Financing must improve if UK auto sector is to thrive

July 1, 2014

–Guy Walsh is Regional Director at ABN AMRO Commercial Finance PLC. The opinion expressed are his own.–

The automotive industry is the UK’s largest sector in terms of exports, generating around £30 billion of annual revenue, but many smaller players in the sector languish due to a lack of funding.

Government officials, accustomed to dealing with large PLCs, have often failed to appreciate the particular needs of small and medium sized businesses (SMEs), especially with regard to issues such as tooling finance, which requires a considerable capital outlay at a time when many SMEs are struggling to maintain their cash flow.

Where funding is available, access to information about it is in many cases opaque and difficult to find on government websites.

While a number of CBI members have been successful at winning Regional Growth Fund bids, the time it has taken to bid and the bureaucracy involved in accessing funds has been excessive, sometimes taking up to 12-18 months

Government initiatives to address the funding dilemma are welcomed by many SMEs in the automotive sector. Last summer, a joint initiative on the part of the UK government and the UK motor industry was announced, which will invest £1 billion over the next 10 years to secure the growth and development of the UK’s vehicle and component manufacturing sector.

Developed under Automotive Council guidance, industry and government will fund investments in the creation of an Advanced Propulsion Centre, an Automotive Investment Organisation, and thousands of apprenticeships. It will also provide finance for tooling investments in the supply chain, and renew a commitment to encourage the UK as a lead market in the production and sale of low emission vehicles.

Another challenge is presented by the reluctance of banks to lend to suppliers due to the perceived risk involved in an industry where lead times for new products can often be 5-7 years or more. If manufacturing in the UK is to succeed, banks must learn to invest for the long-term and form strategic partnerships with SMEs.

Some firms that have become discouraged by lack of access to capital have looked at alternative financing models such as asset based lending, which has been booming in recent years, invoice financing and even crowd-funding.

Ol Pejeta , a partnership between US-based Green Automotive Company, the Conservancy in Kenya wildlife reserve and the Royal College of Art in London,  is trying crowd-funding to finance its bid to create the all electric Safari Vehicle of the Future. Its crowd-funding relies on a blend of social media, traditional fundraising and special test-drive events. It wants a first tranche of $50,000 to guarantee the design of the vehicle, and a second tranche of $100,000 to allow the creation of the first prototype.

In the near-term, purely petrol or diesel vehicles are unlikely to exist, meaning future growth will have to be driven by innovation and technology; the future of the industry will require even more financial support than the present.

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