Policy Briefing: The West Midlands’ Automotive Industry in the Aftermath of COVID-19: Survival of the Fittest?

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In this Policy Briefing, Dr Amir Qamar and Professor Simon Collinson explore the financial position of the 50 largest (in terms of revenue) automotive firms in the West Midlands and examine how resilient they are to the economic shock caused by COVID-19. 

Research by Oxford Economics identifies Birmingham to be hit exceptionally hard by the pandemic because the city, as well as the region, is heavily exposed to manufacturing and local supply chains. The industry is already suffering from Brexit-related issues and a significant decline in sales from China, but coupled with Covid-19, it is forecasted that multiple car plants will close (Inman, 2020). Given the interconnected nature of automotive supply chains in general and the high concentration of other firms that are highly dependent on the industry, the West Midlands regional economy could shrink by 10.1%. This figure includes the automotive sector itself, which makes up around 6% of the local economy, plus other dependent suppliers an contractors. Factory shutdowns and interruptions to supply chains, alongside a significant decline in demand for new vehicles, means that the sector will take a long time to recover and there are likely to be a growing number of lay-offs and possibly bankruptcies along the way.

Given the UK’s pledge to help large businesses via the Coronavirus Large Business Interruption Loan Scheme (CLBILS), in this study, we explore the financial position of the 50 largest (in terms of revenue) automotive firms in the West Midlands. How resilient are they in the face of economic shocks of this scale? Our findings show that 21 firms are at high risk as they have relatively poor current liquidity ratios. These are the firms that will face severe cash flow issues and will need support immediately. Importantly, some of these firms include key Original Equipment Manufacturers (OEMs), thus they inevitably operate at the downstream end of supply chains. Multiplier analyses show that if these firms were to fail, there would be a significant ripple effect with a destructive impact on the industry and the local economy.

Download and view the full Policy Briefing.

The policy briefing was written by Dr Amir Qamar, Assistant Professor, Birmingham Business School and Professor Simon Collinson, Director, WM REDI / City-REDI.

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The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WM REDI, University of Birmingham. 

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