The growth of automotive supply chain companies is being constrained by restricted access to finance according to a newly published report.
The new work published by the Smith Institute and commissioned by the Society of Motor Manufacturers and Traders (SMMT) concludes that a lack of expertise within the finance sector is holding back growth in the UK automotive industry, hampering vital opportunities for companies to grow and develop their businesses.
This, says SMMT chief executive Paul Everitt, is because banks have not responded quickly enough to the need for local knowledge and sector expertise. "There is a unique opportunity to re-build manufacturing capability and capacity in the UK, but it requires industry, finance and government to shift gear and ensure growth businesses get the financial support they need."
Representing the views of 80-plus car firms operating in the industry's supply chain and contributions from financial and lending institutions, the report provides an insight to the relationship between the domestic supply base and the availability of suitable finance products.
It identified five barriers to growth:
-A lack of understanding of the automotive sector, within the banks.
-Funding gaps due to how banks evaluate the total assets owned by a company.
-Securing finance for tooling development costs due to a focus on the residual value of the machine tool over the long-term asset value it will produce.
-Reluctance of SMEs, particularly the 37% of which that are family run, to seek external equity over internal cash flow and loan financing.
-Favourable payment terms offered by vehicle manufacturers to supply companies are often not reflected further down the chain.
The report also made key recommendations to improve access to finance and support longer-term economic growth:
-Banks must move quickly to build local automotive expertise and relationships with individual companies seeking finance for growth, particularly in the main areas of the UK where there are clusters of automotive (eg West
-Midlands, North West, North East and Wales).
-Banks and vehicle manufacturers should work collaboratively to address the challenges in accessing finance for tooling.
-Banks need to develop of a specialised product and support packages for the automotive sector, based on a better understanding of the growth opportunities.
-A series of 'meet the funder' events should be arranged to allow banks and non-bank lenders that are interested in automotive investment, to meet companies seeking finance to discuss growth opportunities.
-A cross-industry automotive 'Tooling for Growth Taskforce' should be established, which provides a platform for banks and vehicle manufacturers to explore more innovative solutions that would allow SMEs to access more finance, particularly for tooling.
-Government should create a more enduring framework of support that encourages greater investment and finance availability for business seeking to grow.
The report and summary are available to read and download at the link below: