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

A Report by European Automobile Manufacturers Association (ACEA)

This is the third part of 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 and on European Transport Policy.

This part of the Report talks about the importance of automobile industry in the Europe's economy, innovation, research & development and international trade.

MARKET & ECONOMY

▪  The automobile industry in Europe supports over 2 million jobs directly in vehicle manufacturing and component supply; 10 million more are employed in the wider supply chain and areas like insurance, marketing, service and repair.   ▪  Manufacturers invest 20 billion annually in R&D, working to bring cleaner, safer vehicles to global markets.   ▪  The economic downturn has severely damaged vehicle demand and access to finance. Jobs in Europe have been lost, production bases threatened and budgets constrained.   ▪  Supporting automotive through the crisis is essential for economic prosperity, but also to sustain the development of innovative environmental and safety technologies.

 
Europe relies on a strong automotive sector. Further financial and economic pressure on the sector will affect the European economy as a whole; 2.2 million people are employed directly in automotive manufacturing; an additional 9.8 million rely on it for their jobs in closely related sectors. The real multiplier, in terms of employment in the wider economy, is still higher. ACEA members generate a turnover of 551 billion, and total industry exports are worth 77 billion. Around 378 billion in taxes come from vehicles, reinforcing the sector's reputation as the engine room of Europe.

Vehicle Production

In 2008, 18.4 million vehicles were made in Europe, 7% fewer than the 19.7 million produced in 2007. Of the five major vehicle-producing countries, Italy reported the worst decline (-20.3%), followed by France (-14.9%), Spain (-12%), the UK (-5.8%) and Germany (-2.8%). Car production fell 7%, from 17.1 to 15.9 million units. Output in Austria fell most dramatically (-37.3%), followed by Italy (-27.6%) and Finland (-25%). New member states, which account for 18% of EU production, fared better; Poland and Hungary reported output increases of 20.9% and 18.9% respectively. Van and truck production reflected a dramatic decline in the economy in the final quarter. From January to June 2008, light commercial vehicle production had risen 6.5%; by Q4, it crashed 7% or 138,481 units. Heavy truck production also rose in Q2 by 15%, only to fall 20% from September to December. Bus and coach production reported growth in output during 2008, rising 7%; however markets showed signs of faltering by December.

In Brief ACEA data covering 2008 reveal a heavy impact of the financial and economic crisis on Europe's passenger car and commercial vehicle manufacturers. Production and demand for vehicles, which had grown in 2007, began to dip in the first half of 2008, at first because of a rise .in oil prices, then as a consequence of a more general slowdown. By the beginning of the third quarter, as the credit crunch hit internationally and the European economy slipped into reverse, a steeper decline began. This accelerated in a turbulent final three months. OveraUin2008, 1804 million vehicles were produced, down 7% on 2007. Passenger car output fell 7% (25% in the final quarter), while commercial vehicle production fell 5% (33%.in the final quarter). Markets across Europe suffered; demand for cars ended the year down 7.8% while CV registrations fell 9%; these were the sharpest drops since 1993. Prospects, for 2009 and 2010 are still unclear, but signs are not positive. More than 1,000 plant stoppage days had been planned for the first quarter of 2009 and pressure on employment is mounting. Overall, 2009 vehicle production may drop by as much as a quarter and commercial vehicle production by at least 50%.

 
 
Market Demand

In Western Europe, only five countries posted new car growth, Finland (+11.2%), Portugal (+5.7%), Belgium (+2.1 %), Luxembourg (+2.0%) and Switzerland (+1.0%). Among the five major markets, Spain reported the steepest fall in demand in its history (-28.1%), while Italy (-13.4%) and the UK (-11.3%) fell by more than 10%. Across Europe, new car demand fell 7.8% to 14.7 million units. In the final quarter it crashed 19.3%.

 
Consumer choices reflected concerns about the economy. Market penetration of small cars was the highest ever at 38.8%; SUVs penetration which had peaked in 2007 at 9.9% fell back to 9%, with the most dramatic fall in France from 7.2 to 4.6%. Average engine size fell to 1706cc, from 1740cc a year earlier, while average power output, which had risen steadily since 1990, fell to 86 from 87 KW. More than half of all new cars sold were diesel models (52.7%).

