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

A Report by European Automobile Manufacturers Association (ACEA)

Introduction

The auto sector is often credited as the engine room of Europe. The European Union is the homeland to a competitive and innovative automotive industry that generates activity throughout the economy - from materials and parts supply, to R&D and manufacturing, to sales and after-sales services. Manufacturers have trained and developed a highly skilled workforce, producing quality products for home and international markets. Vehicle manufacturing supports over 2 million European jobs with an additional 10 million citizens employed in associated industries. Exports are valued at over€70 billion annually. The automotive industry has also established itself as a partner in sustainability. Technological advances have brought real solutions, driving down harmful emissions from industry products and production sites. Manufacturers have spearheaded significant improvements in vehicle safety and embraced social responsibility goals. Annually, the industry invests€20 billion in R&D, more than any other private sector. Its drive towards sustainable mobility remains an ongoing commitment.

Economic Downturn

In the second half of 2008, against the backdrop of fierce competitiveness and progress on sustainability, the economic downturn hit the industry. The banking crisis stalled economies; consumers and businesses struggled to access credit. Private individuals held off purchasing new cars and businesses began to fight for survival.

In the first six months of 2008, demand for new cars across Europe had dipped a merely 2%, with commercial vehicle sales down by just 0.4%. By the end of the year, markets for all types of vehicles crashed. In the final quarter, car sales fell 19.3%: some member states reported a decline of more than 50% in December alone. Demand for new commercial vehicles across Europe decreased by 24%.

Commercial vehicles continued their sharp downturn in the first quarter of 2009. The drop in passenger car registrations recovered somewhat to a still formidable minus 15%, supported by the introduction of fleet renewal incentives in a number of EU member states.

Vehicle production, which fell by 20% in the last three months of 2008, is expected to fall a further 25% in 2009 compared to 2007 levels, with commercial vehicles production expected to decline even more. Reduced employment levels, production shutdowns and strains on budgets - these are an inevitable consequence of the sudden decline in demand.

But the crisis threatens more than just economic goals. It could also affect progress towards sustainable mobility. As demand for new cars weakens, fleet renewal slows. While haulage companies struggle to access credit, they are less likely to purchase and run the latest, cleanest generation of commercial vehicles. Pressure on manufacturing budgets, including investments in R&D, is mounting.

A Strong Industry Innovates

Sustainable mobility remains a key part of manufacturers' long-term plans. During the last ten years of relative economic stability, manufacturers delivered fifty new CO₂ reduction technologies to market. Improved engine design, the use of lightweight new materials, development of alternatively-fuelled vehicles and in-vehicle driver aids have helped slash average new car CO₂ by almost 20% in just thirteen years.

Emissions are a fraction of what they once were too, thanks to industry innovation. Particulates and other pollutants have come down over 95% compared to 1990 levels.

Truck and bus makers have set a benchmark in efficiency too. Today's 40-tonne trucks burn around a third less fuel than equivalents thirty years ago, while exhaust technologies are trapping more harmful emissions, improving air quality in our towns and cities. Investment in logistics, tracking, driver training and intelligent transport systems ensure modern trucks work smarter as well as harder for their operators.

On safety, vehicle technology has helped halve the number of deaths on Europe's roads in the last thirty years, despite a three-fold increase in traffic volumes.

Immediate Support

Policy makers have a responsibility to protect the interests of citizens and safeguard the natural environment. But they are also responsible for creating an environment in which businesses thrive. The interdependent nature of both objectives is today perhaps more evident than ever.

Automakers have called for urgent and drastic measures to prevent a prolonged period of recession, to support manufacturing and continue to drive forward the environmental goals that are shared by policy makers and manufacturers. In the short term, broader and quicker access to financial support is necessary. Vehicle manufacturers have requested access to€40 billion in low interest loans, if necessary backed by state guarantees.

Market incentives will be key to soften the impact of the recession, encouraging fleet renewal. But these must be coordinated to avoid distortions across the single market. Many countries have already taken a lead in introducing incentives like scrappage schemes and fiscal incentives. ACEA members have called for a coordinated European policy to ensure fairness and respect for competition rules, promoting greater efficiency in a single, European market while achieving the aim of increasing sales of the cleanest new vehicles.

