Author: David Bailey (pictured), professor of industrial strategy, economics and strategy group, Aston Business School

"Automotive reshoring really is happening. As noted elsewhere at AM-online this week, contracts worth more than £1 billion that were outsourced to overseas based automotive suppliers back in 2012 are now being delivered by UK-based suppliers, according to a new report by the UK’s Automotive Council (a body which brings together the industry and the British government).
 
Back in 2012, the Automotive Council identified a big opportunity in terms of 3bn pounds’ worth of components that the UK supply chain could deliver. Since then, UK auto manufacturers have re-shored over £1bn-worth of purchasing.
 
And as the assembly industry grows, so does the opportunity for the supply chain. The Automotive Council now estimates that over the coming years, the potential to re-shore purchases by UK vehicle assemblers stacks up to £4bn per annum of added first tier supplier business.
 
The council anticipates the UK will be producing two million new cars a year in the future (in line with SMMT forecasts) and the growth in manufacturing, and the shift towards higher value vehicles, will require "ever more complex and technically advanced components" and provide opportunities for UK suppliers.
 
Sales from UK suppliers to UK vehicle makers have grown by 19% through 2014, whilst sales growth at the UK vehicle makers was a more modest 5%, as the European market remains subdued," the report said.
 
Currently around one third of the components in a UK-built car are domestically sourced, compared to over 90% back in the mid-1970s. Hence the opportunity to raise local content – maybe as high as 40%.
 
The new generation Luton-built Vauxhall Vivaro van is a great example. The latest model, which started production last year, has 40% British content as against its predecessor's 16%. That translates into an extra £600 million spending with British suppliers, thus allowing local companies to expand.
 
Much of the recent supply chain success comes from the government and industry working together via an intelligent industrial policy in the form of the Automotive Council so as to strengthen the supply chain, along with UKTI’s Automotive Investment Organisation (AIO).
 
The latter was set up in 2013 to bring more foreign investment into the UK automotive sector. Since its birth, the AIO has secured or created more than 10,000 jobs, and has helped to deliver more than £768 million investment into the UK supply chain.
 
But the Automotive Council’s report notes that more needs to be done. It recognises that the opportunity for domestic firms to supply components to UK vehicle manufacturers is being held back by an “information failure”.
 
British buyers and sellers were often unaware of each others’ requirements, inhibiting domestic purchasing, and the report suggests that “an automated signposting system would help promote the capabilities of UK suppliers to UK buyers and help fulfil reshoring objectives, while consideration should be given to an event showcasing the UK components industry.”
 
Other proposals in the report include broadening the scope of ‘meet the buyer events’ to lower-tier buyers, and also holding forums for specific commodities or in particular regions. The report also suggests that more research be carried out into the total landed cost of goods produced in the UK, to highlight the country as a manufacturing location (something that the US has done well).
 
But I’d go much further. An even more active industrial policy is needed to overcome some of the major barriers to further reshoring in the automotive supply chain. Once again, it's the skills issue, along with access to finance (especially for smaller firms down the supply chain) and high energy costs which provide some of the biggest barriers.  Tackling these would also help automotive supply chain firms export more.
 
The Government’s £245m Advanced Manufacturing Supply Chain Initiative (AMSCI), for example, grew out an earlier auto-focused Regional Growth Fund bid by several Local Enterprise Partnerships (LEPs). 
 
While a welcome move, the overall amount of funding on offer (£245m in total) across manufacturing nationally is very limited. Extending the scheme so that smaller firms can directly access the support available is critical, especially when the lack of access to finance is a major issue for such firms.
 
On the latter, ‘tooling up’ in the automotive supply chain is still a big challenge given uncertainty over future vehicle volumes, the asset specificity of the tool (which means that lenders are reluctant to accept it as collateral), and a lack of specialist knowledge in the baking system over how to evaluate proposals.
 
In tackling such issues, we need to see a ‘step change’ in the engagement of the UK’s financial sector with the automotive industry. At some point a dedicated automotive loan fund – backed by the state through a British business bank – may be required to overcome failures in the financial system.
 
On this, last year the Government launched a welcome £24m National Tooling Fund to assist toolmakers and component manufacturers to fund the design, development and manufacturing of tools following a firm order from a major assembler. It’s a good first step.
 
We have seen a great effort locally by LEPs, suppliers, unions, assemblers and support agencies such as the Manufacturing Advice Service (MAS) to work together to support the UK's automotive renaissance. The cooperation between some of the LEPs over inward investment, for example, has been genuinely first rate.
 
But that needs to go further and it links back to the devolution argument. Local authorities across the country need to seize the devolution opportunity – via so-called combined authorities - so that 'automotive-rich' regions like the West Midlands can develop the array of policies so needed to boost the availability of skills, foster innovation capacity, support the supply chain base, and provide effective support services.
 
There is a huge opportunity here. The UK economy hasn’t actually rebalanced in the way that the government hoped for. But the automotive sector really is doing the ‘heavy lifting’ of reshoring, exporting the economy out of recession, and driving growth.
 
Let’s make the most of it."