The latest Automotive Council Report (March 2015 Report) identifies some very interesting and potentially lucrative UK supply chain and supplier opportunities.  In particular, the Report showcases a big jump in demand from British vehicle manufacturers for high value British-made/sourced components – a continuing drive for increased localisation of the supply chain.  It also builds upon themes identified in another Automotive Council Report from late last year (November 2014 Report).

Indeed, UK domestic component suppliers saw a 19% rise in sales to British vehicle manufacturers in 2014, in part fuelled by the domestic OEMs’ collective desire to increasingly source locally and to further de-risk supply lines.  Since 2012, it is estimated that UK vehicle manufacturers have already re-shored over £1 billion of purchasing.The Report also makes clear that currently around one third of the components in a UK-built car are domestically sourced, compared to more than 90% in the hiatus of UK car production in the early to mid-1970s.  Interestingly, this still stands as a much lower figure than compared to Germany, where circa 60% of components in a German car come from German SME suppliers (the much vaunted “Mittlestand”).  In part this is due to the relative size, stability and capability of German SMEs, with strong exports.

As such the Report highlights a real “opportunity ahead” for UK vehicle component suppliers to benefit from further opportunities – particularly as UK vehicle production/output increases over the coming years as it is anticipated to do (UK car production is estimated to hit 2 million vehicle units in around 2017/2018).  Indeed, although not a precise forecast, the Report estimates that the UK supply chain re-shoring opportunity is likely to grow to at least £4 billion-worth of annual business for the Tier 1^[1] supply chain (up from the “£3 billion opportunity” to re-shore Tier 1 sales identified in a previous Automotive Council Report of 2012 (August 2012 Report)).

Given that the majority of imported car parts are from higher wage, energy and raw material cost countries, such as France, Germany and Japan, then the scope for UK suppliers to significantly increase locally supplied vehicle component content is brought into even sharper focus.  The opportunities include:

• Export growth and opportunities for new and existing UK suppliers;

• Opportunities to locally source automotive products in the UK that are currently imported; and

•  Organic growth of the current UK supply chain as UK vehicle production volumes increase.

The Report suggests that, amongst others, the highest value opportunities are for alloy wheels, castings and forgings, electronics, entertainment and navigation systems, lighting solutions, plastics and mouldings, pressing and hot stampings, seating components, steering systems and trims.  As vehicle quality and value increases, more and more complex and technically advanced components will be required – so it is not just a volume based opportunity, but a high-end one too in many cases!

In order to fully realise these supply chain opportunities, it is vitally important that UK SMEs are nurtured, strengthened and grown, in a similar fashion to the German model, to expand the available capacity and to foster new investment.  Increasing UK car production and the desire by OEMs to look to and buy more locally (the OEM appetite to do so currently remains strong!) will not only help to deliver supply chain growth, but in turn will result in more robust, local lines of supply for the future.    It could also result in a virtuous circle as ever strengthening supply chains will in turn encourage further OEM and Tier 1 investment in UK production and R&D.

Clearly, whilst this is a UK-focused Report on a significant automotive specific opportunity, localisation and re-shoring trends are going on all over the globe in a varied range of industries.  Indeed, similar supply chain trends certainly exist in the US, Middle East, Far East, as well as Central and Eastern Europe, to name but a few jurisdictions, particularly as OEMs also increasingly look to focus production in the markets where their customers are based.

_{[1] A Tier 1 or “first tier” supplier is one that directly delivers parts, components and/or materials to the vehicle manufacturers (original equipment manufacturers/OEMs).}