Further Measures

In December, while coming to terms with the worst economic crisis in decades, carmakers were presented with the new car CO₂ regulation, a hugely challenging framework and the latest in a line of over 80 European Directives and 115 UNECE pieces of legislation concerning motor vehicles.

Industry believes regulators must apply the lessons learned in the last ten years to these leaner times. Time and again, the focus of regulations like new car CO₂ rules has been on vehicle technology improvements, when impact assessments have consistently shown that an integrated approach brings the most cost-effective benefits to society.

Now is the right time to accept this logic and safeguard industry competitiveness by postponing costly new regulation. It is the time to ensure that thorough impact assessments of technical, economic and environmental effects are at the core of any new proposals.

It is also the time to review one-sided international trade agreements. Deals that bring advantages for importers that deliver little in the way of reciprocal benefits for EU manufacturers in export markets are unacceptable.

The Future

Vehicle manufacturers are taking all measures within their reach to emerge from the economic crisis. Fewer temporary contracts, lower vehicle output and shorter working hours are some of the painful steps that will nevertheless help retain a high-skilled workforce prepared for the future.

Demand will pick up but it is difficult to predict when. The degree to which the sector will be prepared for future growth will depend in large part on the decisions taken by legislators during the difficult months of 2009.

These are hugely challenging times for us all. But the automotive sector is an Industry with strength and breadth. With the right support, it will come through the current crisis and continue to deliver economic benefits to the European economy, social mobility for millions and the products that will take road transport on a journey to a more sustainable future.

ENVIRONMENT

REDUCING CO₂ EMMISSIONS

Reducing man-made CO₂ emissions is a complex issue. There are no simple solutions and no national boundaries. Every industry and individual must accept responsibility and embrace collective action.

The automotive industry fully accepts the part it must play in finding technology solutions that continue to drive down CO₂ and other climate change emissions. It is actively working to reduce CO₂ emissions from cars and commercial vehicles in-use, but also from its production sites, logistics and transport operations.

Cars are often cited as the most significant contributor to man-made CO₂ emissions. In fact, they contribute around 12% of total CO₂ emissions in Europe, with overall transport producing 26%. While a major challenge, it is clear that vehicle emissions are part of a much larger jigsaw.

Significant Cuts in CO₂ Emissions

Average new car CO₂ emissions have fallen sharply over the past decade. Progress has been driven primarily through technology, a responsibility the industry embraced under its part of a voluntary commitment to cut CO₂ emissions. This agreement was brokered by ACEA and the European Commission in 1998 and covered the years 1995 to 2008.

Though progress was countered by developments such as the parallel introduction of conflicting regulatory requirements, preliminary figures suggest that new car CO₂ emissions have fallen by close to 20% (with average CO₂ emissions of around 154 g/km in 2008). Drivers have, more recently, started to value fuel-efficient technologies alongside the more traditional favourites such as comfort, safety and design. CO₂ -related taxation introduced by various member states has also helped trigger a shift in consumer demand.

The industry will continue to drive down CO₂ emissions from its products; however the importance of both, the supply and a ready demand for technological solutions, remains a clear lesson from the voluntary agreement.

CO₂ legislation

In December 2008, the European Parliament and Council approved new CO₂ emission rules for passenger cars. The legislation mandates a reduction in tailpipe CO₂ to an average of 130 g/km (by 2012 for 65% of newly registered cars, increasing to 100% by 2015) through technology measures. The auto industry is characterized by long development and production cycles. It is, therefore, encouraging that the new car CO₂ regulation provides some flexibility in implementation.

Nevertheless, disproportionate fines, which amount to around 15 times the cost of carbon in other markets, remain a matter of concern. Such stiff fines represent an additional burden for an industry already battling job losses and production cuts across the EU.

Legislation for light commercial vehicles?

Light commercial vehicles (LCVs) fulfil a variety of business functions for operators and consequently, the CO₂ emissions of LCVs may differ a lot depending on their actual use. In short, commercial vehicles cannot be simply compared to passenger cars.

Proposals to copy and paste a framework based on emission targets from passenger car legislation to LCVs are flawed and, at this difficult time, the Commission must avoid hasty deployment of new regulation. The proposed LCV CO₂ emission target of an average 175 g/km by 2012 is unrealistic. It ignores long lead-times for LCV development, as well as the damage that price increases would deliver to an already depressed market.

