Automakers should emerge greener from the crisis
Governments need to tie financial aid to commitments on climate
No industry has been left unscathed by the pandemic but the automotive sector, along with aviation, has been among the worst hit. Across western Europe, sales collapsed 80 per cent year on year in April, with barely a car being bought in the UK, Spain and Italy. Global sales of new cars are forecast to fall more than 20 per cent this year. Factories have been shut down and consumers have stayed away from showrooms.
Even before the pandemic struck, carmakers faced plenty of challenges. Sales in key markets were already in decline, and new emissions regulations were forcing an expensive shift to electric vehicles, putting margins under pressure. Job cuts were already on the agenda and many big players were looking at mergers or alliances to cut costs. The pandemic will put these trends into overdrive.
For policymakers, the immediate concern is the survival of an industry that is not only a big contributor to gross domestic product and a big employer, but also for many nations strategically important. In France, President Emmanuel Macron on Tuesday unveiled an €8bn support package including increased subsidies for buyers of electric or hybrid cars and support for research into hydrogen power. He set a target of producing 1m electric cars annually by 2025. His efforts to encourage “reshoring” of production are partly about industrial policy, but also reflect weaknesses that the pandemic has highlighted in global supply chains. Unfortunately for Mr Macron, his package is unlikely to prevent expected big job losses at Renault, one of France’s automotive champions.
Politicians do at least have recent history to instruct them. After the banking crisis in 2008, governments around the world gave their car industries help of differing kinds — from direct injections of money to customer incentives to increase demand, commonly known as scrappage schemes. One lesson from a decade ago is that weaning companies off incentives is never easy; while scrappage schemes helped to shore up demand their eventual termination led to a sharp drop in sales in some countries. An incentive scheme to help the sales of electric vehicles might not be of much practical use in Europe, where carmakers make few electric cars and are quite able to sell the ones they do produce thanks to generous existing subsidies. The green benefits of encouraging consumers to scrap perfectly good cars for newer, lower-emissions models, are also debatable.
In the medium-term, the threat of weak demand is a far bigger challenge than restarting production. Demand in Europe is about 30 per cent lower than normal. While there are some promising signs in China, where demand has come back as lockdowns have eased, it is hard to see demand in the west returning that quickly. Most economists predict coronavirus will bring about one of the largest-ever reductions in economic activity.
Carmakers could well join the queue behind airlines for bespoke government assistance. Leaders should remember the lessons of the bailouts a decade ago, and use their influence to change the industry — and transport — for the better. They should put their money not into sales incentives, but plans to bring about the electric charging infrastructure necessary for a decisive shift away from hydrocarbons. A pan-European initiative to build electric car batteries is a positive step.
Any financial assistance to automotive companies should be conditional on them working in the same direction. Governments are focused on hitting their climate change goals. Today’s crisis offers an opportunity they should not miss.