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European vehicle makers hard hit by financial and economic turmoil

The European passenger car and commercial vehicle manufacturers are hit hard by the financial crisis and subsequent economic downturn. The credit crunch makes it more difficult for the sector to finance daily operations and, at the same time, also weakens demand for new cars and trucks. Vehicle sales have dropped sharply and all automotive manufacturers and suppliers have scaled back production as a consequence.

The current crisis is threefold:

Financial: a drastically limited access to credit; and high costs of credits if available, both for the manufactures, their suppliers and for potential buyers of cars and trucks

Economic: a dramatic drop in demand for both passenger cars and commercial vehicles

Structural:  low margins due to an increasingly complex and diverse product portfolio; and an increasingly pressing demand to adapt manufacturing, logistics, vehicles and R&D to meet environmental needs

Manufacturers have called on EU governments and institutions to help secure a healthy and strong automotive industry in Europe.

A healthy, fundamental industry

The automotive industry is the ‘engine’ of the European economy: around one in ten jobs in Europe depend directly or indirectly on the automotive sector; the industry is the largest investor in innovation and R&D and a formidable export force. Lower levels of automotive manufacturing in Europe have a large spiraling effect on the wider economy because of the thousands of small and medium sized companies involved in the supply chain, vehicle sales and after-sales services.

The automotive industry is a healthy and fundamental industry with a sound future and a strong commitment to manufacturing world-leading, high-tech automobiles in Europe.

The relative overcapacity in the industry, though often cited, is not a reason for the troubles that auto manufacturers are currently facing. Overcapacity has and will continue to be addressed by the automobile manufacturers as part of a long-term strategy to strengthen their global competitiveness and ensure a high-skilled workforce.

The cause of the current crisis is the unprecedented credit crunch and the rapid deterioration of all key automotive markets.

What can the EU do?

It is most essential that EU governments and institutions ensure access to liquidity, through the European Investment Bank and in other ways.

Its vital that governments stimulate demand for new vehicles with fleet renewal schemes: this will benefit both the economy and the environment.

Fleet renewal schemes can take the form of scrapping incentives and other forms of market stimulus, for example through fiscal measures. Governments collect 381 billion in vehicle taxes and have a powerful instrument to influence the markets.

The EU should also ensure a level playing field and safeguard the internal market. Protectionism is in no one’s interest.

And the EU should refrain form adding new costly vehicle regulation, for a number of years.


What do manufacturers do to resist the crisis?

Pressure on production and employment is mounting. Most manufacturers have have and are adapting output to the anticipated further decrease in sales, using existing flexibility arrangements with their workforce. Temporary contracts are not being renewed. This is an overview of measures taken:

Production: manufacturers have and are adapting our output to the anticipated significant decrease in demand for vehicles

Employment: manufacturers are readjusting our employment base in an as socially responsible way possible, using the flexibility agreements to our disposal (extended vacations, taking weeks out of production, shortening working weeks, non-renewal of short-term contracts and non-filling in of vacancies), and in close contact with unions and governments

Costs: manufacturers are cutting all discretionary costs by limiting travel and meetings, downsizing advertising and sponsorships, by insourcing activities, and many more

Investments & R&D: as much as manufacturers want and need to keep up investments in strategic projects, they are forced to review our expenditures on new product programmes and R&D

Marketing & sales: manufacturers are adjusting our products and marketing to the new constraints and demands of their customers

Support for suppliers, whose access to credit is even more critical: manufacturers scrutinise the situation of our key suppliers on a daily basis and provide support to the extent they can

New Passenger Car Registrations Western Europe 1990-2008

High investment levels

The automotive industry is the largest private investor in R&D in the EU and thereby a driver of innovation and economic growth. The European automakers had seen substantial increases in capital spending over the past decade. They committed large sums of money into product development and powertrain technology to achieve independence from fossil-based resources and in a bid to cut emissions, without the upfront assurance of receptive consumer demand. This has pushed the pressure on the industry’s competitive strength to its limits.

In the time frame from 2009 to 2015, the auto sector must meet new requirements for emissions (Euro 5/6), fuel economy (CO2), Complementary measures (tyre-pressure monitoring, gear-shift indicator), mandatory electronic stability control, new refrigerant requirements, pedestrian protection phase 2, brake assist and daytime running lights.  This is adding billions of dollars of cost to the industry at a time when revenues are below break even for most companies.

The industry has to continue investing heavily in R&D and new product programs in order to reach short-term CO2- and pollutant emission targets set by recent legislation. Furthermore, they endeavour to further increase fuel efficiency and further reduce CO2 emissions significantly on the long run. This will require technological breakthroughs, new refueling infrastructure and a swift renewal of the car fleet on Europe’s roads.

Key figures

The European automotive industry is a major contributor to the EU economy, generating turnover of 551 billion euro, which represents around 6.5% of the Europe’s gross domestic product (GDP).

The vehicle industry directly and indirectly provides jobs to over 12 million families.

The multiplier effect of the 2.2 million direct employees at vehicle manufacturers and their suppliers is enormous. By definition, one job at a vehicle manufacturer ensures 4 more at suppliers and another 5 in related sectors and retail. The health of this sector is of great importance to the situation of EU economy as a whole.


BMW Group, DAF Trucks, Daimler, FIAT, Ford of Europe, General Motors Europe, Jaguar Land Rover, MAN Nutzfahrzeuge, Porsche, PSA Peugeot Citroën, Renault, Scania, Toyota Motor Europe, Volkswagen and Volvo provide direct jobs to 2.3 million people and indirectly support employment of another 10 million families. The manufacturers annually invest 20 billion euro in research and development, or 4% of turnover. The automakers are the largest private investor in R&D in the EU.(1)

Direct automotive employment by EU country

(1) Sources include: ACEA registrations figures; “Europe Automotive Sectors: A Company and Industry Analysis (August 2008)” by research institute Mergent, KPMG’s 2008 Global Auto Executive Survey.

 

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