Communication from the Commission - "Responding to the crisis in the European automotive industry"
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COM(2009) 104 final
COMMUNICATION FROM THE COMMISSION
"Responding to the crisis in the European automotive industry"
COMMUNICATION FROM THE COMMISSION
"Responding to the crisis in the European automotive industry"
The European automotive industry is one of Europe's flagship industries. It is a key driver of growth, exports, innovation and jobs. Its impact filters down across a wide variety of other sectors. And it has a particularly important cross border reach, with suppliers, manufacturers and sales and servicing downstream creating a web of mutual interest that touches every one of the EU's Member States.
The Commission believes that the EU needs a dynamic and competitive automotive sector. The economic crisis has put the automotive sector under particular pressure. Properly targeted support is needed to help the industry and its workforce through the downturn and to address structural problems by making the sector more competitive and more in tune with the needs of the future.
The European automotive industry has a strong future. Its export performance shows it can make the right products for a global market that will continue to grow. Its workforce has the skills to maintain its technological edge. And it is already working to produce the new generation of motor vehicles needed for the low carbon age.
This communication sets out how the EU can bring policy levers into play to support the automotive industry. It represents a European framework for action: a framework which sets out how both the EU level and Member States can take the decisive measures needed. Different Member States will use different mixes of action to address the needs of manufacturers, suppliers, retailers and their workers. All can be most effective working with the confidence provided by a common EU framework.
The internal market has been a major cause of the vitality of the European automotive industry, the competitiveness of its manufacturing and the scale of its sales. It will be critical to the recovery phase. It is therefore essential that state aids and other measures are well directed, working to build the future strength of the industry rather than introducing short-term distortions that will damage long-term competitiveness. That means cooperation and working upstream of national decisions to ensure they fit in well with the EU's overall ambitions.
At the same time, the EU can offer a variety of other steps to build a platform to stabilise the industry and help it to recover. This includes measures to invest in strategic technologies. It includes steps to help workers whose jobs are at risk to retrain and find new work, as well as safeguarding and developing the key skills of some of the most valued technicians in Europe. It includes a determined and concerted effort to combat any move towards protectionism in global markets. And of course, the industry will benefit directly from the core measures of the European Economic Recovery Plan to get credit moving again, as well as from specific measures like the European green cars initiative.
This European framework for the automotive sector shows how the intelligent application of EU and national policies can not only offer a cushion for the automotive industry in a time of intense pressure, but a springboard for the future. The common goal is a dynamic, competitive and sustainable automotive sector in the EU for the coming decades.
1. The particular situation of the automotive sector
The automotive industry is central to Europe's prosperity. The EU is the world's largest producer of motor vehicles, producing over 18 million vehicles a year and almost a third of the world's passenger cars. It is a huge employer of skilled workforce, directly employing over 2 million people but responsible for some 12 million jobs. It is a key driver of knowledge and innovation, investing more than € 20 billion a year in R&D, making it Europe's largest private investor in R&D. With an annual turnover of € 780 billion and a value added of over € 140 billion, it makes a major contribution to the EU's GDP. It exports far more than it imports, with a surplus of over € 60 billion on overall exports of € 125 billion. In addition, the sector plays a central part in tackling many of the key economic, social and environmental challenges faced by Europe today, such as sustainable mobility and safety.
Automotive manufacturing is closely linked with many other sectors . Electronics, mechanical and electrical engineering, information technology, steel, chemicals, plastics, metals and rubber are all key suppliers. 20% of the EU's steel and 36% of its aluminium production goes into automotive production. It also has a very significant cross-border dimension in Europe and globally. Within the EU, the 250 production lines are split between 16 Member States, and every single Member State is involved in the supply chain for manufacturing and the downstream chain for sales. Typically, there are around 50 upstream component suppliers for a car, spread all over Europe and around 75% of the value-added of a new car is generated by these suppliers. As a consequence, the value of intra-Community trade in automotive products is substantial with around € 360 billion in 2008. Any downturn in the automotive sector therefore strongly affects other sectors and all EU Member States.
