Restricted access to finance is stunting the growth of UK automotive supply chains, according to a report commissioned by the The Society of Motor Manufacturers and Traders (SMMT) released today .
The Smith Institute investigated the current relationship between supply bases across the United Kingdom and lenders. Eighty firms across all levels of the automotive supply chain across the country were invited to give their views, with the Smith Institute drawing on a huge number of detailed case studies, interviews with owners, managers, financial institutions, banking experts and more.
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The report concludes that a serious number of UK automotive supply chains are struggling to grow due to a lack of serious financial access. The report highlights five key areas which SMMT feel need to be addressed as soon as possible to stimulate growth and boost auto supply chains across the UK:
Banks need to better understand the auto sector
– Especially at local level, banks need to work harder to understand the intricacies of how the auto market works, especially in regions with a lot of competition
Getting the full amount of funding
– Auto businesses often miss out on the full amount of funds owed to them, because of the way in which banks evaluate a company’s total assets. Suppliers then don’t receive the full amount, especially in regard capital equipment.
Tool development costs
– Banks focus on the residual value of machine tools over the long-term asset value it will produce, meaning that acquiring finance for tooling development can be something of a struggle
A poor chain of command
– Terms of payment that are quite favourable offered by car manufacturers to supply companies which are favourable are often not translated well further down the automotive chain
Actually requesting funding!
– 37 per cent of family-run auto brands, alongside many other SMEs, say they are reluctant to seek external equity and loan financing
Paul Everitt, Chief Executive of SMMT, feels that a lack of communication and expertise from financial institutes is seriously holding back the UK’s automotive sector, and that the government could be doing more to help.
“With over £5.6 billion pledged to the UK during the last 18 months, there is a ‘window of opportunity’ to strengthen the UK supply chain, creating jobs and prosperity for the long-term.
“A lack of expertise within the finance sector is holding back growth in the UK automotive industry. Vital opportunities for companies to grow and develop their businesses are being hampered, because banks have not responded quickly enough to the need for local knowledge and sector expertise.
“There is a unique opportunity to re-build manufacturing capability and capacity in the UK, but it requires industry, finance and government to shift gear and ensure growth businesses get the financial support they need."
The report suggests ways that the current situation can be fixed – unsurprisingly, better communication and building stronger relationships are essential:
– Banks need to work harder to create better relationships with local automotive brands and companies that need access to finance (especially in areas where auto businesses are densely-populated)
– Car manufacturers and banks should collaborate on a better basis to address challenges in regard tooling finance
– Banks need to better understand growth opportunities within the sector, and work to develop specialised product and support packages
– Banks and other lenders should convene at ‘meet the funder’ events so those interested in auto investment can meet business owners to discuss growth opportunities and investment
‘Tooling for Growth Taskforce’
– Establishing a platform for banks and manufacturers should be considered to explore more ways to allow SMEs access to tooling finance
The government’s role
– Those in power need to structure a framework that encourages greater investment opportunities for businesses that are looking to grow
This report by the Smith Institute builds on points highlighted in a document from last year, which heavily stressed that financial access for smaller brands is key for sustainable future growth.
The report is being officially launched this morning in central London, with another launch planned for tomorrow in the West Midlands area. Those expected to be in attendance are representatives from banking and automotive sectors, industry stakeholders and government officials.
Written by John Meadowcroft