Manufacturers across the world have been forced to take some hard decisions in the wake of the Covid-19 pandemic. However, British manufacturers were already of an adaptive mindset thanks to the changes brought about by the UK’s exit from the EU, and deal negotiations that are still under way.
A report launched on 29 May by Make UK, a body that represents British manufacturers, shone some light on the negativity clouding the sector. One-quarter of companies plan to make redundancies by the end of 2020, with a further 45% not ruling out such a strategy.
Demand has also declined; in the two weeks commencing 18 May, 72.8% of UK manufacturers reported a decrease in sales and 71.7% said the same for orders, when compared year on year. Furthermore, 31.8% of these businesses reported that their orders had declined by between 26% and 50%, while a further 27.1% reported a larger drop in orders of between 51% and 75%.
Optimism among UK manufacturers also seems to be dwindling, with 38% of companies surveyed in May believing it will take more than a year to return to normal levels of productivity and sales, up from 17% in April.
A Covid-Brexit double whammy
The UK manufacturing sector has been in a state of flux ever since the UK voted to leave the EU in June 2016.
The 2019 Annual Manufacturing Report conducted by industry magazine The Manufacturer highlights this concern. Some 64% of UK manufacturers surveyed for the report agreed that Brexit will cause chaos for the sector and a further 71% said that it was damaging their strategic planning and future business prospects.
More positively, the report did show that there is widespread hope that Brexit will make the sector more innovative, with 81% of respondents saying they were ready to invest in new technologies to boost productivity. This optimism, however, came before the full effects of the Covid-19 pandemic were known.
The fulcrum sector
The automotive sector, once considered to be one of the UK manufacturing industry’s shining lights, has struggled in recent years. British car production fell to its lowest level in almost a decade in January 2020, according to figures from the Society of Motor Manufacturers and Traders . The first six months of 2019 also saw investment into the UK automotive sector plummet to just £90m, down from £347m in the first six months of 2018.
CEO of Make UK Stephen Phipson says: “The automotive sector was already in a poor place, even before the pandemic. Now [Covid-19] has had a pretty devastating effect on auto manufacturing.”
A number of strategies are currently at play to help bolster the sector. The British Vehicle Rental and Leasing Association and the Finance & Leasing Association called on the government for support by asking it in a joint letter to prioritise the sales of new and used electric cars. They also called for ministers to develop a scrappage scheme similar to the one implemented in the wake of the 2009 financial crisis.
Alongside this, Nissan’s Sunderland site was spared in the Japanese automaker’s global restructuring programme, which saw its Barcelona factory close with the loss of approximately 2,800 jobs.
Phipson says that this is positive news, but with a stipulation.
“This deal is going to be predicated on the upcoming year; we have got to remember that 80% of Nissan Sunderland’s output goes to Europe,” he adds. ”So that transfer will only really happen if the UK ends up with a good deal [in our negotiations with the EU]. That highlights a really fundamental point about our automotive sector – we are very reliant on a very extensive supply chain arrangement with Europe.”
Phipson stresses that supply chains are of paramount importance, saying: “There are not many cars in the UK with more than 50% UK content. In fact, most of them are well below 50%. So we very much rely on the supply chain.”
The UK aerospace sector may have enjoyed years of success, but Phipson warns that it may have to undergo a period of systemic change.
“The UK has put a lot of investment into the aerospace sector and it has been a great success,” he says. “We are one of the biggest aerostructures manufacturers in the world.”
Covid-19 has hit the tourism and travel sectors hard.
“We are seeing big restructuring programmes because the demand for commercial aircraft is probably going to go through a three or four-year realignment as people aren’t operating as many aircrafts and therefore don’t need the production,” adds Phipson.
This in turn leads to concern over the future of the UK’s skilled workforce.
“If we are not careful, the worry is that we will lose the skills out of the sector, because people will be made redundant in the tens of thousands, and we need to try and redeploy them.”
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Nurturing future workforces
While the future of UK manufacturing is the topic of much debate, one thing is widely agreed upon: a talented workforce will be needed. On this, Phipson is wary of mistakes made in the past.
“The apprentice levee system has seen the [number of apprentices] in this country fall each year since it was introduced,” he says. “So instead of increasing demand, it’s reducing it.”
Alongside this, Brexit continues to pose problems.
“We employ 2.9 million people in manufacturing in the UK, of which about 400,000 have been highly skilled EU workers. Of course, that flow of labour has stopped coming into our marketplace, putting even more pressure on growing our own skills,” says Phipson.
He stresses the importance of having access to workers with a variety of skills, saying: “Engineers are great, but someone’s got to run the computer numerical control (CNC) machines and operate the robots, and for that you need vocational skills. In terms of workers to do CNC programming, tool making – the proper vocational skills you need in manufacturing – we have got a very big gap.”
Food for thought
With the automotive and aerospace sectors grappling with problems, Phipson is keen to also stress the areas in which the UK manufacturing industry performs well.
“It is not all doom and gloom; we have some fabulous sectors,” he says, listing pharmaceutical, medical devices, and food and drink – which employs approximately 500,000 workers in the UK – as the most successful ones.
He sums up the sentiment for UK manufacturing prospects by saying: “We worry about cars, and we worry about aircraft, but food and drink is a shining example of how we can do it properly.”