The current economic crisis is being marked by a sudden downturn for manufacturing. EU industrial production slumped by 8.4%in the last quarter of 2008, and there is every sign that this drop is accelerating as orders already on the books start to dry up. As some 60-80% of new cars in Europe are purchased with the aid of credit, the financial crisis at the origin of the downturn has hit the automotive industry particularly hard: the 20% contraction seen is the largest recorded. Similar trends are to be observed for sectors with close links to the automotive industry like steel where consumption is expected to decline by 30% in the first quarter of this year and 16% in the second quarter.The difficult situation of the European automotive industry has three major reasons:
First, there has been a sharp and uniform drop in demand for passenger and commercial vehicles both in the EU and worldwide. Tight credit conditions, declining share and asset prices, and the uncertainty created by the global economic environment are translating into very low consumer confidence and declining purchasing power. In the last quarter of 2008 new car registrations in Europe declined by an average of 20%. New passenger car sales fell by 1.2 million 2008. In January 2009, the European passenger car market was 27% lower than a year before. The producers of commercial vehicles were even harder hit with orders for heavy duty vehicles falling from 38.000 in January 2008 to 600 in November 2008, which is two third of the daily production capacity of an average heavy duty vehicle producer. . The situation varies between individual Member States but the downturn has now reached every market in the EU, and all major producers on the European market are severely affected.
Second, parts of the automotive industry are reporting problems with access to credit financing and fears of liquidity shortages. Some companies are unable to get loans on reasonable terms, with credit ratings downgraded in light of market outlook. It is estimated that the five largest captive finance businesses of automotive producers in Europe will need to raise around € 10 billion in medium- to long-term debt during 2009. In addition, suppliers are expressing an additional concern about money not moving down the supply chain. The situation is particularly difficult for smaller lower-tier suppliers which are less capitalised and diversified than their larger counterparts.
Third, the industry suffers from longer-term structural problems pre-dating the crisis . Automotive companies already faced a very competitive business environment. High fixed costs, structural overcapacity and intensive price competition has meant that many automotive companies were already focusing on reducing costs and improving internal efficiency. There has also been significant consolidation in the supply sector. Recent falls in demand and production have made the situation worse and average overcapacity in Europe is estimated to be at least 20%. Globally, vehicle production capacity is currently at ca. 94 million per year at a time when demand for 2009 is estimated at ca. 55 million.
The situation is aggravated by the rising risk of protectionism , threatening reduced access to third country markets for European producers who have thrived on the export market. The first cases have come in the form of new import licensing requirements, e.g. in Argentina and Brazil, or rising import duties, e.g. in Russia.
Current forecasts for 2009 are not encouraging. Available forecasts suggest a further decline in the passenger car market of between 12% and 18% (ca. 1.5 – 2.5. million vehicles). Industry expects commercial vehicle demand to fall by around 30%. This is likely to put further pressure on the whole automotive value chain particularly in terms of production volumes, capacity utilisation, employment and research investment. A reduction in demand is likely to lead to continued production decreases, following estimates of reductions by 25% in the first two quarters of 2009 alone.
Falling production levels and subsequent cost-cutting by automotive firms has already led to reductions in employment . Up to now it has mainly affected temporary workers. But the industry has indicated that worsening market conditions could put 15 to 20% of its labour force at risk while as many as 1 out of 3 suppliers are vulnerable because of the crisis. Negative employment effects could be magnified as a result of regional impacts because of the clustered and geographically concentrated nature of the automotive industry. Additional pressure comes from potential spill-over effect from restructuring of GM and Chrysler. For example GM has announced that out of 47.000 jobs to be cut over the next years, 26.000 will fall outside the US.
However, the long term global outlook for the automotive industry is promising: world-wide demand for vehicles is projected to double or even triple in the next 20 years as a result of motorisation in emerging markets. The imperative of a "greener" car fleet will bring new opportunities for innovative technology. And since the current decline in demand in mature markets such as Europe and U.S. is lengthening the period needed for overall fleet renewal there will be even further room for a market upturn. This makes it particularly important for the EU automotive industry to be able to weather the downturn and be ready to take advantage when demand returns.
