The changing face of Europe’s car industry

Date: 24/03/05

Cars are big business for the EU and politically hugely important. The Union produces every third car in the world and its car industry keeps more than two million inhabitants in jobs, though it is facing an increasingly threatened future. Productivity is lower than in other major economies, its labour costs are among the highest in the world and traditional manufacturing locations are being abandoned in favour of cheaper plants to the East.

The combined political and economic importance of the EU car industry was highlighted in January when Günter Verheugen, commissioner for enterprise and industry, launched a new high level group - CARS 21 - to vet EU legislation for the industry and to boost the sector's competitiveness.

This pro-car stance is at odds with the thrust of much of the EU's environmental legislation in recent years, which has been anti-car. Road transport has a sizeable impact on air quality and exhaust emissions have been linked with various respiratory and cardiovascular diseases and even cancer. The EU has sought to reduce the environmental and health risks from cars.

But anti-car legislation carries some political risk, since cars are dear to the hearts of many EU citizens. The Commission's efforts in the field of competition policy have implicitly acknowledged this. When he sought to encourage competition in sales of cars and car parts, Mario Monti, the then commissioner for competition couched his action in populist terms as "putting the consumer in the driving seat".

How can the consumer be persuaded to buy cleaner cars? Consumers, when asked, declare that they want cleaner cars. But if they have no incentives, people may not pay more for a cleaner exhaust, especially if it is a choice between that and a safety option to protect their children.

So it is that smaller, more efficient vehicles are still being pushed out of the market by the bigger, fuel-guzzling sports utility vehicles (SUV) and people-carriers.

In his speech for the launch of the CARS 21 group, Verheugen said: "Lean, clean and safe - this is the way forward." The biggest challenge for the new European Commission is cleaning up Europe's cars while ensuring that they remain safe and that Europe's carmakers can thrive in an increasingly competitive environment.

Legislation, or the threat of it, has been one of the main drivers for cleaner cars. The introduction of mandatory catalytic converters, together with more efficient engines, has cleaned up petrol cars considerably.

The political focus has now shifted to diesel engines. Diesels are becoming more popular in the EU and in 2004 accounted for 48.5% of new registrations.

Although they use less fuel and therefore emit less CO2, the inefficiency of the combustion process means that they emit high levels of noxious soot particles and nitrogen oxides (NOx). A Commission proposal setting out new emissions standards due later this year - called Euro 5 - is expected to tighten levels for diesel cars.

Reduction of carbon emissions is another issue and one that is not yet regulated by law at European level. A voluntary agreement reached between the European Automobile Manufacturers Association (ACEA) and the Commission in 1998 commited European carmakers to reducing the average CO2 emissions to 140g/km by 2008 and there are ongoing negotiations to see if this level can be lowered even further, again on a voluntary basis.

The European Federation for Transport and Environment campaign group claims that, based on data from the association of European carmakers, ACEA, the 140g target will be missed by at least 20% and carmakers admit that it is becoming more expensive to reduce emissions. In January MEPs added their voices to calls for legislative action on CO2, but there are currently no indications that the Commission will act.

All the same, the thrust of legislative pressure is for cleaner cars, and carmakers have long been anticipating this shift. They have been investing in developing more efficient engines and the use of alternative fuels as well as more advanced technology like hybrid petrol engines - which combine traditional petrol engines with a non-polluting electric motor. Further into the future, hydrogen fuel cell cars could take over, although how soon is a matter of much debate.

While legislation can do a great deal, it is constrained by technology. Environmentalists argue that more market incentives are needed to make cleaner cars more attractive for both consumers and manufacturers.

They recommend that governments implement incentives such as tax breaks for smaller or more efficient cars, or non-fiscal measures such as free parking or exemption from congestion charges for cleaner vehicles. For its part, the Commission has touted the idea of including transport in the EU's emissions trading scheme.

This special survey looks across this wide range of regulatory and technological developments to assess how the car industry will clean up its act.

Article discusses the European car industry and the launch of a new high level group - CARS 21 - tasked with improving the worldwide competitiveness of the European automotive industry. This thrust is at odds though with much of the European Union's recent environmental legislation which has been anti-car.

European Federation for Transport and Environment: Homepage http://www.t-e.nu/

European Automobile Manufacturers' Association: Homepage http://www.acea.be/

European Commission: Press Release: IP/05/31 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/05/31&format=HTML&aged=0&language=EN&guiLanguage=en

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