraints on the differentiation of taxes, it becomes much harder to argue for a narrow view of the objectives of competition policy. Obviously, the conclusion to be drawn from this exercise in the welfare economics of the second best is that there may be some difficult problems and challenges for the definition of competition policy as a separate area of economic policy. A one-to-one allocation of instruments to targets will only be optimal under particular assumptions on the availability of policy tools and the nature of political organization. What the implications of this are for the organization of competition policy will be considered in the final section. (Hope, 2000)

Implications for the organization of competition policy

The arguments in the previous sections cast some doubt on the wisdom of organizing competition policy as a separate area of economic policy with its own institutions and policy tools. The general point is that a one-to-one allocation of instruments to targets is unlikely to result in an optimum. Different areas of economic policy should really be seen as parts of an integrated whole. Tax policy, trade policy and competition policy should, according to this view, be designed jointly in order to internalize the spillover externalities between them. Attempts to design competition policy with the single aim of achieving social efficiency through effective competition may in certain circumstances do more harm than good. This line of argument has far-reaching implications, leading one, for example, to doubt the wisdom of organizing a competition authority as an independent body outside the central government administration. (Hope, 2000)

For my own part I am not entirely convinced by this conclusion. Having distressed some of the intricacies of policy interdependence. I still believe that on needs to distinguish, using the vocabulary of Krugman (1993),” between the narrow and broad arguments for competition policy. The narrow arguments are of the type that l have mainly discussed above. Although welfare economics tells us that competitive markets result in overall social efficiency, piecemeal reforms at not guaranteed to result in welfare improvements. This is first of all because there me other distortions in the economy that may interact negatively with reforms intended to stimulate competition, and. second. Because of constraints on redistribution policy. Competition policy, according to this perspective, has to be much more sophisticated than, for example, indicated in the 1994 Norwegian competition act. (Hope, 2000)

The broad arguments for competition policy are more political in nature. They recognize first that the design of policies to attain efficient resource allocation is I very difficult task which involves considerable costs. It has to be pursued along several dimensions like general tax policy. Environmental policy, trade policy and competition policy to name just a few. Each of these areas requires particular expertise both among politicians and bureaucrats. Reforms must be based on legislation, which takes time. A reform proposal which is contingent on the existing level of a distortion somewhere else in the economy will have to be revised when that level for some reason changes. The insights of policy-makers and administrators which such a policy requires are very demanding and may easily lead to mistakes. By pursuing the single aim of perfect competition. Leaving other aspects of policy to others, the competition authority will probably make a few mistakes. But probably not as serious mistakes as it would do in the attempt to carry out more ambitious and sophisticated policies. To paraphrase Krugman: [promotion of competition] is a pretty good if not perfect policy, while an effort to deviate from it in a sophisticated way will probably end up doing more harm than good’ (1993. p. 364). (Hope, 2000)

In addition to this argument, which emphasizes the transaction costs of policy design and reform, there is also an argument which is based more explicitly on the nature of the political process. Competition policy is an area where policy makers inevitably face resistance from private agents who have a direct interest in preserving existing inefficiencies. If these agents could legitimately resist the actions of the competition authority on the grounds that the existing market structure had beneficial effects on the environment, the terms of trade, etc., then presumably similar arguments would have to be admitted in areas like environmental and trade policies. The result could then easily be that it would become impossible both to promote effective competition and improve the environment. (Hope, 2000)

A decentralization of policy, although not based on the most sophisticated of theoretical arguments, would be more likely to make the economy as a whole move in the general direction of greater efficiency. This conclusion seems to indicate that my detour through the welfare economics of the second best was an unproductive effort, but I do not think so. It is by trying to understand the theoretical complexities of policy design that we are able to understand the nature and consequences of the simplifications on which policy must be based. Or in other words, to appreciate the broad arguments for competition policy, one has to understand the essence of the narrow arguments. (Hope, 2000)

An Incentive Oriented Approach to Competition Analysis

Perhaps the most important question in competition analysis is what the object of analysis should be. Is it the market, the industry, or the individual firm want to study? The obvious answer is the market. We are ultimately concerned with prices and quantities, and these are determined in the market. Although that is obviously correct, we argue that the focus ought to be on the individual firm. There are two reasons for this. One is purely pragmatic: the firm is a well defined entity; the market is not, and there are good reasons to avoid the mine field of market definition. The other reason is substantive: we cannot understand the market unless we understand the agents in the market; and in imperfectly competitive markets, the ‘interesting’ agents are the firms. (Hope, 2000)

