Why Has Car Production Seen Such A Decline?

1 Mar 2022

According to the Society of Motor Manufacturers and Traders (SMMT), 2021 saw the lowest level of car production in over 65 years. 


The new figures released by the SMMT is said to be in direct correlation to chip shortages and restrictions put in place by the Coronavirus. Throughout the UK, production fell 6.7% to 859,575 units, the lowest total since 1956. The latest figures suggest that the output was 61,353 less than 2020, which also was badly affected by coronavirus lockdowns, and 34% below pre-pandemic 2019.
Throughout last year, global exports continued to be the foundation for UK car manufacturing. According to reports, there were roughly eight in 10 cars being shipped overseas. That being said, annual production for overseas markets still declined 5.8% to 705,826 units, volumes for the domestic market declined even more steeply, down 10.6% to 153,749.
The SMMT’s chief executive Mike Hawes admitted it had been “a dismal year, there’s no hiding it”. Mike also continued to say that “these significant drops had been triggered by the signing of a Brexit deal with the EU, which had provided a real shot in the arm". Following five years of declining investment, this was an additional blow to the already struggling industry. But he added the UK was "still playing catch-up" after a long period of Brexit-related uncertainty.
The steady decline in investments can be directly linked to Brexit uncertainty and came at a time when they were making big plans for a new generation of electric vehicles. The trade deal with the EU solved that problem - but it came in the middle of a Covid outbreak which triggered a wave of new issues. Mike Hawes told news reporters that "The industry did everything it could to be prepared [for new post-Brexit trading arrangements], and largely that has been relatively smooth," However it seems that all of that preparation has incurred additional costs for the industry “because whilst we were able to benefit from the deal we have with the EU, which avoids tariffs, it doesn't avoid other tariff barriers and additional administration which has required additional people and additional costs to everyone, whether you're exporting or importing” It seems that, for the UK motor industry, the pandemic came at just the wrong time.
It wasn’t just Brexit that impacted the production of UK motors, the main reason for the decline was a severe shortage of semiconductors or computer chips and widespread staff absences as workers were forced to go into isolation, and the impact of the closure of Honda’s factory in Swindon. 

How does a chip shortage impact car production?

The shortage of computer chips is global and manufacturers around the world have been struggling to deal with it. A modern car has complex electronics and can use between 1,500 and 3,000 chips to operate items such as engine management systems, emissions controls, safety devices and navigation systems.
The crisis dates to March 2020 when the pandemic forced automakers to shut down plants and temporarily halt orders from suppliers. Modern cars use a lot of older, lower-tech "legacy" chips and, due to them only costing a small amount to make and having lower profit margins, meant that there was less incentive for chipmakers to invest in more capacity when the industry saw a shortage. At this time, chipmakers rerouted their supply to the electronics industry, which also showed a willingness to pay more for silicon wafers.
During the time of staff shortages and lack of investment, necessity forced automakers to get creative during production. They ran vehicles down the line, skipping some components, and parking the almost finished vehicles until the missing part and/or features could be added and the vehicle delivered to the dealer. This resulted in factories being overflowed with partially finished models.
In the summer of 2020, when the auto industry came back online faster than expected, it found the chips needed weren't available and suppliers were content to keep their more lucrative contracts with others. The shortage of semiconductors, a critical component in modern car manufacturing, was the principal cause of the production decline, with factories having to reduce or even pause production while awaiting parts whose supply has been heavily constrained by the global pandemic.
The industry is holding its collective breath that things won't take a similar backslide, and while shortages are projected to last into 2023 or longer, there is a hope that they will be more manageable as chipmakers increase capacity and automakers find ways to make cars with fewer chips or use more of the higher-tech wafers that are more plentiful.