The European Commission estimates an average retail price increase of 10%.

Furthermore, the Commission data is not sufficiently robust to deliver a sound basis for legislation. Thorough impact assessments, enshrined in better regulation principles from the CARS 21 report, must be applied if unnecessary economic burden on industry, its customers and society is to be avoided.

SUPPORTING THE INDUSTRY

It is clear that the economic conditions in which the industry is now operating are extraordinary and fleet renewal is under pressure. Achieving CO₂ reduction targets will require renewed focus, support and collective action from all stakeholders. While the industry is fully committed to fulfill the requirements, it is concerned by pending legislation concerning light commercial vehicles as well as for CO₂ targets for vehicles in the longer term.

CO2 Emission Legislation ▪  A reduction in average CO2 emissions from new cars to 120g/km. ▪  Encompassing a 10 gramme reduction to come from complementary measures including greater penetration of biofuels. ▪  A staggered approach 10 implementation: 65% of new cars will comply with requirements in 2012; 75% in 2013; 80% in 2014 and 100% in 2015. ▪  Eco-innovations will count for up to 7 grammes of manufacturers' fleet targets. ▪  Super-credits for vehicles emitting less than 50g CO2/km. ▪  Provisions for niche manufacturers (10,000 to 300,000 units) to achieve fleet average reduction of 25%. ▪  Average new car CO2 emissions should fall to 95 g/km in 2020, following a thorough assessment of this target's expected overall impact. ▪  Penalties will be imposed on a sliding scale; manufacturers exceeding their target by more than 3 g/km will pay €95 per excess gramme. Smaller charges between €5 and €25 for excesses of 1 - 3g/km.     The electrification of automobile Electric vehicles promise many benefits for our towns and cities, such as zero tailpipe emissions, and manufacturers are paving the way for the electrification of the automobile. However, significant investment by a variety of players will be necessary to ensure barriers to market acceptance are tackled and to realise all-electric motoring's potential. Vehicle manufacturers will continue to work with battery suppliers on issues like energy density, durability and recharge times. They will also contribute actively to discussions on technical regulations such as standardisation of in-vehicle recharging points. Consumers must be confident in the availability and convenience of recharging facilities. A comprehensive recharging infrastructure is needed and points must be standardised across Europe. Cleaner vehicles incentives should be technology neutral and based on clear environmental gains. CO2-based taxation systems benefit electric vehicle owners with lower taxes. Concessions like reduced parking charges are also available in some cities. Fact-based consumer campaigns should emphasise the financial and environmental benefits of all-electric motoring. However, they should also be clear on the technical and practical challenges ahead. While electric vehicles emit no emissions in-use, CO2 is generated at source. More renewable electricity generation will automatically improve the well-to-wheel advantages of electric vehicles.

 
Technological advances depend on a thriving auto industry and significant investment in R&D programmes. Each year, the industry spends more on R&D than any other private sector in Europe at€20 billion or 4% of turnover. However, weak demand for vehicles puts pressure on manufacturers to reduce all costs, forcing a review of R&D budgets.

The industry welcomed the€4 billion annual Clean Transport Facility fund (status quo January 2009) from the European Investment Bank. Clearly however, for a sector that invests five times as much annually in technologies that are helping find lower-carbon-emitting solutions for future vehicles, it alone is not sufficient.

In addition to car technology, the driver, choice of fuel and quality of infrastructure are decisive factors in achieving the best possible fuel economy and hence, lowest CO₂ emissions, and the industry has consistently urged that governments, fuel companies and consumers play their part in driving down CO₂ too.

Experience of the 1998 voluntary agreement shows that demand measures are critical to drive up sales of fuel-efficient models, which may be more expensive in the showroom due to the additional production costs.

Establishing comprehensive re-fuelling networks must also be a priority. As alternatively-fuelled cars and more all electric vehicles are delivered to market, consumers must be confident they will have the necessary support to refuel them.

COMBATING CLIMATE CHANGE - THE NEXT STEPS

The Commission has set targets for average new car CO₂ emissions of 95 g/km by 2020. Manufacturers welcome long-term targets because they deliver certainty in product planning, allowing for long development cycles in the industry. However, thorough impact assessments must underpin proposals to ensure that benefits to society are delivered in the most cost-effective way.

