Almost half of the UK’s carmakers and parts suppliers have axed or delayed investment because of rising energy prices, the industry’s trade group has warned, as it urged “long-term action” from the government on companies’ costs.
The Society of Motor Manufacturers and Traders on Thursday said that manufacturers had experienced a £100mn rise in power bills and that the sector would be at risk without extra state support.
The government will from October 1 freeze businesses’ energy prices for six months as part of an estimated £150bn package to help households and companies with high gas and electricity bills.
More than two-thirds of the 800 car or parts makers based in the UK told a SMMT survey that they were worried about the viability of their businesses in the spring when energy prices are expected to double after the current cap lifts.
The survey found that 69 per cent of companies feared “the impact of onerous cost increases on their business operations”.
Four in ten companies said they had delayed or axed planned future investment because of rising energy costs. Meanwhile, 13 per cent had cancelled workers’ shifts to save money, with another 9 per cent making additional cost savings.
According to SMMT calculations, the sector has this year faced an increase of £100mn in energy prices, taking its total bill to £300mn.
SMMT chief executive Mike Hawes welcomed the government’s decision to limit energy prices but said companies’ “costs [were] expected to more than double again next year”.
“With some manufacturers anticipating even steeper increases, longer-term solutions must be found to assure the viability of the sector beyond the end of the cap in six months’ time,” he added.
The cost of energy is just one challenge facing carmakers and their suppliers, whose logistics costs and raw material prices have soared by about 40 per cent in the past 12 months.
Nine in ten companies told the SMMT that they had been forced to pass on higher costs to customers. That means carmakers will have been passing higher costs from suppliers on to consumers, pushing up the end price of vehicles.
Warning that companies were “having to take drastic steps to safeguard their businesses in the face of myriad challenges”, Hawes called for sweeping changes, including business rates reform, increased capital allowances to spur investment and more investment in training.
His comments came as manufacturing figures published by the SMMT on Thursday showed a 34 per cent rise in UK car production in August, compared with what it called “dismal” 2021 figures.
The 49,901 cars that were made in August, typically one of the quietest for carmakers, equates to almost half the level produced before the coronavirus pandemic.
The SMMT said that August was the fourth consecutive month of rising output compared with the four months to August 2021. But it added that overall levels remained well below pre-pandemic production.
The Business, Energy and Industrial Strategy Department said the current protection scheme meant that the automotive industry “will pay wholesale energy costs below half of expected prices for this winter”.
It added: “Last week we also announced new measures supporting businesses, including cancelling the planned rise in corporation tax and reversing the 1.25 percentage point rise in National Insurance contributions.”