We would also argue that it is natural in most contexts for competition analysis to take a firm or group of firms as the point of departure. US authorities are concerned about the behavior of Microsoft towards its customers and competitors and this concern has little to do with the question of what the appropriate definition of the market for computer software is. Norwegian authorities may have to make up their minds about a possible merger between the two largest banks. If so, they will be concerned about how the merged bank will behave how that will affect the behavior of other financial institutions. This may, of course, be phrased as a question of how the merger will affect financial markets. Ultimately, however, it is firm behavior they are interested in. (Hope, 2000)

Our approach, therefore, has the individual firm as object of study. The starting point is that firm behavior is determined by incentives by the profits and losses that follow from alternative courses of action, and by the consequence: that profits and losses will have for the firm. It follows that competition is important only to the extent that it affects firm incentives. It does so in two ways. First, it reduces the profitability of monopoly-like practices. Second, it narrows survival space the set of actions that are possible without endangering the future of the firm and thus makes it more likely that the firm will innovate and produce efficiently. (Hope, 2000)

We suggest that the second of these is perhaps a more fruitful point of departure for competition analysis than the first, i.e. that one should start by mapping the ‘survival space’ of the firm (or group of firms) under consideration. The way to do this is by asking whether the firm owns or controls something which gives rise to pure rents or potential monopoly profits. If it does, the firm may be to survive even if it is inefficient. If not, it is only feasible course is to minimize costs. (Hope, 2000)

If the firm earns pure rents or has potential market power, the next question should be what the positive incentives are. Will the firm minimize costs even if it can survive without doing so? Is it in the firm’s interest to exploit potential monopoly power? And if so, will it be done in a way which creates inefficiency? The answers to these questions depend in part on the characteristics of the firm’s environment, and in part on the nature of the contracts that are possible between the firm and its customers. (Hope, 2000)

We therefore recommend a three-stage approach, where the first stage maps any exclusive ownership or control that might give rise to pure rents or potential market power, the second stage considers how the firm’s external environment affects incentives for profit maximization and exploitation of potential market power, and the third stage considers whether the customer relationship is such that efficient contracts may be possible. (Hope, 2000)

History of the UK Motor Industry

The UK automotive industry has been at the forefront of the sector for decades, and has created some of the most iconic cars in the world including Land Rover, Aston Martin, Bentley and Mini. Other leading UK brands over the years have included Daimler, Jaguar, Lagonda, Lotus, McLaren, Morgan and Rolls-Royce. The UK is also major base for some of Europe and the world’s most recognised brands including Honda, Nissan, Toyota and Vauxhall. The UK automotive industry traces its roots to the end of the nineteenth century. Gottlieb Daimler patented a design for a new petrol-based engine in 1885. London-based engineer Frederick Simms acquired the British rights for the engine design. The first all-British four-wheel car emerged in 1900 with a vehicle designed and built by Herbert Austin. Wolseley Motors Limited was the UK’s biggest car producer until 1913. By 1922, 183 motor companies were operating in the UK. Just 58 motor companies were making cars by 1929. In 1932, the UK emerged as the largest car producer in Europe. Austin, Ford, Morris, Rootes, Standard and Vauxhall were among top producers. In 1955, the United Kingdom had emerged as the world’s second largest car manufacturer. It had also become world’s largest exporter of cars. By 1968, the British Leyland Motor Corporation (BLMC) was formed from the merger of Leyland-Triumph-Rover and BMH. In 1952, the Nuffield Organization merged with Austin to launch the British Motor Corporation. In the 1950s and 1960s saw the beginning of a major consolidation of car production in the UK.  BLMC’s dominance in the UK market diminished during the 1970s. By the end of the decade, newly formed British Leyland was the only major stand-alone UK car maker. UK continued to fall as a top car producer and was the sixth biggest manufacturer by 1974. Since the 1980s, the automotive industry has seen major shifts, further consolidation and an increase in foreign car makers operating in the UK. British Leyland was renamed to the Rover Group in 1986. Nissan established its first production plant in Europe in 1986 in Sunderland. In recent years, major UK brands have been acquired by international car makers. 70 percent of all vehicles made in the UK are exported to other countries. Jaguar and Land Rover was taken over by Tata Motors of India. MG was purchased by China’s SAIC Motor Corporation. (autolinkspro, n.d.)

