What coronavirus means for the EU car industry and what we can learn from the 2009 crisis

Julia Poliscanova — March 19, 2020

As the coronavirus is bringing Europe to a halt, major carmakers and many suppliers - like the rest of the EU economy - are shutting down their factories. The priority now is to ensure the health, safety and job security of the roughly 2.6 million auto workers who are likely to need government support as they are sent into temporary unemployment. 

This comes as a huge blow to one of Europe’s most prized industries, but exactly how hard-hit it will be is hard to say at this stage. The main parameter impacting the fate of the car industry is demand for motor vehicles. The shutdown will almost certainly accelerate the recession that was already on its way in early 2020 with car sales down by 7.4% in the first two months. But whether demand collapses or consolidates will depend on how Europe and national governments manage the recovery.

A speedy economic recovery is clearly carmakers’ absolute top priority as this is what determines whether people will have the resources to buy new cars. However, some carmakers apparently cannot resist the temptation to use the coronavirus crisis to attack environmental regulations. Some are already calling for a delay of the EU car CO2 standards entering force this year.

Does the corona crisis mean the EU CO2 regulations ought to be scaled back or that fines be waived?

The first thing to understand is that the car CO2 target, which was agreed in 2008, is a fleet average target. So, falling car sales do not automatically affect compliance. What would impact compliance is if the type of vehicles sold changes.

Secondly, the electric car market saw a record growth across Europe in the first two months of 2020. Every 15th car sold in Germany in February had a plug, amounting to a record 7% of new sales. France recorded an even more impressive 9% sales share, with similar explosions in Italy and Spain. Since the EV market is driven by the company car and fleets market, and that market is in turn driven by the total cost of ownership and fiscal rules, we would expect demand for EVs to remain solid. All of this means carmakers are actually on track to achieve the CO2 target of 95g/km on the 95% of their 2020 sales – the real test comes in 2021 when the Merkel ‘phase-in’ comes to an end.

Thirdly, the majority of the electric cars planned to comply with the regulations have not yet rolled off production lines, including VW’s ID.4, Fiat’s e-500 and Seat’s Leon PHEV. So if the closures remain short term, electric car production will not be majorly affected.

Finally, whilst a recession is bad news for carmakers profits and employment, it doesn’t mean higher CO2 emissions. In 2009, in the midst of the financial crisis, new car CO2 emissions fell by a record 5,1%. This was thanks to a shift towards smaller, less powerful vehicles as well as thanks to generous and targeted scrappage schemes. Higher sales of small cars would also help now – for example, the Peugeot 108 and Citroen’s C1 both emit 85g/km and cost €10,000. And compared to 2009, small electric car models such as the Renault Twingo are available and affordable when coupled with national grants.

It should be noted here that VW and BMW put out statements saying the 2020 standards should be kept intact. They deserve praise for this.

Beyond keeping the CO2 regulations in place, the question is what support should be given to the car industry to weather the crisis? First, let’s learn from past mistakes. Amid the 2008-2009 financial crisis, Barroso’s European Economic Recovery Plan injected €7.56 billion cash loans into the EU car industry. On paper, these huge sums, rising to over €20 billion by 2015, were supposed to help investment in green cars. In practice, carmakers cheated emissions tests (culminating in Dieselgate), the gap between real-world and lab fuel consumption sky-rocketed, SUV sales boomed, and, apart from Renault and BMW, no-one invested in electric cars. And just as Kia and others are weaponising the corona crisis today, carmakers in 2009 used the financial crisis to caution against “additional costly vehicle legislation for a number of years”.

Taxpayers should also not be asked to foot the bill for the temporary drop in revenue and profits of an industry that until recently had recorded huge profits: the VW Group earned a record net profit of over €19 billion in 2019, FCA €4.3 billion, €3.58 billion for PSA and €2.7 billon for Daimler – enough to sustain a short-term setback. Support measures must come with conditions. First, workers’ job security must be top priority, not shareholder profits. Second, scrappage schemes and other support measures should be focused on electric cars; the government should invest massively in recharging infrastructure and grid upgrades; and company’s could enjoy temporary incentives if they go electric in the coming year. Third, these should not be empty promises, but the conditions clearly defined, targets quantified and continuous monitoring assured. Fourth, such a big injection of public cash to shore up private companies in bad times needs to be accompanied by a commitment to do better in good times – through stricter CO2 standards beyond 2025.

There is no denying the coronavirus marks the beginning of a period of turbulence for the European car market. But we need to learn from the past and ensure public money is well spent. The crisis will not last forever – hopefully it will be short. But whatever happens, we need to make sure Europe emerges from it more competitive and innovative with a zero emission product portfolio fit for the 21st century. This will secure our industries’ markets globally and jobs at home, and it is essential to stop the other looming global crisis, global warming.

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