2. POLICY RESPONSE
Building on the re-launched Lisbon partnership for growth and jobs in 2005, which identified the automotive sector as a European asset, the European Economic Recovery Plan  identified the automotive sector as requiring a strong policy response. A key priority for the future is to ensure that European industry is able to respond to the current crisis and emerge from it in a stronger position to compete globally once market conditions improve. This will be notably the case if the automotive industry will master the triple challenge of technological leadership with an environmental and safety performance that is world class.
The Recovery Plan emphasises the importance not only of addressing the causes of the current problems of the automotive sector, but doing so in a way which will secure and further reinforce the longer-term competitiveness of the industry. This means in particular responding to evolving consumer demand – in Europe as well as globally - by speeding up the development and production of "green" cars through high levels of investments in R&D and innovation. Such an approach will in turn make a major contribution to make industry fit for the low-carbon economy and thus to achieving Europe's ambitions in reducing CO2 emissions and improving energy security.
Primary responsibility for dealing with the crisis lies with industry , individual companies and their managements. Industry itself is called upon to address the structural problems of production efficiency and capacity utilisation in a way that improves its long-term competitiveness and sustainability.
In addition, as part of the overall industrial policy approach, the EU and its Member States can contribute to creating framework conditions in which industry can thrive. They can also promote fair competition in open global markets. Targeted and temporary public sector support at EU and Member State level can help to complement industry’s efforts to withstand the crisis and cushion the negative employment effects of likely restructuring. This public support should preferably be covered by horizontal policy instruments applicable to industry as a whole and should be met through a combination of European and Member State level action. At an informal meeting with Ministers on 16 January, Member States shared these views and agreed to a number of key principles to guide their responses to the current situation, such as the need for open global markets, fair competition, respect of better regulation as well as cooperation and transparency.
It will be important to ensure that measures taken at Member State level be coherent, efficient and co-ordinated . As much of the importance of the European automotive industry is derived from its knock-on impact for the broader EU economy, it is particularly important to ensure the proper functioning of the internal market, and retain competitive neutrality and a level playing field, thus also ensuring solidarity between the Member States.
In the European Economic Recovery Plan, the Commission has set out the key elements of the public support relevant for the automotive sector. Some of these measures are general, while others target specifically the automotive industry. The main objectives of the proposed approach are: (1) to support demand in order to assist with remedying the effects of the credit squeeze; (2) to facilitate the adjustment by cushioning the costs associated with restructuring, in particular for workers and upgrade their training (3) to encourage the modernisation of the plants with a view to ensure a sustainable competitiveness of this industry at world level and (4) to assist industry to implement the radical technological change required by the climate change challenge. While some progress has been achieved already, it is important to ensure that the objectives are fully met in an efficient and coherent way.
a) Framework conditions and CARS 21
Through the CARS 21 process, the Commission has developed a medium to long-term, co-ordinated and predictable policy framework for the automotive industry based on continuous dialogue and consultation with all main stakeholders. In the current economic climate, a clear orientation towards long-term competitiveness, based on innovation, safety and environmental performance, is even more important. The Commission therefore reconfirms its commitment to fully take into account the recommendations of the CARS 21 process (see Annex 1), fully respecting the principles of Better Regulation. The Commission will ensure that a coherent and co-ordinated forward-looking approach to future road transport and sustainable mobility requirements is adopted through the follow-up to CARS 21. Given the impact of the current crisis the Commission will weigh up the costs and benefits of any new legislative initiative and seek, as far as possible, to avoid creating new economic burdens.
b) Access to finance and continuous investment into innovation and research
It is key to restore the availability of financing at reasonable terms and restoring liquidity so that viable companies are not driven out of business and that consumers can access the credit necessary for new car purchases. Ensuring that the financial system starts operating properly remains the first priority in steering the economy towards recovery. This is particularly important in the automotive sector, characterised by capital intensity and credit financed private demand.. The car industry will have to finance research and innovation in particular to design new engines that meet the ambitious European legislation on the reduction of CO2 emissions, starting from 2012. The new vehicles will also have to comply with stricter thresholds for pollutant emissions and tougher safety requirements. It is therefore imperative to assist companies to access finance.
