UK Automotive launches Safe Harbour scheme

Thursday 29 September, 2020

In a first for the UK automotive sector, the Society of Motor Manufacturers and Traders (SMMT) today launched a new Safe Harbour Scheme to help save jobs across the UK automotive industry, including its critical supply chain. As companies struggle to ramp up production while battling the effects of the coronavirus crisis and ongoing market uncertainty, the scheme, which is supported by the Automotive Council and government, provides a mechanism for automotive businesses to engage with their customers, lenders, creditors and other stakeholders to find ways to minimise the risk of insolvencies.

The impact of the pandemic and subsequent challenging market conditions has had a devastating effect on the UK automotive sector. Car producers are struggling to ramp up operations, with output down -40.2% in the first eight months representing a year-on-year loss of 348,821 cars, worth some £9.5 billion to the sector – losses that are impossible to catch back.1 Commercial vehicle production is also down, -20.0% in the year to date equivalent to more than 9,000 units worth almost £730 million.1

This has led to a loss of at least 9,000 jobs across the sector as a whole with an additional 5,000 in the UK supply chain.2 Yet this is likely to be just the tip of the iceberg so the industry is doing all it can to safeguard jobs for the benefit not just of the companies themselves but for the economy, society and individual livelihoods.

Mike Hawes, SMMT Chief Executive, said,

With the UK automotive sector badly hit by the coronavirus crisis, thousands of jobs already lost and barely weeks left until a fundamental change of trading conditions with our largest market, the EU, the pressures on automotive businesses are immense. Inevitably, these pressures are going to take their toll on businesses, so the Safe Harbour Scheme has been created to help any suppliers in trouble. It should provide valuable breathing space as the sector restarts and business and consumer confidence recovers. Ultimately, however, the industry must maintain its competitiveness to grow and for that we still look to the Government to deliver an ambitious trade deal with the EU.

Given the integrated nature of automotive supply chains and reliance on just-in-time manufacturing techniques, if one link in a chain hits trouble it can undermine all the companies involved, including vehicle manufacturers, threatening an entire sector. The Safe Harbour scheme seeks to provide a legally compliant structure through which collaborative solutions can be found to support companies at risk and the entire production supply chain safeguarded.

The automotive industry has worked hard with governments over recent decades to make the UK a location of choice for automotive investment and production.

Much has been done to reshore elements of the supply chain after a decade of ‘hollowing out’ following the last global recession. These efforts have resulted in the creation of a competitive national supply base, world-class R&D and engineering, and a strong skills pool.

With the twin challenge of a worsening global pandemic and the threat of trade barriers and tariffs implemented simultaneously, sectorial progress could be derailed with an erosion of the domestic supply chain just one potentially devastating consequence.

Judith Richardson, Global Purchasing Director, Jaguar Land Rover and Chair, Automotive Council Supply Chain Group, said

The nationwide UK automotive supply chain has been built over many years thanks to huge business investment and support from successive governments. It remains highly competitive, with world-class facilities and a productive and highly skilled workforce. This cannot be taken for granted, however, and the Safe Harbour Scheme, combined with appropriate government support, will be essential to ensure automotive businesses can continue during these extremely challenging times and help drive a green recovery for Britain.

Michael Aiers, Purchase Manager, Groupe PSA Supply Risk Management and Chair, Automotive Council Finance and Sustainability Workstream, said,

Having started my career in manufacturing and worked for a number of suppliers and OEMs, it is my passion to preserve, protect and grow the UK supplier community. Safe Harbour, therefore, will be a key initiative in helping the UK automotive sector preserve its manufacturing capability at a time of great challenge.

The Safe Harbour process begins with a confidential conversation between a company experiencing difficulties and SMMT to determine if they want to proceed, and there is no obligation to do so. For businesses deciding to enter Safe Harbour, SMMT facilitates engagement with all relevant stakeholders and an Independent Third Party (ITP) to identify and implement measures to ensure business continuity. These need agreement from all parties and could include steps such as temporary improved payment terms and/or financial support or a new partnership or investment opportunities.

The Safe Harbour Scheme and framework has been developed by SMMT with support from major manufacturers, the Automotive Council and Department for Business, Energy and Industrial Strategy (BEIS), alongside ITP partners Deloitte, Grant Thornton, KPMG and RSM. The scheme operates within competition compliance requirements set out in UK and EU regulations. It is available to any company operating in the UK automotive sector.

Launched today at SMMT Open Forum Digital: Funding and Support – the first in a new digital event series focussed on automotive and supply chain issues – companies interested in taking part in Safe Harbour can find out more and enquire in strict confidence at: www.smmt.co.uk/member-services/safe-harbour/

Notes to editors

1. SMMT / Auto Analysis calculations
2. SMMT calculations