How much damage will the EU do to the auto manufacturers?
Ferrari has announced plans to cut fuel consumption by 40% by 2012, all in an effort to reduce C02 emissions by a third.
But that’s not going to be enough for the European Union, which wants C02 emissions reduced to 120g/km by 2012 – a reduction of more than two-thirds from the current 400 g/km level met by Ferrari and other automakers.
Moreover, the regulation of C02 emissions is nothing but a means of regulating fuel economy, as the only way to reduce C02 emissions is to reduce the amount of fuel burned.
All of which leads one to wonder what the European Union has against one of it’s most important industries: the automobile industry.
BMW, Daimler, Fiat, as well as smaller volume manufacturers such as Aston-Martin, are not only critical to the economy of Europe, but to its foreign exchange, as well. Yet, the underlying purpose for which the European Union was originally formed – enhancing Europe’s position in global trade – is being undercut by the regulations imposed on member countries and their manufactures by EU governors.
This is certainly good news for American manufacturers, who can reasonably expect to see the costs of production of their European, and particularly German, competitors skyrocket. It also means that European producers will find it increasingly difficult to spread their costs of development and production over vehicles offered for sale in both Europe and the United States. Producers such as Ferrari can abandon the European market, if need be, without suffering any significantly adverse consequence. Ferrari has increased sales by 30% in the last several years because of substantial sales increases in China and Russia and, of course, the Middle East. Were Ferrari to cease selling its products in Europe, it would simply reduce the time buyers spend on the waiting list.
Not so, however, for BMW and Daimler, who depend on sales of larger cars in both Europe and the United States. Though both manufacturers seem to be counting on either diesel or alternative fuels to save the day for them, it is far from clear that the technology can meet the deadline, even if it were to be extended indefinitely.
All of this comes as the European automakers face up to the costs of producing their vehicles, costs which are among the highest in the world. In the past, these automakers have been able to surmount the disadvantage posed by cost through advances in technology, so that buyers were willing to pay a premium for the products they produced.
But buyers may not be willing to pay an even greater premium for products that are priced to pay for the new European Union standards, particularly if those products perform at a level inferior to either past production or their American competitors. Moreover, it seems unlikely that these manufacturers will be able to compensate by accelerating sales of smaller vehicles in Europe. Not only does this make the cost of the larger vehicles higher per unit, but they face significantly increased competition in the less expensive market from Toyota and, potentially, the Chinese.
Unfortunately for the Europeans, the individual European has lost any real voice in the economic affairs that may most influence his or her daily well-being. Because it is the EU, not the governments of individual countries, that now controls the European economy, both directly and indirectly through regulation, individual Europeans have ceded any ability to control those who govern them at the ballot box.
For the European automobile market, the future looks dim, indeed.