UK car production soars – but industry warns of looming Brexit rules ‘threat’
UK carmakers have recorded their best September since 2020 – but warned growth is “under threat” from new Brexit export rules due to come into force within months.
More than 88,200 vehicles rolled off factory lines in September, an increase of over 25,100 – almost 40% – compared to the same time last year, figures published on Thursday reveal.
The Society of Motor Manufacturers and Traders (SMMT) described the period as a “triple success”, as it was also the sector’s strongest month of growth in 2023 so far and the best results for a September in three years.
The industry body said the rise was driven by a 32% growth in exports – with almost six in 10 vehicles going to the EU. Output of electric vehicles (EV) also soared by 41.5%.
SMMT chief executive Mike Hawes hailed the figures as “particularly strong” and “good news for the UK, given the thousands of jobs and billions of pounds of investment that depend on the sector”.
However, it comes only months before new “rules of origin” Brexit trade regulations are due to come into force in January 2024.
Under the measure, 45% of the value of an EV must originate in the EU or UK for it to avoid being slapped with a 10% trade tariff.
The target is harder to achieve for electric cars and vans, as most manufacturers rely on batteries produced in Asia and the components comprise a large proportion of the total value of such vehicles.
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The SMMT said the industry’s growth in the UK, particularly from the manufacture of EVs, was “under threat” from the imminent introduction of the new rules and called for them to be delayed by three years.
It warned the tariff could raise the average cost of UK-built battery electric vehicles by £3,600 in Europe, while EU-made models sold in the UK could experience an average price hike of £3,400.
Mr Hawes said: “Given the increasing importance of electrified car production, the first and urgent step is for the UK and EU to agree to delay the tougher rules of origin requirements that are due imminently.
“This would give the necessary breathing space for automotive sectors on both sides of the Channel to scale up gigafactories and green supply chains, both of which are essential for a stable, long-term transition.”
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The SMMT said the volume of British cars exported to global markets has risen by 16%, to more than 500,000 units, since January, with EVs accounting for more than a third of shipments, up from a quarter a year ago.
Vauxhall’s parent company Stellantis has also called for a delay in the introduction of the rules – which are part of the 2020 Trade and Cooperation Agreement between the UK and EU.
Both the British and German governments have also been lobbying for the regulations to be changed, while BMW board member Milan Nedeljkovic told Sky News last month he was optimistic they would be eased.
A government spokesperson told Sky News: “We need a joint UK-EU solution to avoid consumers facing tariffs on electric vehicles from 2024 which do not apply to petrol and diesel cars.
“We have raised this with the European Commission and industry and are ready to work with them to find a solution within the existing structure of the Trade and Cooperation Agreement. The UK remains one of the best locations in the world for automotive manufacturing.”
A trio of property giants has lodged a protest against a radical financial restructuring that will see Cineworld imposing steep rent cuts on its landlords.
Sky News has learnt that British Land, Landsec and Legal & General Investment Management all voted against the cinema operator’s restructuring plan this week.
Cineworld has confirmed plans to close six of its UK multiplexes, but documents circulated to creditors show almost 50 others are in categories requiring landlords to agree to revised rent deals in order to ensure their long-term viability.
Although they carry significant influence in the commercial property sector, the trio’s protest will have no impact on the outcome of the company’s proposals, since its owners are now also among its largest creditors, meaning they can effectively force the deal through.
According to documents sent to creditors during the summer, 33 sites – categorised as Class B – “require a reduction of rent to ERV [Estimated Rental Value] Rent in order to place the sites on a viable long-term footing”.
A further 38 of Cineworld’s cinemas would be unaffected, while another 16 Class C1 and C2 leases require reductions to either turnover rent or zero rent in order to render them financially viable.
The documents added that the company did not have sufficient funding to meet a quarterly rent bill on June 24 of £15.9m.
“The UK group did not have sufficient liquidity to make the June 2024 Rent Payment and required further funding from the US Group to meet this liquidity need.
“Absent this funding, the UK Group would have been insolvent on a cashflow basis.”
Cineworld is being advised by AlixPartners.
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Other cinema operators are now poised to step in to take over some of Cineworld’s sites.
The company trades from more than 100 locations in Britain, including at the Picturehouse chain, and employs thousands of people.
Cineworld grew under the leadership of the Greidinger family into a global giant of the industry, acquiring chains including Regal in the US in 2018 and the British company of the same name four years earlier.
Its multibillion-dollar debt mountain led it into crisis, though, and forced the company into Chapter 11 bankruptcy protection in 2022.
It delisted from the London Stock Exchange last August, having seen its share price collapse amid fears for its survival.
Cineworld also operates in central and Eastern Europe, Israel and the US.
A long-running measure of consumer confidence has slumped to levels last seen at the start of the year following warnings of “tough choices” ahead in the looming budget.
GfK’s Consumer Confidence Index fell seven points in September to minus 20, with significant drops in predictions for personal finances and the general economy over the coming year.
The report’s authors suggested it was “not encouraging news” for the new government, which has made growing the economy its top priority.
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But within weeks of taking the post of chancellor, Rachel Reeves – followed by prime minister Sir Keir Starmer – moved to warn of a legacy £22bn “black hole” in the public finances and said it would result in a painful budget on 30 October.
Among measures already taken include cuts to winter fuel payments, leaving up to 10 million pensioners up to £300 worse off, and inflation-busting public sector pay settlements.
Tax rises and spending cuts are widely expected in next month’s statement to MPs though The Times reported on Friday that a decision by the Bank of England to slow a programme of loss-making bond sales would leave Ms Reeves £10bn better off than she had anticipated.
It added that she was still expected to push forward with her budget plans anyway as a signal of her commitment to fiscal discipline.
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The latest snapshot on the public finances, released by the Office for National Statistics (ONS) on Friday showed net borrowing of £13.7bn during August.
Its chief economist, Grant Fitzner, said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.
“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”
Consumer spending accounts for around 60% of the UK economy.
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Data released separately on Friday showed a 1% rise in retail sales volumes during August in the wake of weakness, mostly blamed on poor weather, over the previous couple of months.
The ONS said that the increase was driven by supermarket sales, as demand for BBQ food and drinks rose due to the arrival of some sunshine over the key holiday month.
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It also credited discounting by clothing retailers.
The data chimes with the latest updates from big retailers, including Next and B&Q’s owner, which have spoken of weak demand for so-called big ticket items such as home furnishings and kitchens respectively.
GfK’s closely-watched survey showed expectations for the general economy over the next 12 months fell by 12 points to -27, while the forecast for personal finances was down nine points to -3.
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Commenting on its key measures, including the headline figure, consumer insights director at GfK Neil Bellamy said: “These three measures are key forward-looking indicators so despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.”
He added: “Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend.
“Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on October 30.”
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