Last week’s budget announcement in the UK has been received with mixed feelings by the automotive industry, with enthusiasm for the scrappage scheme tempered by criticism from the logistics sector of both that and the fuel duty increases proposed for September.
The Freight Transport Association (FTA) said that the decision to increase fuel duty could be “the death knell for parts of the logistics sector…leading to business closures and widespread job losses.” James Hookham, Policy Director for FTA, commented that the rise will add to the threat of insolvency and will result in transporters being unable to continue their investment in running more environmentally friendly vehicles.
“Insolvency in the logistics sector has doubled in the last year and the number of HGV drivers looking for work has almost quadrupled. What more evidence does the Government need that parts of the sector are on their knees?" he said in a statement issued after the announcement.
With this month's 1.84p (2.7 cents) per litre rise and last December's 2p increase, the FTA said the extra duty in September would place "an additional £810m burden on logistics businesses".
“The logistics sector has a strong track record of reducing emissions and investing in greener vehicles,” Hookham added. “Ironically, the Chancellor's announcement has put the kibosh on many businesses being able to make that investment.”
However, the fuel increase will only hurt the bottom line of LSPs that cannot pass rising costs on to their customers. “Competitiveness is determined by demand and supply, not costs,” said Transport Intelligence analyst Thomas Cullen. “Fuel efficient vehicles might be characterised as balancing higher capital cost against lower running/variable cost in the form of fuel. It might be construed that this could marginally disadvantage smaller operators whose access to capital is more difficult and costly but it is hardly a definitive argument.”
The fuel duty increase is being seen as the government’s method of paying for the scrappage scheme. The 2p will bring in £1.3m of extra tax per day or nearly £475m over a year.
As anticipated, the government also introduced a trade credit insurance scheme, which Lord Mandelson described as a “much-needed breathing space” designed to help suppliers in the automotive industry (amongst others) that have experienced a gradual withdrawal of credit guarantees. The scheme will provide up to £5 billion of extra insurance as part of the Working Capital Scheme to help mitigate cash flow problems.
Automotive companies showing significant problems in the first quarter of 2009 increased by 55% on the same quarter last year, according to data from UK business rescues specialist Begbies Traynor. Those with critical problems increased by 70% in the same period.
From Friday May 1st, suppliers will be able to purchase six month’s ‘top up’ insurance from the government if credit limits on their UK customers are reduced, backdated to April 1 2009. The scheme aims to provide an alternative to the disruption of supply and cashflow, but according to Tom Jacobson, Managing Consultant at alljoinedup, the focus on the supply-to-production end of the chain means the scheme is limited, especially for outbound logistics providers.
“For the government to assist would mean it guaranteeing the debt that an OEM has to an LSP via the credit insurance scheme,” he told Automotive Logistics. “But from my understanding, both here and in Europe, there is more focus on the supply-to-production element of the chain rather than the finished-product-to-retailer element. As with the scrappage plan it is too little too late and we will need to see how it will be managed. The problem remains in the reluctance of lenders to lend, or in this case, the insurers to insure, unless they have cast iron guarantees, which the government can't give as they are limiting the timeframe to six months.”
The scrappage scheme, which offers a £2,000 discount for consumers buying a new vehicle to replace one more than ten years old, has been criticised for the fact that cash-strapped manufacturers will have to stump up half of the money.