U.K. Auto Industry Near-Term Forecast Mostly Sunny

The U.K. auto-manufacturing industry is forecast to grow 9% a year to 2.2 million units in 2016, a new report by business consultancy KPMG says.

The report prepared for the Society of Motor Manufacturers and Traders says the country’s key strengths lie in the varied mix of auto makers that have built reputations for quality and engineering excellence.

Additionally, with the U.K. exporting to more than 150 countries, the broad spread of overseas markets is cited as a positive factor in the country’s stability and future prosperity.

U.K. vehicle manufacturing rose 5.8% last year to 1,343,810 units, while commercial- vehicle output fell 1.4% to 121,312. The industry also saw engine production increase 4.9% to 2,504,054 units.

KPMG identifies £3 billion ($4.86 billion) of supply opportunities for U.K.-based businesses and says government policies give the country a competitive advantage through its focus on research and development and the supply chain.

SMMT CEO Paul Everitt says that with unprecedented levels of investment committed to U.K. automotive in recent years, the industry’s future is bright.

“It is clear that domestic suppliers have the potential to benefit significantly from increasing output volumes, but they need the right mix of government support and private investment,” Everitt says in a statement.

“With robust global markets and a diverse mix of models produced here, we are more resilient than other countries to eurozone weakness, a key factor in encouraging businesses to invest in the U.K.”

The report says there are factors that do pose a risk to the present success, including an impending skills shortage in key industry areas and the need to reinvigorate the lower tiers of the domestic supply chain.

While 80% of parts required for vehicle production can be sourced domestically, the capacity and ability of these suppliers to meet demand is not at the required levels.

The report says the supply chain has endured years of erosion as auto makers looked to Eastern Europe and the Far East to source parts.

“With the changing requirements of vehicle manufacturers, the benefits of local sourcing are now much greater, a fact that government should capitalize on,” SMMT says.

“This sector of industry needs government to develop a long-term supply-chain fund that boosts access to finance and takes account of longer return on investment periods.”