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Monday, November 28, 2022

There are still tough times ahead for the automotive sector

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INCREASES in inflation, interest rates and higher cost of raw material and staffing have knocked the early optimism for a swift bounce back in the automotive industry and fleets and auto retailers need to prepare for tougher times warns Birmingham-based national vehicle movement and inspection firm DMN Logistics.

The year started with confidence of a quick return to pre-pandemic levels of trading, as early as Q2 but cost of living increases has subsequently hindered progress, with many businesses not expecting improvements until the end of 2022. The economic uncertainty, as a result of the Russian invasion of Ukraine, is also exacerbating the situation.

Fuel prices have increased by almost 30p per litre since January 2021 when petrol cost just 118.50p per litre while diesel was 121.80p. Petrol now stands at around 149.00p and diesel 152.00p per litre.

And according to DNM Logistics, economic uncertainty and rising global price of energy is leading to higher energy and transport bills for businesses, such as those within the vehicle logistics sector

Nick Chadaway, Managing Director of DMN Logistics said: “Our whole business model is vehicle delivery, so we will undoubtedly be affected by fuel price hikes but also wider cost of living increases. And with these interest rates, inflation and utility bill increases, business finances will be negatively affected. Cash flow can become an issue for businesses that do not have a plan in place for such contingencies.

“The current state of the market does not look good, and we may see an increase in some sectors of business failure especially as many have still not fully recovered post-COVID or who do not have a lean, flexible, and reactive business model.

Chadaway advised businesses to manage cash flow within the business and be aware of changes in behaviour of debtors on the books that may signal potential issues in their cash flow.

“There are definitely tough times ahead for our sector, but preparation is key. Prepare your business for any unavoidable immediate shortfalls while simultaneously planning to minimise the consequences.”

“Businesses should also ensure they forward plan and proactively manage variable costs in the business as well as to conduct robust credit checks on new clients and recheck current clients.

Furthermore, engage with staff to reduce any waste and review contracts to see if any cost reductions can be implemented. Businesses in the sector must prepare for imminent financial strains we are about to endure in order to stay afloat.”

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