Q&A: The crisis in Ukraine and its impact on the UK automotive industry

The situation in Ukraine has exacerbated challenges that the automotive sector was already experiencing in its supply chain. With automotive businesses reliant on a number of components and raw materials from Ukraine and Russia, how exposed is the UK, and what can businesses do now to minimise the impacts?

BDO’s automotive team leads Jon Gilpin and Stephen Cooney and Head of Motor Retail, Steve Le Bas, discuss the current outlook and the options that are available to the automotive industry in the UK.

What’s the context for the situation we are seeing at present?

Jon: Russia’s war in Ukraine is yet another global issue affecting the whole manufacturing sector, including automotive. Just as we were recovering from the impacts of COVID-19 we hit the chip shortage, which remains an ongoing problem.

Now the situation in Ukraine is putting direct and indirect pressure on automotive sector supply chains. This is yet another hurdle to be overcome in the short term, but also has broader potential consequences for supply chain management going forward.

How exposed is the UK automotive supply chain and what impacts are we seeing?

Stephen: Original equipment manufacturers (OEMs) are reliant on suppliers for a number of components and raw materials from Ukraine and Russia. These include directly supplied parts such as wiring harnesses, and indirect materials such as nickel and palladium which are used in components including electric batteries and catalytic converts. Manufacturing plants in Ukraine are struggling to operate and consequentially the supply of some components is very erratic or has ceased. This has resulted in several temporary OEM plant stoppages in European assembly plants, including BMW’s Oxford plant producing Mini’s and further afield several Audi and Volkswagen plants in Europe. 


How long the disruption continues depends on how long the supply chain problem persists and the ability for alternative suppliers to ramp up capacity.

We are seeing widespread press reports of up to 2 million Ukrainian’s being displaced. As well as being a significant humanitarian issue, it also means that workers are no longer in Ukraine factories and other work settings. The time horizon for the economy of Ukraine getting “back to business” is profoundly unclear.

What impact are we seeing on the retail market?

Steve: In the retail space there were supply issues last year because of a lack of semiconductors. Prior to the invasion of Ukraine, I was saying the new car supply issue would remain until midway through this year, then start to ease a bit. Having spoken to retailers, the view is that gentle easing won’t happen now until 2023. 


Largely due to COVID-19, people were extending new car purchases an extra year. With this new car supply dropping down, our clients are now focusing on just getting out the orders they have got for the rest of the year. There may not be a whole host of new cars coming along.

Perversely, the market has softened a bit, which could be down to uncertainty regarding Ukraine, petrol prices and so on. But where there have been new car shortages, everyone has bought used cars. Dealers have made significant profits through used-car operations.

Jon: I ordered a new vehicle in January 2022 and expected a long lead time. I was notified by the retailer in mid-March that the lead time is now 12+ months and consequently they have cancelled my order - from a personal perspective, I don’t have an alternative plan.

What capacity does the industry have to weather these latest headwinds?

Jon: During the COVID-19 pandemic when the chip issue began, there were calls from certain parts of the sector that government support should continue. The government didn’t have the appetite to do that, perhaps for understandable reasons—you’re then cherry-picking sectors and companies. 

Any suggestion that there will be domestic government support for businesses affected by the situation in Ukraine feels remote at present. So the ability to withstand the current circumstances will vary from company to company, depending on their financial strength.  


Several of our clients coincidentally refinanced just prior to the pandemic and so while it has been an incredibly challenging time they were never under real threat because they were sitting on a decent amount of cash.

Others may have shored up their finances over the last year or so having been through the experience of COVID-19. Equally, there will be companies now starting to repay pandemic loans which will be a call on cash. The present situation in Ukraine places an additional pressure on business.

Stephen: As businesses emerged from the pandemic during Q4 2021 there was pent-up consumer demand for new car purchases, and you could see the industry coming out of a two-year trough. There is a danger of this consumer confidence stalling, and with vehicle delivery times exceeding six months, you could see the UK automotive industry facing another difficult year and going into a further decline.

We’ve conducted research which shows automotive component companies (tier 1 and 2 suppliers to OEMs) had a significantly reduced profitability during the pandemic compared with 2019, and there are now many more loss-making companies than prior to COVID-19. Historically, margins have already been low (c. 6% EBITDA margin average) and after surviving the pandemic and navigating the global semiconductor chip shortage, this could be the final straw for some component companies.


Steve: 2021 was a record year for retailers, so 2022 was never going to be as stellar. The supply of used cars continues to be a challenge, and dealers are paying lots of money just to have cars to sell. You can’t keep fuelling the used car market if there are no new cars.

What could be the long-term impact of this situation?

Stephen: The worry for me is the medium to long term. UK OEM assembly plants manufactured 1.6 million vehicles in the UK in 2016. In 2020 this dropped to under 920,000 and in 2021 there was a further reduction to 850,000.

Future investment decisions regarding new models (taken several years ago) and resolving the supply chain problems is likely to see this rise to 1.2 – 1.3 million vehicles produced per annum in the medium term. This will support a significant UK industry worth over £60bn and supporting over 700,000 jobs.

However, as the UK makes the transition to electric vehicles and the internal combustion engine becomes increasingly obsolete, government intervention is required to support and secure a UK automotive manufacturing base. This will likely disappear if future model variants and new technologies such as batteries are not manufactured in the UK.

​Key actions for automotive leaders

  • Do everything possible to strengthen your cash position. Companies don’t go out of business because they run out of profit—they go out of business because they run out of cash. Secure additional funding from shareholders, refinance debt etc.

  • Look after your staff and be aware of foreign nationals who may be affected by events in Ukraine.

  • Stay close to your supply chain, or your manufacturer in the case of retail franchises. Have supply chain risk management framework in place that limits the impact of component shortages.

For more information, please contact our automotive sector leads Jon Gilpin or Stephen Cooney.

Subscribe to receive the latest BDO News and Insights

Please fill out the following form to access the download.

Filter by: