The Automobile Industry in Europe - An Industry with Strength & Breadth

A Report by European Automobile Manufacturers Association (ACEA)

This is the fourth part in the series on European Automobile Industry. The articles earlier published in the Journal touched upon the European automobile industry's endeavours on reducing CO₂ emissions, improving air quality, clean vehicle production processes & recycling, sustainable mobility, road safety, European transport policy and economy, innovation, research & development and international trade.

This part of the Report covers the Regulatory Framework governing European automobile industry including CARS 21 and Taxation.

REGULATORY FRAMEWORK

The automotive industry is one of the most regulated sectors in the EU. Over-regulation and complex or even conflicting rules can bring substantial costs. The objective to streamline regulation in the auto sector, with the help of the CARS 21 process, must be continued to reinforce the sector's competitiveness.

Streamlining Regulation

Cost-effectiveness, impact assessments and harmonization - The key to 'better regulation'

Approaching 2015, manufacturers face a barrage of new rules on emissions and safety. These include tighter emission limits, new car CO₂ rules and complementary measures, like tyre pressure monitoring and gearshift indicators. On safety, phase 2 of legislation on pedestrian protection will come into force and electronic stability control, advanced brake assist and daytime running lamps will become standard kit.

What is 'Better regulation'? The European Commission launched the Better Regulation initiative in 2002. The aim was to "ensure that the regulatory framework in the EU contributes to achieving growth and employment, while continuing to take into account the social and environmental objectives, and the benefits for citizens and national administrations." This should be achieved through simplifying and improving existing regulation and by ensuring new regulation follows better drafting principles.

 
This means heavy investments for manufacturers. But that comes at a price. Clearly, vehicles need to remain affordable and policy makers cannot ignore the costs to consumers and the effect this may have on achieving policy goals.

In Brief The automotive industry is one of the most regulated sectors in the EU due to its highly complex products and the many issues that must be considered relating to vehicle use. The industry complies with more than 80 EU Directives and over 115 agreed within the international framework of UNECE. Regulation helps set common rules and standards, which ensure a level playing field and fair market conditions in the EU and abroad. However, regulation can also damage the competitive strength of an industry. This is especially true if there is no common framework to detect conflicting interests of different regulations. Competitiveness can also be affected by regulation, which is not properly assessed for effectiveness & where potential side effects have not been identified. Without these checks, regulation can lead to high unnecessary costs, an unnecessary burden and competitive disadvantage for automakers. Different policy goals in areas like safety and environment have created rules that are costly, unduly complex and sometimes inconsistent. The European Commission has recognised the risk of over-regulation in the automotive industry and pledged to take action. With CARS 21, an important tool was established that is proving its value, and especially, in times of economic turbulence. However, despite progress, the CARS 21 principles still need to be applied much more coherently throughout European legislation.

 
The 'better regulation' agenda of the Barroso Commission is of great importance to auto manufacturers. In general, regulation is 'better' when it is more efficient. That means ensuring social and environmental goals are well balanced against economic objectives to support growth and jobs. It also means achieving policy goals at the lowest possible cost.

Regulations concerning the auto industry will, by nature, mostly concern technical measures. However, technical requirements can only be effective when part of a balanced and comprehensive framework of broader conditions. Technological targets can never be an objective in itself; the overall, end-result should set objectives for individuals, as part of a series of carefully planned integrated measures. Policies must also be technology neutral.

CARS 21: A Roadmap for the Future - More Relevant than Ever

CARS 21 CARS 21 was set up in 2005 to strengthen sector competitiveness and employment while enhancing progress toward safety and environmental goals. The multi-stakeholder group presented recommendations for policy makers including the role of better regulation & international trade in driving progress. On safety and the environment, CARS 21 recommended an integrated approach; collective action from the industry, governments, fuel companies and consumers will deliver the greatest rewards at the lowest cost. The CARS 21 Recommendations in a Nutshell CARS 21 endorses an integrated approach to emission reduction and road safety goals by encouraging all stakeholders, including industry, governments, fuel companies and consumers, to play their part. It promotes better regulation principles and encourages multilateral and bilateral reciprocal trade agreements. To encourage getting the cleanest, safest cars onto roads, CARS 21 highlight the importance of fleet renewal and the issue of end-costs to consumers. The CARS 21 mid-term review calls, in addition, for more international harmonisation via UNECE and for giving industry sufficient lead-times to implement regulatory changes. Thorough impact assessments and early consultation with the industry are key as well.

