Robot car assembly line

The two biggest cities in the West Midlands, Coventry and Birmingham are at high risk of seeing automotive manufacturing and engineering firms close, a new study reveals.

The University of Birmingham analysis looked at the financial resilience of the 50 largest automotive firms (by revenue) in the region following the economic shock of the Covid-19 pandemic.

By examining the cash flow of these firms, the researchers found that 22 of the 50 are at high risk of downsizing, or closure. The West Midlands has historically played a vital role in the global automotive sector, and there continues to be a particularly high concentration of automotive firms in the region.

During the pandemic, there was a huge focus on the resilience of sectors such as automotive, which suffered because of factory closures and increased financial pressures. However, this was just one part of a continuous disruption that has been presenting challenges to the sector for years, such as Brexit, skills and component shortages and declining sales in China.

Dr. Amir Qamar - Assistant Professor of Strategy and International Business, University of Birmingham

If these 22 firms were to close, there would be a significant knock-on effect on the wider automotive industry, the local economy and of course jobs. The kinds of companies which are at high risk of closure include downstream supply chain firms, as well as original equipment manufacturers.

The study was led by Dr. Amir Qamar, Assistant Professor of Strategy and International Business, with Anne Green, Professor of Regional Economic Development and Professor Simon Collinson, Deputy Pro-Vice-Chancellor for Regional Engagement and Director of the West Midlands Regional Economic Development Institute (WMREDI) and City-REDI.

Dr. Qamar comments: “During the pandemic, there was a huge focus on the resilience of sectors such as automotive, which suffered because of factory closures and increased financial pressures. However, this was just one part of a continuous disruption that has been presenting challenges to the sector for years, such as Brexit, skills and component shortages and declining sales in China.

“The largest 50 automotive manufacturing firms in the West Midlands employ a total of 80,843 people with 76,184 people employed in firms at high and medium risk. If some of these high-risk firms were to close, Coventry and Birmingham would be the hardest hit. At a time of extremely difficult economic circumstances, it is so important that policy is targeted to boost resilience, which can save jobs and improve regional economies and the sector at a national level.

“Precise government intervention is needed if the West Midlands automotive sector is to improve its resilience. There needs to be a holistic approach to sector and region-focussed policy in the long-term from government if the West Midlands automotive sector is to withstand these ongoing challenges.”

The study calls for an acceleration in subsidies allocated to businesses, as well as improvements in targeting reactive and proactive policy intervention. Such measures could help reduce insolvencies which lead to unemployment and increase the burden on the taxpayer - particularly important at a time when the treasury is seeking to plug a £40 billion gap in public finances.

The Birmingham researchers are also highlighting an opportunity for reskilling and redeploying newly unemployed people with support from government, to improve sector resilience. The study says it is vital that initiatives are evolved to support the talent management and skills development needs of individuals and companies. It is also crucial that the supply of skills at degree and technician levels are monitored over the short and medium terms, as well as taking into account the impact of post-Brexit immigration policies.

Dr. Qamar concludes: “Government at national and regional level needs to analyse the resilience of regionally significant sectors and create policy which effectively targets support for those companies most at risk. Otherwise, the consequences could have seriously damaging impacts which could be felt for years to come, not just in the West Midlands, but up and down the country.”