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Autoparts Market Report 2002
Key Note Publications Ltd, Nov 2002
Market conditions for the autoparts industry in the UK are deteriorating as the major customers for the industry's products have been profoundly affected by lower growth rates in the national and world economies. Between 1997 and 2001, UK manufacturers' sales increased by around 5.3%, from £9.4bn to £9.9bn, while the value of the overall UK market grew by 4.8%, from £10.4bn to £10.9bn. Over the same period, gross domestic product (GDP) was growing at between 3% and 4% per year.
Although consumer income and expenditure were increasing in real terms, much of the extra disposable income was spent on imported vehicles, which are taking an ever greater share of the domestic market. This trend had a significant impact on demand for UK-manufactured autoparts for the original equipment (OE) market when domestic output dropped. The replacement market is equally important for autopart manufacturers, but imports are increasing in this sector as well, while longer service intervals, combined with longer-lasting, high-quality parts, are delaying the necessity for replacements.
Reductions in output by the main producers of cars and commercial vehicles, particularly Ford, Vauxhall and BMW/Rover Group, were compounded by the adverse sterling/euro exchange rate, which has manifestly made imports of cheaper parts from continental Europe more attractive to the vehicle assemblers. Conversely, the high sterling exchange rate has damaged export prospects to European assembly plants. In addition, several of the high-volume producers are suffering from overcapacity in their factories, which has caused them to close down some of their production lines.
Following the recent restructuring of the UK car industry - which has created MG Rover as an independent company - and the introduction of several new models across the volume, luxury and specialist car ranges, it might be just a matter of time before domestic demand for autoparts experiences a strong recovery. The main car producers are committed to expanding output, but the commercial vehicles market will continue to be dominated by imports. However, if demand for UK-manufactured autoparts is to increase, there will need to be an improvement in the sterling/euro exchange rate.
Prospects for the autoparts industry in the UK are uncertain, but if national and world economic growth persists at its current low level and imports of cars continue to increase (these reached around 77% of total new registrations in 2001, when the market was extremely buoyant), the outcome will be bleak. The accounts of a large number of UK-based autoparts producers show heavy financial deficits and some might decide to abandon manufacture in the UK if vehicle assemblers persist in importing more cheaply made parts.
Our forecasts that the value of UK-manufactured autoparts will continue to decline, because major vehicle assemblers have stated that they will buy a much larger proportion (up to 90%) of their requirements from cheaper sources. This will automatically increase the volume and value of imports, and the overall value of the market is forecast to rise.
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