The lessons from car CO₂ reduction targets over the last ten years must be learned. Investment in R&D, delivering new technologies as well as optimized products, remains a testament to the industry's on-going commitment. Cost effective measures that deliver the greatest benefit to the environment must be adopted, and additional support given to a sector that will continue to innovate and invest in technology and engineering solutions.

Average car emissions below 120 g/km are possible if appropriate policy measures are put in place - and all parties are involved. A holistic and cost-effective approach that includes better infrastructure, congestion reduction measures, the supply of a sufficient infrastructure for alternative fuels and other energy sources, and a Europe-wide taxation based on use will bring great benefits to the economy, lower emissions from all road transport (not just new cars) and strength to an auto industry that continues to innovate to find technology solutions. The benefits of an integrated approach to achieve EU CO₂ reduction targets have never been in sharper focus.

COMMERCIAL VEHICLES - THE BUSINESS OF FUEL EFFICIENCY

European manufacturers have long championed fuel efficiency, building a reputation for efficient commercial vehicles that are also safe and of the highest quality. There is a clear business case for continuous improvement, as the main operating cost for a transport company is fuel. Fuel efficiency is also key to improving the environmental performance of the vehicle.

Trucks and light commercial vehicles are crucial to the economy. They carry nearly 80% of all freight in industrialized countries and deliver around 70kg of goods to each European citizen every day.

A modern truck burns around 30% less fuel than one made in the 1970s. That translates to fuel consumption of just one litre of diesel per 100 tonne-kilometres, with corresponding CO₂ benefits.

Continuous innovation

Innovation has delivered progress in diesel drivetrains. Now all truck makers are working or hybrid technology, which can cut fuel consumption by 15 - 20%. Many also have models capable of running on alternative fuels like bioethanol and compressed natural gas (CNG) while trials involving commercial vehicles and buses fitted with hydrogen fuel cells are taking place.

Development of telematics and fleet management bring further efficiency improvements - cutting emissions and helping boost business efficiency. Manufacturers now offer systems that can assess truck and driver performance in-use, producing reports for logistics teams back at base.

Driver training programmes, which improve skills and boost fuel efficiency, can be deployed where needed. Stop-start traffic triples fuel emissions of a truck, emphasising the environmental benefits of investment in roads and the development of an intelligent infrastructure to encourage traffic flow and prevent unnecessary hold-ups.

Vision 20-20

The European commercial vehicle manufacturers are striving to improve further. To underline their determination, the sector has united behind the Vision 20-20, announced at the Hanover Motorshow in 2008. This frames technology progress with other factors and actors that will help cut CO₂.

The direct contribution from commercial vehicle manufacturers in the Vision 20-20 is to further decrease a modern truck's fuel consumption by an average 20% per tonne-kilometre by the year 2020 compared to 2005.

In addition, the industry will actively help strike a balance between mobility and environmental protection through a partnership with political leaders, the fuel industry, the hauliers, vehicle operators and, last but not least, the drivers themselves. The manufacturers' ambitious strategy fits in the EU objective to reduce overall greenhouse gas emissions by 20% towards 2020.

IMPROVING AIR QUALITY

Engine efficiency improvements and exhaust after-treatment systems have driven massive cuts in carbon monoxide (CO), hydrocarbons (HC), nitrogen oxides (NOx) and particulate matter (PM) from cars and commercial vehicles. Automobile sector supports measures to reduce road transport emissions further. However, these must be based on thorough and transparent impact assessments. The priority must be to maximise benefits to the environment without damaging industry competitiveness.

Emission standards

Cars and commercial vehicles sold in Europe are subject to strict limits on the mass of air pollutants produced from the tailpipe. Called Euro standards, these were introduced in 1991 with Euro 0 for passenger cars and in 1992 with Euro I for commercial vehicles.

Innovation has helped meet progressively tighter targets as the rules have developed. Technologies like variable valve timing, direct fuel injection and improved engine management systems have all played a role.

