Lack of finance is holding back the growth of the automotive supply chain in the West Midlands, manufacturers have warned.
Banks were urged to improve their understanding of the automotive sector and build closer links with local firms, following the release of a new report by the Society of Motor Manufacturers and Traders (SMMT).
The study, produced for the SMMT by think-tank the Smith Institute, predicted that motor industry suppliers could play an important role creating jobs and helping the economy to grow.
But they were held back by lack of capital caused partly by a poor understanding of the automotive sector within banks at a local level in regions including the West Midlands, North West, North East and Wales.
Banks were also failing to evaluate the total assets owned by businesses properly, resulting in suppliers missing out on the full amount of funding applied for.
However, the report also identified other difficulties, including a reluctance on the part of small and medium sized businesses, particularly those that are family run, to seek outside funding.
Firms at the top of the supply chain were also failing to pass on favourable payment terms offered by vehicle manufacturers to suppliers further down the chain, the study found.
The conclusions were based on a comprehensive survey and detailed case studies compiled from one-to-one interviews with owners and senior managers of firms in the automotive sector, and financial experts from some of the largest business banks in the UK.
SMMT chief executive Paul Everitt said: “There is a ‘window of opportunity’ to strengthen the UK supply chain, creating jobs and prosperity for the long-term.
“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 study recommended that banks improve their understanding of the automotive sector and build better relationships with individual companies .
Banks and vehicle manufacturers should work together to address the difficulties in obtaining finance for tooling in particular, the report said.
And banks should develop specialised product and support packages for the automotive sector, the study said.
It suggested holding a series of “meet the funder” events to allow banks and non-bank lenders that are interested in automotive investment, to meet companies seeking finance to discuss growth opportunities.
Government should also encourage greater investment and encourage banks to lend.
MP Richard Burden, Chair of the All Party Parliamentary Motor Group, said: “The financial sector and banks don’t really understand the needs of manufacturing and the automotive sector.
“They need fast decisions, but banks don’t make decisions quickly.”
Banks tended to be more comfortable dealing with large businesses such as the carmakers themselves, or first-tier suppliers selling directly to the carmakers who might be large multinational firms in their own right. But many British manufacturers in the automotive sector were second, third or fourth tier suppliers, and tended to be smaller and highly innovative businesses, he said.
“That is where access to finance is more acute, but banks are ill-equipped to work with these businesses.
“The people in this sector are different to the people involved in finance. They don’t know each other.
“There’s a real contrast with some other parts of Europe, where you may find a much closer relationship between banks and local industry.”
Figures earlier this month showed UK automotive plants manufactured 141,146 cars in May, the month’s highest output since 2004, eight years ago.
This is an increase in production of 42.2 per cent from last May, when production was hampered by the Japanese tsunami, and represents an increase of 17.3 per cent in the year-to-date.
Warley MP John Spellar (Lab) said: “In such tough times we should be supporting UK industry and manufacturing in helping to provide jobs and growth.
“As I have said in the House of Commons before, it is important for the Government to focus on the supply chain now, where too many components are still imported.
“This is a policy that will help the economy and provide much needed British jobs for British workers.”