UK car production increases for fourth consecutive month in August but soaring energy costs 'cast a shadow' over the recovery

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Car factories in Britain saw a fourth consecutive month of increased outputs in August, new figures show.

However, industry bosses quashed any hint of the sector's post-pandemic recovery with soaring energy costs set to cripple manufacturers.

The 49,901 cars that came off UK assembly lines last month was a third higher than outputs in August 2021, the Society of Motor Manufacturers and Traders said.

But it warned record input costs have 'cast a shadow' over the industry, with car makers expecting already hiked energy costs to more than double again next year.

Fears: Despite a fourth month of rising year-on-year outputs, car makers are growing increasingly concerned about the future business operations as energy bills continue to rise

The industry body warned that almost seven in 10 of its members have expressed concern about future business operations as they fret over rising energy bills.

It said energy has emerged as the single biggest concern for the UK's automotive manufacturers, which have collectively racked up more than £300million in bills during the year to August. 

The SMMT said it welcomes the Government's decision to cap prices of energy for businesses over the winter but said manufacturers are already anticipating steep operating cost increases in 2023.

It claimed that many car makers are currently trying to absorb existing increases where possible, though warned that the 'competitive and low margin nature' of the industry has meant that about 87 per cent are having to pass on costs to consumers through increased prices, which in turn is stoking inflation.

'While another month of rising UK car production is good news, and testament to sectoral efforts to overcome supply chain shortages, it overshadows what is an extremely tough and uncertain environment for manufacturers,' SMMT chief executive Mike Hawes said.

He was also quick to point out the that last month's near-50,000 car output was compared to an August 2021 that was heavily impacted by the global semiconductor shortage, which even resulted in some manufacturers closing down temporarily.

Car production is almost 50% compared to 2019 and is just a fraction of the outputs produced in 2016 and 2017

British car makers remain on course to produce fewer than a million cars for a third consecutive year, the SMMT said on Thursday

In comparison to pre-pandemic outputs, UK car production is still a massive 46 per cent behind, with 92,158 vehicles built by British factories in August 2019. 

For the year-to-date, overall production is still 13.3 per cent down on the first eight months of 2021. 

Overall, it means factories have turned out 78,501 fewer cars so far this year, with output more than half a million units behind average pre-Covid volumes. 

As a result, British car makers remain on course to produce fewer than a million cars for a third consecutive year.

'Volumes are down dramatically and firms are having to take drastic steps to safeguard their businesses in the face of myriad challenges,' Mr Hawes added.

'The Government’s measures announced last week to alleviate crippling energy costs provide valuable respite, but long-term action is needed to restore stability and provide the sector with a globally competitive investment framework. 

'Reform of business rates, enhanced capital allowances, an affordable and secure supply of low carbon energy, and investment in new skills can enable this critical sector to deliver the economic growth, productivity improvements, balance of trade benefits and job security the UK sorely needs.'

Energy is the single biggest concern for the UK's automotive manufacturers, which have collectively racked up more than £300m in bills during the year to August, says the SMMT

Commentators offered an equally bleak outlook for the industry in response to the SMMT's latest figures.

Richard Peberdy, head of automotive at KPMG, said that gradual easing of global supply shortages and government support on energy costs will aid UK car production in the short term but the combination of inflation and a weakening pound is a more alarming threat.

'Passing costs to the consumer is becoming increasingly challenging, although at this stage manufacturers still continue to have busy order books to work their way through,' he said.

Lisa Watson, director of sales at Close Brothers Motor Finance, added: 'While long-term supply chain issues are showing signs of further improvement, it remains an incredibly challenging period for the sector.

'It seems that new hurdles are never far away. In the new vehicle market, the weakness of the pound will step up pressure on importers and manufacturers reliant on stock and parts from overseas.

'It’s clear that firms across the motor industry will need ongoing support and investment to ensure the momentum of recovery in the face of strong economic headwinds.'