Coronavirus Spooks Europe’s Car Industry And May Spur Delay Of EU CO2 Regulations

  • Date: 25/03/20
  • Neil Winton, Forbes

If Europe’s flagship automotive industry is seriously damaged by the coronavirus crisis, governments are likely to delay or water down CO2 regulations.

European Union (EU) CO2 rules forcing sedan and SUV makers to in effect “go electric” by 2030 was always going to end badly for the automotive industry and consumers, but the coronavirus crisis has suddenly brought this to a head.

As the European automotive crisis deepens, with plants closing temporarily and demand likely to fall by up to 20% this year, the industry needs the EU to step in, concede its rules are going to cause irreparable harm to the business and its huge, highly skilled workforce, and either dilute the demands, or delay them for a while.

Instead, the EU is currently working on actually making the rules even more stringent. The industry seems too fearful of offending politicians to plead for some protection against the malign impact of the rules, which demand the equivalent of an average 92 miles per U.S. gallon by 2030.

The European Automobile Manufacturers Association, known by its French acronym ACEA, was asked if it planned to seek protection from the impact of the rules because of the crisis. In response, ACEA issued a statement seeking national government and EU financial support for the industry, which supports about 14 million jobs, unspecified measures to avoid undermining the industry, and a general stimulus to Europe’s economy. The fuel economy rules didn’t even get a mention.

The EU Carbon Dioxide (CO2) regime insists carmakers raise average fuel efficiency from the equivalent of about 57 miles per U.S. gallon in 2020/2021, from 41.9 mpg in 2015, rising again by 15% in 2025, and hitting 92 mpg by 2030. That compares with current U.S. draft legislation calling for a 40.5 mpg fleet average by 2030.

98th European Motor Show
Small cars like the Volkswagen Polo will be too expensive to produce by 2030. (Photo by Sjoerd van … [+] GETTY IMAGES

According to a report from investment researcher Jefferies last year, if the auto industry makes no progress in curbing CO2 from 2018 towards meeting the EU’s 2020/21 regulations, it faces fines totalling the equivalent of $36 billion, twice its estimated profits, and could be forced to raise prices up to 10%. Latest data suggests in 2019, the industry went backwards not forwards in production of CO2 thanks to the popularity of SUVs and the demise of diesel.

The industry is also spending vast sums investing in research and development of electric cars, and at the same time withdrawing big profit margin gas guzzling top of the range sedans and SUVs to help beat fuel economy fines, while pushing forward low or non-existent profit margin small cars.

Norddeutsche Landesbank Girozentrale analyst Frank Schwope said it’s time for these rules to be looked at again if the industry is to be rescued from this crisis.

“The coronavirus crisis poses unprecedented problems for automobile manufacturers and suppliers. Production and sales are largely paralyzed for at least 4 weeks. The European’s CO2 targets or the fines (manufacturers) face may be softened or postponed, so that companies are not at risk of financial burdens,” Schwope said.

Guido Nelissen, Economic Advisor with the IndustriAll-European Trade Union also called for some understanding from the EU.

“Sales in Europe are already down about 8% (in the first two months of the year) and there will be a dramatic drop in sales this year, making it impossible to introduce electric and hybrid cars. I think we have to ask (the EU Commission) for a delay for, say, one year. It makes no sense to levy heavy fines in tough economic times,” Brussels-based Nelissen said in a telephone interview.

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