The issue of financing is not only relevant to the future of the European automotive industry, but to the economy as a whole. It should be primarily addressed through measures to support the financial sector at both the European and Member States’ level . In this respect the Commission has already taken important initiatives, with the adoption of the Communication concerning the application of State aid rules for the banking sector and the Communication on recapitalisation of financial institutions in the current financial crisis. With specific regard to the automotive sector, it should be noted that the financial branches of car makers may also qualify for aid under the schemes adopted by the Commission for the banking sector. In addition, the Commission is conscious of potentially damaging liquidity problems, in particular in the supply sector and will, together with the European Investment Bank (EIB) and the Member States, seek ways to improve the flow of credit to SMEs, including automotive suppliers.
From the State aid perspective, the new Temporary Framework for State aid measures adopted in December 2008 (slightly adapted on 25 February 2009 was designed to allow Member States to provide aid to companies facing problems of acess to liquidity. Typical instruments authorized under this framework are subsidised loans, subsidised guarantees and subsidised loans for the production of "green" products including cars. In this context it needs to be stressed that aid granted on the basis of these frameworks fully respect internal market rules in order to avoid distortions and fragmentation. This framework only applies to companies whose difficulties do not pre-date the crisis. For companies whose difficulties are mainly due to structural problems rather than the current crisis, any State aid must be supported by a restructuring plan that ensures long term viability, in line with the objectives of promoting the competitiveness of this industry.
The wide range of "traditional" State aid instruments (see list in Annex 2) available to Member States for supporting their industries can also be an important tool for promoting research and innovation, environmental development and restructuring, where this appears necessary, for the automotive industry, while maintaining a level playing field within the internal market.
The Commission, together with the European Investment Bank and the Member States, will support industry in their efforts to maintain investments into future technologies (particularly green technologies such as fuel efficiency and alternative propulsion) throughout the economic downturn. This will be done primarily through the European Investment Bank as well as through the 7 th Research Framework Programme .
The EIB has already increased the amount of loans planned to the automobile sector notably through the new European Clean Transport Facility to an annual amount of € 4 billion in 2009 and in 2010. Loans granted to automotive industries can also draw on horizontal programmes, in particular those targeting SME's, convergence or safety. Work is already well underway and the EIB is expected to approve € 3.8 billion worth of automotive sector projects in March, while the additional projects in the pipeline add up to a total of € 6.8 billion. The Commission and the EIB will continue working together closely to ensure that the financing provided is as effective as possible. The possibility to further front load the lending planned for 2009 and 2010 is being kept under permanent review. Procedures for granting support have been streamlined allowing the shortest possible processing for decisions following a request for support while maintaining strict appraisal procedures to ensure the viability of investments in the long term.
These efforts will be backed up by a research partnership between the public and private sector, on the mobility of the future, with an estimated total value of € 1 billion]. In line with preparatory work done under the 7th Research Framework Programme and the relevant European Technology Platforms, the main focus of this partnership will be on the development of "green" vehicles including passenger cars, buses, urban vehicles and trucks, but also addressing related issues such as infrastructure and logistics. Furthermore, all potential for further administrative simplification of public R&D programmes and public-private R&D partnerships should be exploited. The Commission also calls on the Member States to provide support for R&D into environmental research and step up investments into "green" transport related infrastructure, such as for electric cars and hydrogen vehicles, and do so in a co-ordinated way to avoid costly overlaps and maximise impacts.
Finally, the Commsssion is working on establishing the necessary standardisation required to ensure that future technological solutions are provided with legal certainty and can be applied throughout the internal market.
c) Boosting demand for new vehicles and accelerating fleet renewal
Member States have taken demand-side measures as they are the most effective means to counter the short-term decline in demand and improve consumer confidence. As nine Member States have already established vehicle recycling and recovery schemes ("scrapping schemes") and more are considering doing so, the Commission invited Member States experts for the first time on 16 February 2009 in order to ensure transparency of all initiatives and provide for an exchange of best practices. The Commission has discussed with the Member States common principles which shall allow smooth adoption of such scrapping schemes (see Annex 3). Furthermore, the Commission has committed itself to speed up the process of their approval under Directive 98/34/EC.
