INDUSTRY FOCUS AUTOMOTIVE
Digitalization offers many exciting possibilities for manufacturers in the automotive sector, however the investment required can be significant. Brian Foster, head of industry finance at Siemens Financial Services in the UK, explains how asset finance can help put SME automotive manufacturers on the path to digitalization
ON THE ROAD TO DIGITALIZATION I
n 2017, 1.67million cars were built in the UK, representing the second biggest output since
the turn of the century. With a turnover of £82bn and exported products worth £44 billion, UK automotive manufacturing accounted for 12.8% of the UK’s total export goods in 2017. However, according to the lobby group The
Society of Motor Manufacturers & Traders (SMMT), investment in the UK’s car industry had halved from £647m for the first half of 2017 to £347.3m in the first half of 2018, because of uncertainty relating to Brexit. Part of this uncertainty relates to companies not being clear on how goods will be moved in and out of the UK. Another challenge for automotive
manufacturers is digitalization, and how to fund it. The benefits of digitalization are vast – it can, for example, enable data flows not only within the factory, but also up and down the supply and distribution chains. This opens up the possibility of further collaborative ‘co-opetition’ among automotive companies where common components are made in a shared manufacturing entity. There is also the potential to save billions
of pounds by use of the digital twin. In the context of the Internet of Things (IoT), digital twins offer information on the state of their ‘real-world’ counterparts, including how they respond to changes, improve operations or add value. They can therefore help produce savings in maintenance, repairs and production optimisation. Through technology like this, it’s
believed that digitalization could enable automotive manufacturers to reduce downtime by 20-35%, improve forecast accuracy by up to 80% and reduce plant
14 APRIL 2019 | DESIGN SOLUTIONS maintenance costs by up to 15-25%.
A SIGNIFICANT INVESTMENT However, the investment required to implement the equipment and technology is significant, a particular challenge for the many SMEs operating in the highly complex UK automotive supply chain. There are currently more than 40 companies that manufacture vehicles in the UK, ranging from global volume car makers, van, truck and bus builders, to specialist niche players. In contrast, the UK has around 2,600 component manufacturers and suppliers, employing over 115,000 people, with particular expertise in powertrain design and production. Approximately 90% of automotive component suppliers are SMEs, employing less than 200 workers. These small companies do not have the budgets of their larger counterparts and are therefore embracing digitalization more slowly. Asset finance can help put SME automotive
manufacturers on the path to digitalization. Pay-to-use or access financing techniques such as leasing, and pay-for-outcomes agreements, whereby the savings or gains made possible by a given technology fund monthly payments, are effective alternative methods of funding equipment and technology investments and upgrades. Such financing techniques spread the cost of machinery over an agreed period, with monthly finance payments arranged to align with expected benefits gained over time from new/retrofitted equipment, such as improved productivity, operating cost savings, energy efficiency and access to new markets. This removes the need for a large initial outlay. In other words, asset finance allows
manufacturers access to the latest technologies, without having to commit scarce capital or use
traditional lines of credit. Financing arrangements can cover other costs such as installation, as well as providing the flexibility to upgrade technology in line with developments. These arrangements may be particularly attractive to SMEs in the current economic climate as, if big tariff rates are imposed on imports and exports, manufacturers may end up doing more business in the UK rather than abroad. In this instance, they may need to scale up their UK manufacturing operations in order to manufacture more parts here. Finance could help manufacturers make that investment sustainably. Specialist financiers active in the
manufacturing arena understand the technology, its potential future value and its practical application in the automotive sector, enabling them to determine appropriate and tailored financing solutions that meet the company’s specific needs. Not only can they assess the cost savings and/or expected benefits for the term of the agreement and factor that into the financing arrangement, but they can devise financing plans that cover a broad range of costs associated with using the equipment and technology, not just the cost of acquisition, meaning greater transparency regarding the expected operating costs for the customer. By using flexible financing, manufacturers
have the opportunity to benefit from the investment in equipment and technology straight away rather than delaying their acquisition, enabling them to gain important competitive advantage.
Siemens Financial Services
www.siemens.com/businesses/uk/en/
financial-services.htm
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