Automotive Industry Trends United Kingdom - 2021

Production delays, higher input prices and the unwinding of fiscal support will trigger a substantial insolvency increase in the UK automotive industry. Automotive Industry Trends United Kingdom - 2021 Credit risk situation of automotive suppliers is about to deteriorate       [Asset Included(Id:1435218820728;Type:AT_Media_C)]     After contracting 25.6% in 2020, British automotive output is forecast to rebound by only 8.5% in 2021, as the current semiconductor shortage severely affects production. New car registrations decreased 34% year-on-year in September 2021. At least, concerns over severe repercussions for the sector caused by Brexit (e.g. tariff price hikes and trade frictions) have eased. The December 2020 trade deal allows tariff- and quota-free trade between the UK and the EU. However, costs associated with customs declaration, local content audits and delays in just-in-time systems remain issues for some Original Equipment Manufacturers (OEMs) and suppliers.     [Asset Included(Id:1435218819392;Type:AT_Media_C)]       Over the past couple of months, profit margins of businesses have come under strain, due to ongoing production cuts and higher prices for steel/metals and energy. Margins will deteriorate further, as disruptions in vehicle production are expected to last until H1 of 2022. Suppliers have to cut back their output accordingly, often at short notice, while they have to manage workforce numbers or reduce working hours in order to control costs. Cash flow issues are on the rise in this segment, and will persist in the coming months. Payments in the industry take 60 days on average, but for suppliers with low leverage they can take even 150 – 180 days. Both payment delays and insolvencies are expected to increase in the coming twelve months, mainly among smaller suppliers. In addition to production delays, higher input prices and cost management issues, they face unwinding fiscal support, expiring bankruptcy moratoriums and repayment of loan obligations drawn at the height of pandemic. After decreases seen in 2020 and in H1 of 2021, business failures could increase by more than 50% year-on-year in the coming twelve months. Due to the production issues that will most probably last until mid-2022 and the sharply increasing credit risk amid suppliers, our underwriting stance is mainly restrictive. Among car dealers, the second-hand segment is an exception, as businesses have benefited from sharply increased sales prices.