Industry progress in reducing emissions ▪  The most advanced trucks now emit 86% less NOx and 95% less particulate matter than those from the early 1990s. ▪  Over the past 10 years, truck exhaust emissions have reduced by 35% despite an increase in 'work done' (tonne km) by 30%. ▪  It takes 100 cars produced today to emit as many polluting elements as 1 car made in the 1970s. ▪  Particulate matter filters can reduce particulate emissions from diesel vehicles by 99%.

 
So too have exhaust after-treatment systems. New diesel cars are now fitted with particulate traps to meet tough new Euro 5 standards, while many of the latest commercial vehicles use Selective Catalytic Reduction (SCR) in combination with a urea-based additive (one trademark is 'Ad Blue') to help reduce NOx emissions.

Industry will continue to innovate and has actively participated in discussions over the latest Euro 5 and Euro 6 rules for cars and the Euro V and VI rules for commercial vehicles. However, industry remains concerned that the Commission did not carry out proper impact assessments on the costs for industry to meet these new targets.

Emissions and high costs

Automakers believe that a lack of a robust impact assessment has led to a significant under-estimation in the costs of meeting the Euro 6 targets.

Diesel car prices, for example, are forecast to rise. In 2005, the Commission's Clean Air for Europe (CAFE) Programme suggested a €202 increase. However, an independent panel, set up by the Commission, later forecast that the cost could be more than four times higher at €900. The Commission's figure was also based on the assumption of a fall in precious metal prices, which has already been seen to be incorrect.

The effect of a significant price increase could damage the market for fuel-efficient diesel cars and vans, particularly during the economic downturn. This could have the perverse effect of an increase in CO₂ emissions from cars and hurt the competitiveness of European manufacturers, who are technology leaders when it comes to diesel engines.

Issues like market distortion and the counter effect on European CO₂ emission targets demonstrate why a thorough and transparent impact assessment, based on realistic cost assumptions, must form the basis for any technology-led targets for vehicle manufacturers.

Encourage fleet renewal

Significant improvements in air quality will occur thanks to fleet renewal. As newer models replace older cars and trucks, emissions from road transport will come down, even in the absence of the latest emission limits.

The conclusion that can be drawn is that a rapid replacement of older vehicles with newer models would contribute more to reducing emission levels than any further tightening limits. This is especially true for gasoline cars and is supported by the findings of the CAFE Programme, which foresees a reduction in NOx and VOC emissions from gasoline vehicles of more than 90% by 2020, even without Euro 5. Some governments have considered imposing sales taxes for new cars. This is not the right approach. The industry believes all member states should be encouraged to take steps to accelerate fleet renewal. Incentives to buy the latest models will drive down all emission types - CO₂ and pollutants - and bring the latest generation of safe vehicles onto European roads.

FUELLING THE FUTURE

In an integrated approach to reducing emissions from road transport, the supply of cleaner fuels plays an important role that complements improvements in vehicle technology. Alternative fuels help address questions that arise from finite oil reserves and security of supply. The European automotive industry supports moves to increase the renewable energy mix and has played its part by investing heavily in technologies that deliver vehicles capable of running on cleaner fuels today.

Dual-fuel cars and commercial vehicles running on LPG (liquefied petroleum gas) or CNG (compressed natural gas) are common, as are hybrid models. Investment has also focused on flex-fuel cars that can use normal petrol or higher blend biofuels like E85 (a mix of 85% ethanol and 15% petrol). Manufacturer programmes to deliver electric cars have accelerated, while cars and trucks capable of running on hydrogen produced from renewable sources - emitting no CO₂ emissions from the tailpipe - are already being trailed on European roads. Issues like sustainable fuel production, quality and the development of comprehensive re-fuelling infrastructure remain key to encouraging wider take-up of these vehicles.

Biofuels

The automotive industry is committed to the development of sustainable biofuels as part of the renewable energy mix. From 2010, all new petrol vehicles will be compatible with fuels containing a maximum 10% blend of bioethanol, while diesel vehicles will be compatible with blends containing a maximum of 7% FAME (Fatty Acid Methyl Ester). The auto industry does not support the use in its vehicles of a standard market diesel containing more than 7% FAME.

Biofuel Quality

ACEA is a member of the Worldwide Fuel Charter, along with representatives of American and Japanese auto makers and global engine manufacturers. Set up in 1998, the group promotes greater understanding of the impact of fuel quality on engines, emissions and performance, and recently issued guidelines for blenders.