Commercial vehicle registrations were down 9% across Europe, the sharpest downturn since 1993. Truck registrations, down 4% overall, suffered most in new member states (-21 .1 %). Light commercial vehicle demand (LCVs), up 5.1 % in new member states, was dragged down by performance in Western Europe (-12%) to end 10.4% down overall. Bus and coach registrations rose 12.1 % over the year, but in December they fell 7.5%.

By March 2009, government fleet renewal schemes had been introduced in 11 countries to boost flagging markets and help sustain the transition to 'greener' cars. In Germany, new car sales rose by an encouraging 21.5% in February. Effects were also notable in other markets, such as France, Italy and Slovakia.

 
Vehicles in Use

According to the latest ANFAC (Spanish automobile association) report, there were 251.5 million vehicles on the roads in the enlarged EU at the end of 2007. Of these, almost 220 million (87%) were cars. That reflected a 0.5% drop on 2006 figures, primarily due to an 11.6% decrease in the German fleet from 46.6 to 41.2 million cars.

The European car fleet is concentrated in five main markets (Germany, Italy, France, UK and Spain) in which diesel penetration is now around 30%. Across the enlarged EU, there are a high proportion of older cars on Europe's roads. According to ANFAC, 30% of cars are older than 10 years. In some new member states, the average age of a car is up to 14 years, emphasising the importance - economic, environmental and safety - of strong measures to encourage fleet renewal.

Economic Background

The Euro-zone is now officially in recession following two successive quarters of negative growth. The trade deficit is rising and positive employment trends are not reflected in auto manufacturing which has started to report significant job losses. The overall situation in financial markets remains uncertain, despite massive injections of liquidity from governments and central banks.

 
Endorsed in November, the Commission's European Economic Recovery Plan aims to prevent a downward spiral. However, economic forecasts for 2009 have been revised downwards with GDP expected to drop in the Euro-zone by 1.9% and in the EU27 by 1.8%. Modest growth of 0.4% and 0.5% is expected in 2010. Despite interest rate cuts, falling oil prices ($146 a barrel in July 2008 to $44.5 in January 2009) lower commodity prices and inflation, which is now 1.1 % from a high of 4% in July 2008, business and consumer confidence remains low. Since mid-2007, the Commission's business and industrial confidence indicators have been falling while its December 2008 consumer confidence indicator was the lowest it had been since reporting began in 1985.

 
Forecasts

Production and sales figures from the Q4 of 2008 reveal the scale and speed with which the industry has been affected by the economic downturn. Markets across Europe suffered, forcing a slowdown in production and job losses at vehicle manufacturing plants and across the component supply chain. Forecasts in this uncertain time are very difficult, albeit both consumer and business confidence is low. Most manufacturers do not expect the situation to improve until 2010. If trends seen in the final quarter of 2008 and into the first few months of 2009 continue, passenger car production could decline by a quarter and commercial vehicle production by at least 50%, reflecting a dramatic drop in orders from business customers.

 
INNOVATION, RESEARCH & DEVELOPMENT

Transport and mobility are a prerequisite for economic prosperity and social activity, but also pose significant challenges for sustainability. In the decades to come, automotive research will focus on areas like managing transport growth, improving road safety and focusing on the environmental impact of increased mobility needs.

▪  The automotive sector is Europe's largest private investor in R&D. Each year, 20 billion is invested by the industry, or 4% of its turnover.   ▪  R&D delivers the technologies that are driving down road casualties and improving vehicle and environmental performance.   ▪  It takes ample time for R&D potential to become production reality; bringing ready technologies to market is yet another step.   ▪  The recession has placed enormous pressure on R&D budgets. Support is needed to ensure that the safety and environmental technologies of tomorrow are not delayed by financial shortfalls today.

 
Historically, automotive R&D has been devoted to vehicle technology as such. Today, R&D in all-important areas such as safety, energy and the environment includes the interaction between a vehicle, its driver & the surroundings.

Of course, enhanced communication, interaction and cooperation present many challenges, and these will require an intelligent and collective approach from a variety of stakeholders. The industry realises the need for a comprehensive strategy and is actively pushing for forward-thinking dialogue.

Impressive Track Record

Modern vehicles are the direct result of past investment and achievements in R&D. Manufacturers have a track record of innovative and affordable solutions, and remain committed to making vehicles even safer, cleaner, quieter, more economical and secure.

Tangible results have come in areas such as vehicle safety and emission reduction. Active and passive safety systems have significantly cut deaths and injury on Europe's roads, despite an increase in traffic volumes.

