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British luxury carmaker Jaguar Land Rove? s plans to invest close to GBP350mn in a new engine plant in Wolverhampton over the next two years comes as yet another confirmation of the emerging face of UK autos manufacturing as a hub for high-end production. However, in its latest United Kingdom Autos Report Q1 2012, BMI prescribes the promotion and diversification of a local suppliers base, an overhaul of the regulatory set-up and the promotion of local R&D as crucial elements for long-term sustainability and growth of the autos market.
In 2011, UK production looks set to achieve BMIs expected growth rate of 5.2% year-on-year (y-o-y), with eleven-month production reaching 1.36mn units – up 5.4% compared with the same period in 2010. Growth was mainly led by a 15.5% y-o-y increase in export demand during the same period to nearly 1.11mn units.
However, given that we expect a significant slowdown in Western European autos demand during 2012, we believe carmakers will be cautious about significantly improving their production volumes. We accordingly limit our production growth forecast for the whole of 2012 to 2.6% y-o-y at 1.50mn units. In the medium to longer term, commitments made by Jaguar Land Rover, BMW and Nissan Motor make us optimistic enough to forecast a near-complete recovery in the manufacturing segment to pre-crisis levels. We are currently forecasting output to reach 1.65mn units in 2016.

On the demand side, however, BMI expects private consumption to remain subdued for some time in the near future as households remain under considerable deleveraging pressure and unemployment remains stubbornly high. Passenger car sales growth will be limited to 2.1% y-o-y during 2012, marking only a partial recovery compared with a 4.5% y-o-y contraction in 2011. The commercial vehicles segment will suffer from the heightened degree of uncertainty about the global economy, deterring the corporate sector from largescale investment. The result will be a significant slowdown in commercial vehicle sales from the 18% y-o-y growth expected in 2011 to only 4.8% y-o-y in 2012.

It was the UKs relative strength in the manufacturing sector that has helped solidify its second position in BMIs risk-reward ratings for the autos industry in Europe. We see strong reasons to believe that the country will maintain its position in the ratings.

A joint report presented by the Engineering Employers Federation and the Society of Motor Manufacturers and Traders has called for an internationally competitive R&D tax credit system and estimates that the change could yield GBP390mn in R&D investment a year and boost total economic output by GBP336mn in the short term.