A prerequisite for the use of these technologies are fuels that remain free of sulphur and metals and have strictly controlled levels of other key fuel attributes like octane/ cetane, volatility, stability and oxidant levels.

The industry is therefore concerned by parts of the recently adopted Fuel Quality Directive which could damage consumer acceptance of biofuels, harming biofuel quality, but which could also fragment the internal market.

The issues:

▪	The permitted use of metallic additives, in particular a manganese-based additive called MMT, which will cause sensitive parts like catalysts, sensors and spark plugs to fail prematurely.
▪	The European Parliament has agreed that diesel shall include a maximum 7% FAME content. However, member states will still be allowed to market diesel products with a FAME content greater than 7%, distorting the internal market with the potential for inconsistent fuel quality across the EU.
▪	Fuel pump labeling Indicating the proportion of biofuel blends in petrol and diesel will not be mandatory. Automakers fear this risks consumer confusion and loss of confidence if incorrect fuels are used in vehicles for which they are not compatible.

 
FOR CONSUMERS

The auto sector maintains that cleaner fuels must provide a performance that consumers expect, while helping reduce emissions. Engines must continue to run cleanly and not be susceptible to premature component failures. Convenience is also key. Standard fuels must be widely available across filling stations in the EU and be clearly labeled at the pump as manufactured to strict quality standards, and suitable for their vehicles.

VEHICLE PRODUCTION & RECYCLING

Recycling is a priority for both the EU and automotive industry. As producers, car makers acknowledge their responsibility to deliver sustainable products from cradle-to-grave and are proud to report major progress towards this goal. Estimates suggest between 2 and 5% of total car CO₂ emissions are generated during the recycling phase of a car's life. Only a very limited amount of waste to landfill still comes from the automotive sector, although around 8 million vehicles reach the end of their lives each year. Through a combination of innovation in recycling and recovery technology, material management and information systems that are unique among manufacturing industries, the industry can demonstrate reusability and recovery rates requested by legislation, leading to reduced waste-to landfill and improved car recyclables. Manufacturers have cut content for the four heavy metals - mercury, cadmium, chromium (VI), and lead. Chromium (VI) and cadmium have been eliminated entirely; remaining mercury amounts - which are due to be phased-out - are already negligible. Lead applications like solder, for which there is no technical alternative, amount to just a few grammas in each vehicle.

END-OF-LIFE VEHICLE RULES

The End-of-Life Vehicle Directive and Directive on Reusability, Recyclability and Recoverability of motor vehicles set new requirements for vehicle recycling. Today, new vehicles must demonstrate reusability and/or recyclables of at least 85%, and reusability and/or recoverability of at least 95% by weight, if measured against the international standard ISO 22620. Automakers support the principle of producer responsibility, but also their role in helping consumers recycle end-of-life vehicles. However, recycling remains an issue for which the contributions of all stakeholders should be considered. Product is the industry's core competence; an integrated approach, working with the recycling industry, legislators, and customers, is the best way to ensure continued progress in vehicle recycling.

A case for simplification

Car manufacturers face a major challenge, balancing goals in recyclables with targets in other areas including CO₂ reduction; improved safety and reliability, while making sure vehicles remain affordable for the customer.

Based on past experience, car manufacturers stress that the End-of-Life Vehicle Directive is not a positive example of regulation. The auto industry believes it should be used as a test case for better regulation. The current rules are sector-specific, inflexible, partly contradictory, and overlap with other regulations. Regulatory targets that do not generate cost-effective environmental gains must be reviewed. Sector specific material restrictions are also unacceptable. Finally, the industry stresses that product - focused rules should be identical across the EU to maintain the integrity of the single market.

PRODUCTION: CAR MAKERS REDUCE ENVIRONMENTAL IMPACT

European auto manufacturers have significantly reduced the environmental impact of vehicle production in recent years. Per unit produced, energy consumption, CO₂ emissions, waste, water use and VOC emissions have all decreased. At industry level, the number of vehicles produced also influences results. In most cases, however, thanks to increased environmental efficiency, the rise in vehicle production from 2005 to 2007 was accompanied by a reduction of absolute emissions and consumption at the industry level, too.

(To be continued in the next issue)