Industry diversifies in face of COVID-19 – but support still needed says IMI

Published:  01 September, 2020

 While almost 6,000 automotive businesses are still on the brink due to COVID-19 and 5,000 expecting to permanently close within three months, diversification has provided an important boost for the overall sector, according the latest analysis of Office of National Statistics (ONS) data undertaken by the IMI.

The analysis showed that 13% of automotive businesses have diversified for long-term sustainability by offering new services or goods – but the IMI has also pointed out that  further government support would be welcome.

By early August, 97.5% of automotive businesses were trading, with a further 1.5% planning to reopen by the middle of the month. The automotive sector was also performing well compared to other sectors, with the highest percentage of businesses reporting an increase in turnover in the last week of July and first week of August.

There was resilience too, as 36% said that their cash reserves would last more than six months. However, another 6% said they had no cash reserves or less than a month, potentially putting 5,700 businesses at risk. On the price of continuing to operate, 73% of businesses said their operating costs have increased, and a further 9% said that these costs had significantly increased.

The government’s Coronavirus job retention scheme (CJRS) assisted in keeping redundancies at a low rate so far - about 1% of the sector workforce – with 120,000 still furloughed. However, automotive employers were predicting a potentially additional 7,000 redundancies by the end of August.

5% of businesses in the sector are intending to permanently close business sites in the next three months, and 76% of these stated that this would lead to permanent redundancies.

Commenting on the analysis, IMI CEO Steve Nash said:  “There is a real mixed story from the latest ONS data – showing on the one hand the inventiveness and flexibility of the sector in the face of severe challenges. More than one in ten automotive employers have diversified their range of services to ensure they can sustain their business long-term. However, the impact of additional hygiene measures and other business changes appears to be taking its toll with 73% of automotive businesses saying their operating costs have increased.

“The other big issue is, of course, the impending end of the furlough scheme – albeit there is much lobbying currently for this to be extended.  The latest data shows there is no hiding from the fact that the hangover of lockdown – and the continued restrictions on movement – is hard to overcome for many. We have already seen several automotive employers announce significant redundancies and there is potential for even bigger numbers in the next month or so.”

Steve added: “1 September and everything that a new plate normally brings will be a key point in showing just how hard our sector has been hit by COVID-19 – and how quickly it can recover. Again, we would call on the Chancellor to move quickly now – rather than wait for his Autumn budget – to make a cut in VAT on car sales. Just as his ‘meal deal’ has done for the hospitality sector, it could make a big difference in encouraging consumers to get back into the showrooms – virtual or physical.”

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