CVs and passenger cars are now close to emitting only trace levels of air pollutants. A modern truck uses up to 30% less fuel than one 30 years ago, while it takes twelve to produce the same noise level as one vehicle 35 years ago.

Average car fuel consumption and CO₂ emissions have been cut by almost 20%, thanks primarily to technology measures. That's despite an average weight increase over the last 15 years, due to challenging regulations on safety, as well as consumer demand for larger vehicles with improved levels of comfort.

More recently, alternative drive concepts have been developed. Several car and van makers have hybrid vehicles in series production and the first hybrid trucks - suitable for local and regional distribution - are now entering the market.

Alternative fuels offer great potential as well, although well-to-wheel analyses raise questions about sustainable and secure supply. Over the longer term, vehicles incorporating fuel cell technology and vehicles fuelled by hydrogen will come to our roads.

Time is a key factor in successfully bringing technologies to market. R&D efforts can deliver but only after a sufficient period of development, industrial integration and comprehensive testing. A perception of urgency or new legislation that does not respect time-scales will not accelerate progress. Groundbreaking technologies, particularly in-vehicle ITS systems that depend on action from a variety of stakeholders; will require time and resources to develop fully.

In Brief Vehicle manufacturers are a driving force for innovation in Europe, leading research and development into ever- safer, cleaner vehicles as well as improving manufacturing processes, logistics and mobility management. They are Europe's largest private investors in R&D; each year 20 bn - 4% of turnover - supports projects aimed at delivering a more sustainable, safe and competitive sector tomorrow. The industry files around 5,900 new patents every year. Fields such as materials technology, recycling, ICT arid telematics, energy and fuels, drive-train development, aerodynamics and ergonomics are all Included In automakers' diverse R&D portfolio. Today's safer roads and cleaner, more efficient vehicles are the direct result of past investment in R&D. They are also proof of the innovation and skills that characterise a highly competitive European auto sector. Typically, R&D is a strategic and long-term process; automotive R&D relies on significant investment and, increasingly, partnership with stakeholders. It takes time to carry out R&D and undertake thorough tests to deliver production ready technologies. Bringing them to market is yet another step.

 
The Road Ahead

Finding new energy sources, respecting the earth's limited resources and the protection of the environment will form the cornerstone of tomorrow's mobility and transport plans. As we look ahead, the industry knows that an important element of sustainability is affordability, including the costs of vehicle operation and maintenance.

 
In a world of ever-increasing globalisation and international competition, the automotive industry will work to keep costs down, to retain R&D facilities and production in Europe, and to safeguard the quality of its products. In this context, competitive strength is key.

 
Out of the 68,147 European applications filed in 2007, 5,881 concerned the auto sector in Europe, or 8.6%.

R&D in Safety Systems

Today

▪	Airbags, air curtains, and airbag deployable front bonnets
▪	Improved front-end design to protect vulnerable road users
▪	ESP
▪	Active seat belts and pre-crash protection systems
▪	Lane departure warnings
▪	Night vision systems

 
Tomorrow

▪	In-vehicle ICT/ITS systems, for vehicle-to-vehicle and vehicle to infrastructure communication
▪	Advanced driver assistance system
▪	Semi-autonomous vehicle functions

 
R&D in Energy and Environment 

Today

▪	Diesel particulate traps
▪	Direct injection and exhaust gas re-circulation
▪	Efficient gearing
▪	Electronic motor and transmission management
▪	Bio-fuel compliant vehicles
▪	Hybrid cars and trucks

 
Tomorrow

▪	Full-electric drive-trains
▪	Hydrogen and fuel cell propulsion
▪	Advanced driver information systems

 
 
INTERNATIONAL TRADE

The European automobile industry is dynamic, competitive and operates on a global scale. High-quality products, significant investment and a highly skilled workforce deliver exports with a 42.8 bn net trade contribution to the economy.

▪  The automotive sector generates exports with a 42.8 billion net trade contribution to the European economy.   ▪  Opportunities to develop trade opportunities abroad should be pursued.   ▪  Manufacturers support steps to remove import tariffs and non-tariff barriers   ▪  In the absence of global trade agreements, it is important that the EU pursues bilateral and regional agreements.   ▪  Thorough impact assessments must underpin any deal. Agreements that bring opportunities to importers but little benefit to EU manufacturers cannot be allowed.

