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Blog > A balance of payments surplus on cars once again
Author: Professor Emeritus Garel Rhys
Professor Garel Rhys CBE is a non-executive director at Automotive PR
In 1999, car production reached almost 1.8 million. The highest since 1972 and even so, there was still a balance of payments deficit. In 2012, car production has reached an annualised rate of 1.4 million – a significant increase on the 2009 performance of 1.1 million, but still below 1999 output. However, there is now a balance of payments surplus in car trade. Clearly this is not just a question of output. So what has happened?
In the last decade, there has been a major change in the profile of UK car production. As a result, the average traded value of a car exported has doubled from £9,000 in 2001 to £18,200 in 2012. This compares with £12,000 for an imported car, so two exported cars will cover the cost of three imported ones. In detail, the UK does not make very small cars and very few superminis, but produces higher value, larger cars for the mass market and upmarket cars including the world’s largest cluster of what might be called ‘super-price’ cars.
Exports have grown, not only with the increase in output, but also with the increased proportion of output exported. The latter has increased from 75% of production five years ago to a record 85% in May 2012. As imports have long held 85% of the UK market, volume growth depends on a growing market, but there is little opportunity for imports to increase their share above 85%.
So the balance of payments surplus in cars depends upon firstly the higher value-added of British cars over time and in relation to imports and secondly, the greater leverage this gives to value stemming from an increase in output. If output grows to the levels we have predicted after 2012, then the surplus can only increase.
The same value-added effect is happening with commercial vehicles imports and exports, but here the growth in output and therefore the volume of exports is not sufficient to generate a surplus. So although not sufficient, an increase in output is necessary to generate a payment surplus.
What of the components sector? For this does after all employ more people than car-making. Here, trade in systems, parts and components net of complete engines, the trends of car productions and exports is far from being repeated. If extra car production is to really benefit the British economy, then the proportion of British content in cars must increase. Unfortunately, far from this being so, output and employment in the component sector is falling, despite the efforts of government and industry. This is due to many firms being incapable of giving the vehicle firms what they want whilst some of the better ones cannot obtain finance to support renewal and expansion. If these issues are not resolved then any long-term recovery in the components sector will not be realised with unfortunate consequences for the many suppliers in areas like the West Midlands, which is still the one with the largest motor industry employment and the greatest dependency on the sector.
The last time there was a balance of payments surplus in car trade was in 1975. The commercial vehicle and components sectors were also in surplus and remained so for a number of years to come. This gave the industry an overall positive balance of payments. The current car trade position is most heartening, but we are a long way from replicating the balance of payments surplus in motor industry trade as a whole.
26th Jul 12
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