Competitiveness of UK Automotive Industry

One year to Brexit, SMMT sets out UK Automotive industry priorities to secure competitiveness and future investment to maintain growth and jobs. New figures highlight scale of sector’s influence, with total economic impact calculated at £219 billion – 10% of UK GDP. New independent production forecast predicts output will fall this year to around 1.729m but should climb to 1.8m by 2023. Key investment decisions on new UK-built vehicles to be made in the next year, requiring government commitment to global competitiveness. With one year to go until the UK leaves the EU, the Society of Motor Manufacturers and Traders (SMMT) today set out its priorities to assure the UK automotive industry’s future success. The move follows agreement of a Brexit transition period, designed to allow business to continue as usual while a new UK-EU trading relationship is negotiated. While the deal provides some welcome breathing space, the industry now seeks rapid progress on key automotive concerns to avoid another cliff edge on 31 December 2020. (SMMT, Automative Production , 2019)

With decisions on new vehicle models in the UK due in the next 12 months, it is essential that both industry and government do all they can to secure this investment and safeguard the thousands of jobs that accompany such decisions. New figures from the Production Outlook, an independent forecasting report released today, predict there will be modest fall in UK vehicle production to 1.729 million in 2018 and 1.713 million in 2019. If we assume positive production decisions are made for the UK on a number of future models, production could climb to over 1.8 million by 2023. (SMMT, Automative Production , 2019)

Our continued ability to trade freely with our biggest partner, the EU, and key global markets is essential but UK competitiveness starts with local conditions. Business rates, capital allowances and energy costs, for instance, must all be globally competitive; training and skills for a productive workforce must focus on new technologies and the UK supply chain must be attractive to investment. All of this will be vital if the UK is to remain a global destination for future investment in new technologies, including digital manufacturing, lightweight materials, vehicle electrification and connected and self-driving vehicles. The Government’s Industrial Strategy, published last year, and the accompanying Automotive Sector Deal recognise this, but cross-Government policies must align to deliver on the ambition. (SMMT, Automative Production , 2019)

UK Automotive’s rich heritage in engineering and manufacturing makes it an important part of the UK’s diverse economy, with the high value goods it produces creating skilled jobs and driving exports. The sector is already one of the UK’s most important economic pillars, delivering an annual £22.8 billion direct to the Treasury, employing 169,000 people and responsible for 13% of all the UK’s export in goods. However, new figures published today show that the true scale of the sector’s economic contribution is significantly larger, at around £219 billion. (SMMT, Automative Production , 2019)

A new SMMT study of economic figures highlights the industry’s impact on adjacent sectors. From raw materials and R&D, to logistics, freight and shipping; from retail and distribution, finance, insurance, fuel and maintenance, to telecoms, electronics, IT and tech; and not forgetting motorsport, travel, advertising and media, sciences and education, the list of sectors which depend, at least, in part on the success of the automotive industry is extensive. (SMMT, Automative Production , 2019)

Some 200,000 people are employed in new car retail alone, while UK-based car finance firms employ over 45,000 more, with an annual £12.5 billion economic contribution. On the road, the vehicle fuel industry supports 40,000 jobs, and a further 347,000 are employed in vehicle servicing and repair. (SMMT, Automative Production , 2019)

Meanwhile, the UK’s globally renowned expert engineering base means eight of the world’s 11 Formula One teams make their homes here – together employing a further 41,000 people, 25,000 of them engineers. (SMMT, Automative Production , 2019)

“Last week’s deal on the transition period was essential, providing a short term boost and a degree of certainty for investors. The next major hurdle will be securing a new, comprehensive trade agreement with the EU and our partners across the world. In the meantime, government must help make the UK as competitive as possible. (SMMT, Uk Automativ, 2021)

Government’s Industrial Strategy and Automotive Sector Deal are positive steps but we need concrete action if we are to stay ahead in what is an intensely competitive global environment. New figures out today show the positive impact our industry has on other sectors so it is vital that automotive competitiveness is front of mind for policy makers.” (SMMT, Uk Automativ, 2021)

Mike Hawes, SMMT Chief Executive

Remaining part of the single market and customs union, continued access to EU talent, and the ability to benefit from preferential EU trade agreements with third countries remain the UK Automotive industry’s priorities in the future EU-UK relationship. Equally important, however, is the need for the UK to maintain influence within EU regulations, both during transition and after Brexit, as critical decisions are taken on shared issues such as CO2 and data – issues which will ultimately affect UK consumers, exporters and other businesses. (SMMT, Automative Production , 2019)