 
What is CARS 21?

The CARS 21 is the abbreviation of 'Competitive Automotive Regulatory System for the 21st century'. Championed by the European Commission, the initiative was launched in 2005 to strengthen competitiveness and employment in the automotive sector while enhancing progress toward safety and environmental goals - at a price affordable to the consumer.

Who takes part?

Formed in January 2005, the CARS 21 High Level Group includes representatives from national governments, European Commissioners, the European Parliament, CEOs from the auto sector, environmentalists, trade unions, consumers and the oil industry.

What has happened so far?

The initial CARS 21 report, adopted in December 2005, includes a series of crucial recommendations for policy makers and a ten-year road map for implementation. Many of the recommendations were included in a Commission Communication in January 2007.

A mid-term review of CARS 21 was published in October 2008. Its forward-looking conclusions press for continuous improvement in coherence, predictability and cost-effectiveness of regulation to secure manufacturing in Europe in the future.

CARS 21 also proved its value as an important forum for exchanging information during the economic crisis. As such, CARS 21 is recognised by a Commission Communication, Council Conclusions and a European Parliament Resolution in early 2009.

CARS 21 will continue as a platform to address issues in the short, medium and long term, including the economic situation, the competitiveness of the industry and progress in safety and the environment.

Why is CARS 21 so important?

CARS 21 acknowledge the damaging effects of over-regulation on the competitiveness of the auto sector. In the face of the economic downturn, this is more relevant than ever, as the industry urgently needs relief from legislation that burdens it with unnecessary costs.

CARS 21 points to ways in which the industry and society as a whole would benefit from careful policy-making that supports economic growth as well as other important societal goals.

Part of a Jigsaw

While technology continues to deliver greener, safer vehicles, it represents just one part of the jigsaw. Impact studies clearly show that the greatest benefits to the environment and safety come when all relevant stakeholders play their part in an integrated approach.

New technologies, like alternatively fuelled cars for example, need the right quality fuels and a re-fuelling infrastructure; eco-driving techniques can significantly cut CO₂ emissions (and save owners money), fleet renewal is driven through fiscal measures, scrapping schemes and clear government support for environmentally friendly vehicles. Investment in roads cuts congestion and supports traffic flow, while improved driver training and road traffic enforcement help save lives on European roads.

In the event that innovation comes under the spotlight, policy makers must be careful not to prescribe 'technology winners'. Strong competition and a vibrant market are the best drivers of progress.

As well as being heavily regulated, the auto sector is often forced to deal with rules that are unduly complex with high administrative costs for compliance. Simplifying existing legislation is much needed, particularly in areas like type approval. Where possible, the EU should seek harmonisation in an international context. An industry that devotes less time and resources to applying rules can devote more to what it is good at; developing cars, trucks and buses that are even safer and more efficient.

 
Policy makers must always be fully informed about the consequences of new proposals. Timely consultation and thorough impact assessments are therefore key, and must be at the heart of any new proposal. Consultation reveals the practical consequences of new policy proposals; thorough impact assessments highlight wider issues, like cost benefits and the potential for meeting objectives through alternative means.

It takes at least 5 years to develop a New Car

Cars are highly complex and innovative products. Their development - from the concept to the engineering phase - takes up to 5 years. Engine development can take significantly longer and so does much of the strategic R&D in power trains and fuels, in mobility and safety systems, and in materials and manufacturing processes.

Automotive manufacturing is a hugely complicated and capital-intensive process, involving a large, very diverse supply chain that feeds into highly sophisticated production lines. Once taken into production, most car models have a manufacturing cycle of up to 7 years during which investments are recovered. Manufacturers and their suppliers plan and allocate production capacity well ahead to facilitate timely production and the regular renewal of the car portfolio.

To adjust automobiles to new legislative requirements, the auto industry needs sufficient lead-time ahead of the implementation of these new rules. The long development and production cycles must be taken into account to sustain the economics of automotive manufacturing. For models just ahead introduction or already in production, change is limited to ready-available technologies and this, within the technical and economic constraints of the car's concept.

