Interview – Mike Hawes, chief executive, Society of Motor Manufacturers and Traders (SMMT)

Mike Hawes is chief executive of the Society of Motor Manufacturers and Traders (SMMT), the body that represents the interests of the automotive industry. Consequently, he’s in a pivotal position to make sense of the impact of coronavirus on car manufacturing and retailing, as well as the many other issues impacting at present, from Brexit to emissions regulations.

Here, we round up his thoughts about July’s positive new car registration numbers, which follow four months of disastrous figures; his thoughts on if and when manufacturing in the UK will recover, as well as on the potential for a new car sales incentive scheme and more.

UK-based car manufacturing fell 42.8% in the first six months of this year, to the lowest figure since post-war rationing ended in 1954. Why is that?

“Certainly car makers are looking to clear stock before they make more cars and there are limitations placed on output by social distancing measures. We have to recognise that, but it is also clear that demand still has some way to go before every car maker is confident to restart their factories.

“There’s a mixed picture across Europe, although it is interesting that around nine out of 10 vehicles made in the UK are being exported. Broadly speaking, though, every automotive maker faces the same challenges of managing demand and stock levels and that is a long way from being back to normal.”

You’ve warned that jobs will be at risk as a result?

“It’s difficult to forecast the real level of risk, as nobody has a crystal ball. But we know that more than 11,000 jobs have gone already and many more are at risk across manufacturing and retail, the latter of which is a huge employer in particular.

“The point I keep coming back to is that this is a fundamentally strong industry, and the competitiveness of the UK workforce is excellent, as is the quality of its engineering and its research capability. The risk is that if the industry is forced to cut jobs then we will start to see those skills ebb away.”

Are the job losses just in regard to coronavirus? When companies are cutting a quarter to a third of their workforces, doesn’t it hint at bigger problems?

“I hesitate to use the phrase ‘perfect storm’, as I think I said it last year and now of course the storm has intensified beyond anything anyone could have predicted.

“But it’s true that there are a lot of forces at play; the global car market has been contracting, there’s a huge and increasing amount of global competition, and the technological transition and the regulatory challenges from that are driving up change, and with it, costs. Of course that is putting pressure on companies.”

As you say, retail employees make up the majority of automotive workers in the UK. They must be the focus of concerns?

“That’s true, and until the market settles down we won’t know for sure what the underlying levels of demand for new cars is. July is positive, but obviously the months before that brought a huge number of lost registrations.

“Now the build-up to September is especially crucial, and we will need to understand what follows when the furlough scheme comes to an end. That, everyone agrees, is going to be the crunch time, when we really understand the impact.”

Is there any prospect of an incentive scheme to help stimulate the market?

“We have been in discussions with Government for three or four months now, but nobody has a crystal ball and they quite rightly want to see where the true level of the market is before they commit to anything, especially at a time when so many industries are struggling.

“To date, as an industry, we have had a lot of support, not least of which was car dealerships being in the first wave of businesses being allowed to open. That was a huge advantage. We now have a draft of an incentive scheme – which, I must be clear, is not a scrappage scheme – that will support employment across manufacturing and retailing if it is required. But we are still some way from knowing if it will be required, let alone considered.”

You are very clear that Brexit uncertainty is hurting UK manufacturing. Why would any company invest here now if that’s true?

“The challenge for our industry, which I think we’ve faced well to date, is to prove that it is both competitive and as integrated in the heart of where demand is. At the very least we must be as competitive as every other country in the EU. Uncertainty doesn’t help that.

“But, after the last recession, every plant in the UK received investment: these proved their value and plants and their workers were rewarded. And, remember, these investment decisions run for the lifecycle of a car at least, so they aren’t made lightly.

“As those cycles come round, we must prove we are worthy of that investment again, and we need to know what the terms are under which we will be trading with our largest market, Europe, in order to be able to understand the challenge. If administration or border delays double, that will have an impact. If tariffs are imposed, they cannot be absorbed; the customer will pay more, and we think it may be as much as £1800 per car on average. The challenges are very clear and need resolution.”

We heard last month that Mitsubishi was withdrawing from Europe? Is the market now too heavily regulated to be as profitable as it needs to be in order to attract manufacturers?

“I hope not. The challenges are more intense, certainly, the emissions regulations are now the toughest in the world and it is a tough market from a profit margin point-of-view too. But it is also a rewarding one market if you get it right, and it is interesting that there are still manufacturers looking to establish a foothold here.

“I can see several Chinese companies that have the potential to tackle the European market, through acquisition, partnerships or by launching outright. All the evidence is that if you can thrive in Europe then you will thrive globally. That suggests the market still has a huge value.”

Given all you’ve said, can you see anyone setting up production facilities here in the UK in the next five years?

“I hope it’s possible. A lot will depend on our relationship with Europe, but if you locate in the UK you are on the doorstep of a market with a proven track record in R&D and innovation, and with a highly-skilled workforce that comes out at the top of league tables when benchmarked against Europe’s very best. Things like our own battery production facility have to be seen as must-haves if we are to be seen as competitive.

“For now, the evidence is that potential investors are sitting on their hands waiting to see what kind of trading deals are struck. Clarity of some sort is now only months away, and that will give us a better idea.”

Are UK-based manufacturers going to be at a disadvantage by no longer having a seat at the table when EU regulations are drawn up?

“As it stands we will be outside the room, but we do want to be at least in there listening, and we are working on that, to the extent we have even set up an office in Brussels to be closer to what’s going on. We do need a voice to ensure that UK-specific manufacturing needs – particularly around small volume car makers – are heard.”

“For now, the evidence is that potential investors are sitting on their hands waiting to see what kind of trading deals are struck. Clarity of some sort is now only months away, and that will give us a better idea.”

The consultation has just ended for when the UK will end combustion-engined new car sales: do you support 2032, 2035 or 2040?

“The Government made clear that it wants to bring forward its 2040 date. I think the majority of the industry can just about make 2035, but I do mean majority, not all, because the diversity of the UK industry makes it likely that some companies could struggle.

“Beyond that, it’s also important to stress that it’s not in our gift to dictate how quickly the market will transition to buying EVs. That is dependent on how attractive the proposition is, in terms of an electric car’s capability and how much it costs and, in particular, what the infrastructure is in place to support it. Announcing a target date is not enough, we also need a roadmap of how we will get there and manage the critical social and economic implications.”

Do you remain optimistic for the automotive industry?

“It’s more challenging than it was even when I started at the SMMT seven years ago, but it’s no less enjoyable for it, and I think you can see that a lot of people feel the same way by the fact that they don’t tend to leave it for other industries.

“This is an incredibly vibrant, dynamic industry to work in, and all the difficulties it faces only add to that sense that we are in the midst of an incredibly exciting time.”

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