Recent news reports of automotive manufacturers closing UK-based facilities and moving them overseas, sadly, epitomises the labour issues impacting the industry.
Automotive manufacturers are facing a talent shortage and having to contend with rapidly rising salary demands. It’s amidst this backdrop that BDO’s automotive manufacturing leads Jon Gilpin and Stephen Cooney, together with David Ellis, a partner specialising in Strategic Reward Advisory, discuss how labour challenges are affecting the automotive industry in the UK and the options manufacturers have to recruit and retain talent.
- Why are labour and skills shortages so pronounced right now?
- What impact are labour challenges having on UK-based automotive manufacturers?
- What can manufacturers do to address labour issues?
Why are labour and skills shortages so pronounced right now?
Stephen: Analysis earlier this year by the Institute of the Motor Industry (IMI) showed that there are over 23,000 available jobs in the UK automotive industry (the highest level for 20 years). Over the coming years, the culmination of the electric vehicle (EV) revolution, the pandemic, decreased immigration, and fewer people of working age, will all fuel 160,000 vacancies in the sector by 2031.
If we look back to the recent past, it was only in 2016 that a report from the Automotive Council flagged concern about a depth of skills shortages based on 5,000 vacancies. This really puts into context how quickly the gap between the demand for labour and the availability of talent is growing. Part of the reason for this is that elements of the sector are quite rudimentary in terms of their salary strategies.
There’s a huge number of SME-sized automotive components manufacturers which are excellent at innovation, precision engineering and consistently producing high-quality outputs. However, they’re less sophisticated with pay and benefits, which really limits the motivation for workers to remain within the industry. We’re now feeling the effects of a build-up of employees who’ve drifted out of automotive manufacturing over a period of years in search of similar or higher pay for less intensive work, greater employment terms in other sectors and the impact of Brexit.
Jon: The heavy use of furlough throughout automotive manufacturing has contributed to the appeal of employment in other sectors. Extended periods away from the day-to-day gave people pause for thought. They had the inclination and time to consider other job types, which has led to a drain out of employees. In a similar vein, the talent pool has shrunk further because furlough encouraged early retirement amongst workers who were a few years away from hanging up their tools.
Automotive manufacturers are increasingly competing for workers with a host of other sectors, which have low barriers to entry and can meet growing employee demand for flexibility. For example, jobs in final mile delivery, fulfilment, and app-based ride-hailing companies such as Uber are creating employment options that are accelerating the drain out of talent from automotive manufacturing.
What impact are labour challenges having on UK-based automotive manufacturers?
David: The lack of talent quickly ripple-effects throughout supply chains. The automotive manufacturing industry is built on just-in-time and lean manufacturing practices, which requires astute workforce planning. Not being able to have people in the right places and at the right times on production lines affects the level and timeliness of outputs, compromising scheduling and leading to wider delays and disruption. With this having the ability to significantly impact productivity and profitability, automotive manufacturers must give serious thought to their employer propositions
Rapid advances in manufacturing technologies have, inadvertently, caused many operators to overlook people strategies in favour of automation and digitisation. They must revisit this to enhance recruitment and retention.
Stephen: Typically, there’s a direct correlation between the shrinking availability of labour and the rising costs of remuneration. Competition for workers is intensifying, meaning that automotive manufacturers face paying higher salaries and must be more creative with their benefits packages. We’re in an employee-led market, where workers have greater possibilities and increasingly realise this. They will make heightened demands and expect more from employers in meeting these.
Jon: We’re seeing peaks and troughs in levels of UK car production, and according to the SMMT, car manufacturing declined by 19.2% in the first half of this year – the weakest first half since 2020 and worse than 2009 after the global financial crisis. There are numerous factors affecting overall industry performance and it’d be wrong to solely attribute these to labour challenges, but they are certainly impacting the industry’s recovery from Brexit and COVID-19.
Labour issues also risk choking innovation, at a time of huge opportunity for automotive manufacturing. The popularity of electric vehicles, demand for increasingly connected and sophisticated cars, along with rapidly advancing artificial intelligence, all have vast potential for a new generation of automotive manufacturing. A reliable availability of labour and skills is critical to realising new opportunities.
What can manufacturers do to address labour issues?
David: A starting point has to be to tackle the issue of wages head-on. Automotive manufacturers must accept that their rates of pay need to be more than competitive, not just throughout wider manufacturing, but also in the context of other sectors that are luring away workers.
Taking this step becomes even more important as the cost-of-living crisis squeezes employees. Workers will place even greater emphasis on rates of pay. Reviewing salaries will help to reduce the drain out of talent by boosting retention and will also help to attract new recruits in a competitive, candidate-led market.
However, increasing salaries will need to involve conversations with customers about price increases. During the current economic climate, it’s near impossible for automotive manufacturers to absorb higher rates of pay, without adjusting selling prices. Granted, this is easier said than done, but can be achieved with the right strategy and approach and can prove more beneficial in the long-term than risking compromising customer satisfaction through labour related delays and disruption.
Stephen: Manufacturers need to define shop floor pay matrices based on job skills and have an effective process for training and developing staff to acquire new skills and move up to more senior pay grades. This is particularly important for SMEs, which may be taking a flat-rate, static approach to pay and reward.
A well-defined approach together with a company-wide bonus system to incentivise workers will also garner employee loyalty and retention, and support productivity levels. This can also enhance an employer’s reputation and drive word of mouth amongst workers, generating recruitment referrals that makes attracting staff quicker and more affordable.
Key actions for automotive manufacturers:
- Strengthen your employment proposition by reviewing salary and benefits to ensure they are competitive
- Develop an effective payment structure for shop floor staff which encourages staff retention and motivates workers to refer other staff
- Regularly review pricing and have an effective strategy to pass on cost increases to customers.
For more information, please contact our automotive sector leads Jon Gilpin, Stephen Cooney or David Ellis.
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