Boom years over for diesel car parts suppliers

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Boom years over for diesel car parts suppliers


For John Collett, the boom times have come juddering to a halt.

Turnover at the automotive parts business he runs, PressMark, increased 60 per cent during the past two years to £8.7m. But the manufacturer of metal pressings for vehicles and other uses is now forecasting a 17 per cent contraction in 2018. 

The Midlands-based company is among some of Britain’s vast network of suppliers in the diesel car component market facing the prospect of job losses, or even potential insolvencies, as the sector is hit by a collapse in demand for vehicles that run on the fuel.

“We’re seeing a massive impact in the supply chain,” said Mr Collett. PressMark may have to lose about half of a dozen of the agency staff that make up its 90-odd workforce. 

“People are always laid off in August, but we possibly won’t bring them all back and that’s a crying shame.”

UK diesel sales have fallen by a third in the first seven months of the year, taking the once dominant fuel’s market share to 32 per cent of new car sales. The drop was sparked by the Volkswagen emissions scandal  of 2015, which has led to increased taxes on diesel motors and the threat of bans on older vehicles.

Both Jaguar Land Rover and Nissan have already shed hundreds of jobs because of the decline in diesel sales. But the impact is now rippling through the web of businesses that make everything from handbrake levers and fuel injectors to electrical equipment.

Another company feeling the pain is the pressings and aluminium parts businesses operated by Liberty Industries, part of the Liberty House group, which together employ about 1,000 people and supply components such as connecting rods and gear casings.

“We’ve seen falling [order] volumes and that has led to a reduction in shifts in the plants,” said chief executive Douglas Dawson, who is expecting a reduction in turnover of between 10 to 20 per cent. “Unless anything picks up any time soon . . . a number of people would probably need to be laid off.”

5%

Rise in sector insolvencies this year, forecast by the head of sector research at trade credit insurer Euler Hermes

Behind the malaise is the accelerating shift away from a fuel which for two decades was promoted by European governments as a cleaner and more efficient alternative to petrol, since diesel engines produce less CO2.

Official enthusiasm has reversed following the emissions cheating controversy, which revealed many diesel motors emit higher levels of nitrogen oxides on the road than in laboratory tests.

The trend is reflected throughout western Europe, where diesel accounted for 42 per cent of new car sales in 2017-18, compared with 49 per cent in the prior financial year.

But the difference in the UK is that petrol sales have failed to make up for the fall, which industry observers partly blame on a lack of consumer confidence caused by uncertainty around Brexit.

“I think there is a risk to some of the facilities that are diesel dedicated unless they find other global business,” said Tim Lawrence, head of manufacturing at PA Consulting.

Many of Britain’s engine plants, which are run by the carmakers, have avoided deep cuts in spite of the fall, partly because they can switch to making petrol models easily. But this is not always the case for suppliers, particularly those who specialise in parts specific to diesel technology.

Although many automotive components can go into either kind of internal combustion engine models, suppliers are often small and medium-sized enterprises that rely on a few large customers.

Autins, which provides insulation fitted around the cockpit of a car to block out sound and heat, counts on Jaguar Land Rover for about two-thirds of its revenues. It saw 40 per cent wiped off its share price after warning of “significantly” lower profits in June.

Another problem is that car models are manufactured over five- to seven-year periods, making it hard for suppliers to get on to programmes once in production.

So far, industry figures say that the situation is not critical. But the number of UK companies that manufacture parts and accessories for motor vehicles in “significant financial distress” increased by more than 40 per cent to 239 in the second quarter of 2018 against the same period a year before, according to the insolvency specialists Begbies Traynor.

Maxime Lemerle, head of sector research at the trade credit insurer Euler Hermes, is forecasting a 5 per cent rise in insolvencies in the sector this year.

“This in turn has the potential to start a domino effect of overdue or non-payment which, as we have seen in recent months in other sectors, could impact both large companies and smaller suppliers,” he added.

Even so, some remain confident about the future and regard the impact as short-term. Mr Dawson of Liberty Industries said that as electric vehicles with heavy batteries become more widespread, the need for parts made from lightweight materials, such as aluminium that it supplies, will increase.

Britain’s impending divorce  from the EU meanwhile could bolster the domestic automotive supply chain, said Mr Collett of PressMark, as carmakers try to source more parts domestically.

“That’s an opportunity for us to invest in new plants and equipment and take a lot of that [business] that’s abroad.”

However, a “hard Brexit” resulting in trade tariffs could mean a “double whammy” for production and the supply chain, as well as making it more difficult to attract the foreign investment needed for further reshoring, said Professor David Bailey of Aston University.

“The sector has already taken a hit on diesels and to some extent has coped by switching production to overseas markets,” he said. “A messy Brexit could stymie that by reducing exports.”



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