Thursday 20th Oct 2016 - Logistics Manager

Finance shortage constrains automotive supply chain growth

The growth of automotive supply chain companies is being constrained by restricted access to finance according to a new report published today by the Smith Institute, commissioned by the Society of Motor Manufacturers and Traders.

Paul Everitt, SMMT chief executive, said: “A lack of expertise within the finance sector is holding back growth in the UK automotive industry. Vital opportunities for companies to grow and develop their businesses are being hampered, 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.”

The report identified five barriers to growth:

* A lack of understanding of the automotive sector, within the banks, particularly at a local level and in regions with a number of automotive companies in operation.

* Funding gaps due to how banks evaluate the total assets owned by a company resulting in suppliers often missing out on the full amount of funding applied for, specifically in relation to finance tooling and capital equipment.

* 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 per cent 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 recommended that banks must move quickly to build local automotive expertise and relationships with individual companies seeking finance for growth.

In addition, it said, 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 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.

And it said that government should create a more enduring framework of support that encourages greater investment and finance availability for business seeking to grow.