Vehicle Type-Approval

Before a motor vehicle can be registered and sold in the EU, it must comply with what is known as the Framework Directive for Whole Vehicle Type-Approval. This contains procedures such as safety and fuel economy tests and a long list of separate legislation that lays down the many technical requirements for motor vehicles. It also deals with individual components and the separate assemblies from which vehicles are made.

In addition, there is legislation with requirements for the use of motor vehicles. In all, more than 80 EU Directives and Regulations and an even larger number of rules in the international context, or UNECE, must be followed by automakers.

TAXATION

Consistent Taxation

CO₂-based fiscal instruments - supporting markets for the cleanest vehicles

▪	Clear and consistent tax signals send a strong message to consumers, industry and other stakeholders; CO2 - based taxes are part of an integrated approach to emission reduction.
▪	Registration taxes hinder fleet renewal and vary wildly across Europe, distorting the single market. They should be abolished.
▪	A harmonised CO2-based tax regime for cars and alternative fuels should be adopted across Europe.

 
The European automobile industry recognises the role fiscal instruments play in supporting the market for cleaner vehicles & driving down CO₂ emissions from road transport.

Tax incentives encourage motorists to consider the environmental impact of vehicle choices and to use vehicles responsibly; they encourage CVs operators to specify newest models with the latest pollution abatement technology and they can drive the market for cleaner, alternative fuels.

In Brief The automobile industry recognizes the role vehicle taxes play in driving down CO2 emissions from road transport. As part of an integrated approach, clear and consistent tax signals send a strong message to consumers, industry and other stakeholders. However, the current framework across member states is not supportive with a 'disparate and fragmented approach. Registration taxes are a particular issue, varying widely across borders, distorting the internal market and penalising fleet renewal. Harmonised CO2 -based taxes, based on use rather than ownership, should be the goal.

 
However, the environmental benefits tax systems bring depend on Clear policy and a harmonised approach. Today, there is still huge variation in both the basis for taxation and tax levels across the European Union. This damages industry competitiveness and reduces progress towards environmental goals.

For example, different member states tax cars on power, price, weight, cylinder capacity or a combination of these measures, forcing manufacturers to adapt vehicles to match tax structures in individual member states.

Economies of scale are reduced, harming competitiveness and leading to higher priced vehicles. The internal market is inefficient and consumers face a confusing array of different tax regimes across borders.

Registration Taxes

European automakers have called for the abolition of car registration taxes, which are still widely applied in different member states. Recently, some governments have even considered introducing new registration taxes. This is an unwelcome development as, generally, registration taxes threaten fleet renewal. In most cases, they provide a disincentive to replace older, more polluting cars with those emitting less CO₂ and significantly fewer air pollutants.

Automakers support the replacement of registration taxes with a harmonised system across the EU. This should be based on vehicle use and framed around standards reflecting the impact that different types of vehicles have on the environment.

This would provide a Clear signal. Private motorists and commercial vehicle operators who choose the most environmentally-friendly vehicles would be rewarded for responsible use, encouraging fleet renewal while supporting lower CO₂ goals and air quality improvement targets.

Harmonised Car CO₂ Taxes

The Commission has proposed to link car taxation partly to vehicles' CO₂ emissions, recognising the role this can play in reducing CO₂ from road transport. Automakers support this approach. CO₂-based taxes for cars provide economic incentives to which consumers, manufacturers and fuel suppliers will respond.

Key Points ▪  CO2-efficiency should be made the key criteria for car taxation.   ▪  CO2-based taxes should be linear and every gramme should count.   ▪  All taxes must be technology-neutral to allow competition to develop low-CO2 solutions.   ▪  Tax revisions should be budget neutral.

 
 
In the past 18 months, France, Spain, Finland, Ireland, Romania and Malta introduced CO₂-related car taxation. With Germany set to follow suit, this will bring the total number of member states with such systems to seventeen.

The European car industry welcomes the trend towards CO₂-related car taxation but has also warned that failure to harmonise tax systems weakens the environmental benefits this approach may bring. A harmonised CO₂-based tax regime for cars should be a priority. It would maximise emission reductions, support manufacturers and maintain the integrity of the single market.