Crises are not always financial ones. They can hurt an industrial sector and if this one is important as the car industry in France and even more in Germany, that can have repercussions on the whole economy. Our country has already had that experience in the Seventies and the Eighties with plant closures and massive redundancies in the steel industry or with telecommunications twenty years later when the rise of the mobile phones has affected all the information treatment and transmission systems. These crises have provoked the disappearance or the passage under foreign control of national industry jewels. The car industry with its hundreds of thousands jobs is today facing challenges having the same extent. It will be able to overpass them to the condition that States, especially in Europe, don’t make the situation worse with contradictory measures.
The international context is not favorable even if protectionist trend in the U.S. which was hurting both carmakers and equipment suppliers, seems to soften now. But the spectacular turnaround of the Chinese market since the registrations peak in 2017 is severely harming the major German carmakers and Peugeot which has, at last, reinforced its presence in the largest market in the world. Registrations have fallen back this year near 21 million after having risen from 18 to 25 million between 2013 and 2017. That doesn’t reflect a failing to keep up of the Chinese economy but the restrictive policy from municipalities which hardly grant registration permits due to the traffic jams and pollution which has reached peaks at certain periods of the year in most of the major cities. But it was there, due to the revenue increases of the related populations, that vehicles demand, as a signal of social success, was the highest.
The real challenges carmakers are confronted with are located in Europe with the worries about air quality in town and the fears related to climate warming caused by greenhouse gas emissions. In the past, the tax system, favorable to diesel engines, had been justified by a lower consumption than that of traditional fuels and the reduction of oil imports which was resulting of it. In France, this advantage had been increased and justified by the reduction of CO2 emission during the “Grenelle de l’Environnement”. The absurdity of that policy appeared when it was observed the degradation of air quality with its consequences regarding health and the increase of the number of persons affected by breathing diseases. So in Paris, it is seriously considered to ban the use of vehicles equipped with diesel engines being more than ten years old, which were acquired precisely with an increase of public aids. To that turnaround must be added the “dieselgate” scandal with its rigged engines which has caused huge penalties to be paid mainly by German carmakers and especially a deep and definitive loss of confidence about this kind of motorization. Their market share had culminated at more than 70% in 2012 and has been since halved in seven years. Suppliers will have to convert their production tools to adapt themselves. Plant closures and redundancies are unavoidable.
The other change which the car industry is confronted with is electrification. It is in the same time heavier and more hazardous. The value chain of an electric engine is radically different from that of a thermal engine. In one case, it is concentrated to the making of the battery, entrusted to an external producer. In the other case, it lays on the making and the assembling of a multitude of spare parts. Consequences regarding employment are huge. But it is hazardous because it supposes that the construction of batteries giving a sufficient autonomy to satisfy customer needs is mastered. So, until now and due to an insufficient autonomy, clients are not there. If we add rechargeable hybrid models, in 2019 these vehicles have just reached 3% of the total registrations in Europe with very high disparities between countries: less than 1% in Italy and in Spain for instance and, to the opposite, more than 10% in Nederland and in Denmark.
These gaps are reflecting client habitudes, more sensitive to the autonomy issue in large countries. France and Germany are in the average with a penetration around 2.5%, and a substantial growth but the market share is still marginal. The market most important point is the persistent interest for SUVs whose registration share has passed in Europe from 20% in 2014 to 35% in 2018, to the great profit of carmakers because their profit margins on these vehicles are higher. But that also explains why, to the contrary of the objectives, CO2 emissions in Europe of the car sector have increased during that period.
Brussels reaction to reverse this trend has been brutal with a new penalty scale based on sales. If, in 2021, registrations structure is the same than in 2018, the amount of penalties to be paid by carmakers will be superior to 20 billion euro. The recent decision to give a 100% bonus to electric vehicle in 2021 and to progressively reduce it until 2023 will only marginally reduce the weight of these amends. The sector is, in fact, facing a dilemma. Either carmakers modify their ranges and concentrate their marketing efforts on the promotion of electric vehicles. They will reduce penalties but that will affect their profit margins. Or they persist in the development of their current range of vehicles and they will have to pay heavy fines.
Germany will be the most hurt country because the car industry share in the economy is much higher than elsewhere in Europe and because inside it, carmakers are specialized in the top of the range, highly CO2 emitter. But the country has always been able to manage this kind of crisis. The rigged engines scandal has not weakened the sector which remains the most important contributor to the German trade surplus. The situation is different in France. Peugeot was near bankruptcy in 2015 and it is not sure that the project of the merger with Fiat-Chrysler makes it strong enough to cope with the technological and regulatory mutations to come. Renault is made more fragile by the crisis which just happened in its partnership with Nissan. After the massive capacities and jobs reductions occurred between 2005 and 2015 which have also hurt equipments suppliers, it is not sure that the car path in France will have enough resource to go through these new hard times, especially if it is observed that clients on its main markets are far from being convinced by the necessity to acquire electric vehicles. In addition, the State, through the reduction of incentives starting next year, is sending to the market a signal which is in contradiction with the Europeans objectives and the sanctions which go along them.
The environment challenge must be taken up. But the paradox is that it is in Europe where it occupies the most important place in the public debate and where the most restrictive measures are adopted, when the continent is definitely not the one which will be the most affected by the forecast disorders. In addition, the level of emissions by inhabitants as its recent evolution are still inferior to these of many major countries which will be the most affected by climate warming.