 

COLLECTIVE ACTION Demand for transport is expected to increase and vehicle technology will play an important role in moving people and goods efficiently. But ultimately, solutions, which are truly effective and sustainable, will require more than things like drive concepts, better aerodynamics, telematics solutions and advanced electronics. An effective, efficient and long-term mobility policy requires a full understanding of all relevant factors and cooperative action by all stakeholders. This will deliver a framework for future transport and a sustainable vision that can become a 21st century reality.

 
The global framework in which vehicle manufacturers do business is increasingly important. Export growth in emerging markets like China and Russia, investment in resources abroad and the economic downturn at home reinforce the goal of trade without barriers.

Global trade agreements that deliver free markets are most beneficial. The automotive sector fully supports the gradual dismantling of EU import duties, but this concession must be accompanied by equivalent opportunities abroad for European manufacturers.

In Brief European automotive industry has a reputation for delivering quality products round the globe. Opportunities to develop trade abroad should be pursued and manufacturers support steps to remove barriers such as unreasonable import tariffs and non-tariff barriers (NTB). The industry supports WTO and multilateral trade and seeks a balanced and fair Doha round that will deliver real market access to main developing economies. The current draft text on modalities for Non- Agricultural Market Access (NAMA) remains a concern. If a DDA agreement were later reached on such basis, it would give a green light to developing countries to keep peak import tariffs on European automotive products, while opening up opportunities for imports to Europe. This must be reviewed when talks recommence. The collapse of the Doha Round in Jul'08 was disappointing, but reinforces the need to develop bilateral and regional agreements with major trading partners. These have the potential to deliver benefits for European automakers and importers, improving access to these markets. However, thorough impact assessments must be undertaken before any deal is signed. One-sided agreements that bring opportunities to third country importers but little benefit to the EU and its industry must be rejected, and consequently, only balanced agreements should be signed.

 
Multilateral Agreements

The latest round of DDA negotiations collapsed in July 2008. Overall disappointment was accompanied by automakers' concerns about the content of a pending compromise on non-agricultural market access (NAMA). This must be reviewed when talks recommence.

Under the text, some countries would be allowed to exclude whole sectors, including automotive, from lowering peak import tariffs. The effect would be to open-up the EU market for non-European producers, while offering domestic automakers no beneficial access to emerging markets abroad.

 
This contradicts original DDA goals, undermining industry competitiveness, threatening investment and employment in the EU.

Bilateral Trade Agreements

In the absence of global trade agreements, it is important that the EU pursues bilateral and regional agreements. In 2005, the final report on CARS 21 recommended the European Union to complement its multilateral trade policy with a bilateral approach, helping deliver much needed improvements in export opportunities for manufacturers.

The report argued the urgency of the case, given the multitude of bilateral agreements between other regions and growth markets, particularly those in Asia. These have the potential to exclude European manufacturers.

 
In April 2007, the Council gave a mandate to the Commission to negotiate FTAs (Free Trade Agreements) with several countries and regions. The priorities for the European automotive industry are India and ASEAN countries, but also MERCOSUR for which negotiations started eight years ago. Low level of results and lack of perspective to conclude effective FTAs in a foreseeable future are disappointing.

The industry will continue to emphasise the importance of reciprocal trade advantages for European manufacturers in regional and bilateral FTAs. Consideration must be given to the size of the market, market access and levels of tariff and non-tariff barriers, as well as a thorough assessment of the impact on the EU sector. These criteria's were included by the European Commission in the 2006 - Policy Paper, 'Global Europe: Competing Against the World.'

In the current economic climate, it should be imperative for the EU to negotiate agreements that do not weaken the competitiveness of the European auto industry.

South Korea - A Case Study

In 2007, South Korea exported around 700,000 vehicles to the EU, nearly 20% of all vehicles imported into Europe. Yet, EU exports were limited to around 28,000 vehicles in a South Korean market of 1 million.

Mutual benefit and fair market access have to be the bedrock of any bilateral trade agreement. It is, therefore, a concern that FTA negotiations with South Korea have not followed these principles. Automakers have urged a thorough impact assessment.

 
Barriers, like Korean technical standards, changes to rules of origin and duty drawback clause concessions, as well as the inappropriately short lead-time for tariff dismantling, must be addressed. The industry is also concerned that the terms proposed could set an undesirable precedent in future negotiations with other Asian countries.