The Commission invites Member States to make full use of public procurement to boost demand for cleaner and more fuel efficient vehicles in the short term, assessing the possibility to advance investment into infrastructure and into the renewal of the public transport fleet including heavy duty vehicles.
d) Safeguarding skills and employment and minimising social costs
The outlook for the employment in the automotive sector is of serious concern and merits full political attention. Member States will have to face substantial challenges and several regions may be hit very hard.
In line with this, the European social partners and industry organisations of the sector have launched in October 2007 a " European Partnership for the anticipation of change in the automotive sector". A comprehensive two-year work programme is being carried on to anticipate and mitigate the social impact of restructuring.
Various EU funds and policy instruments can be mobilised to support the social cost of adjustment and to ensure that necessary skill levels required for the future competitiveness of industry are retained in the industry. This should be done in ways which support moves over time to new forms of production and should not preclude necessary restructuring. Such measures apply to all sectors; they are particularly relevant for the automotive sector with its supply chain as it will have to tackle significant overcapacities.
The Commission has also proposed an increase of advance payments from the European Social Fund (ESF) , and simplification of the criteria. This can be used to support to implementing measures to retain jobs and combat unemployment in the automotive industry, such as: i) supporting short-time workers by financing training and a part of wage and non-wage labour costs; ii) supporting company and sector restructuring; iii) financing retraining; iv) anticipating change requirements and matching skills. There are already successful examples of how the ESF has supported restructuring in the automotive industry in the past, which can be drawn on for inspiration.
Possibilities to benefits from interventions financed by the European Globalisation Adjustment Fund (EGF) should also be fully explored. The EGF has already intervened in four automotive sector cases with a fifth in the pipeline. The availability of this support will be further improved once the European Parliament and the Council have adopted the Commission’s recent proposal. This will allow the Fund to intervene more swiftly and, for a limited period of time, will allow interventions to be justified by the current economic crisis, irrespective of any link to globalisation.
e) Open markets and fair competition world-wide
Times of economic uncertainty increase the likelihood of countries seeking to protect their industries through erecting barriers to trade. Fair competition in open markets can help to fight the current crisis, whereas any protectionist measures threaten to deepen it. The EU is committed to avoid any new trade restrictions being created towards third countries. It expects the same attitude from its trading partners and will not tolerate a revival of protectionism.
The Commission will follow closely international developments and encourage international dialogue , in particular with its main trade partners including the US, Japan, Korea and China. Together with them it will work to keep world markets open and to ensure fair competition.
3. STRENGTHENING THE PARTNERSHIP
The Commission is committed to bring together Member States and other actors to ensure a coherent and coordinated approach in support of the European automotive industry. It will keep progress under constant review. The Commission suggests that the CARS 21 process should be strengthened, with a round table with Member States, automotive industry (producers and suppliers) and trade unions. Its main aims should be to provide a platform of mutual information, dialogue and best practices. It should support the efforts of the sector to restructure so that it can compete in world markets with a strong focus on retaining skills in the industry, retraining workers for future tasks and for new jobs in this and other sectors.
The round table should also monitor the development in the following areas:
- Reviving private demand and frontloading public demand :
- Financial support for research
- Active support for reducing overcapacity while maintaining skilled workforce via the European Social Fund and the European Globalisation Adjustment Fund;
- Strict respect of CARS 21 recommendations , in particular as regards Better Regulation and the need to weigh up costs and benefits of any new legislative initiative with a view to avoid, as far as possible, creating new economic burdens;
The Commission stands ready to make full use of the potential of the TEC to intensify the dialogue with the US with regards to the situation of US automotive producers and its spill-over to the EU.
Annex 1: Conclusions of the CARS 21 Mid-Term Review
Annex 2: Inventory of State aid instruments
Annex 3: Guidelines for Scrapping Schemes
 Communication from the Commission to the European Council of 26.11.2008, "A European Economic Recovery Plan" - COM(2008) 800.
 Communication on the application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis, December 2008 (OJ C 16, 22.1.2009, p. 1); revised on 25.2.2009 - C(2009) 1270.
 Commission communication Recapitalisation of Financial institutions in the current financial crisis: limitation of the aid to the minimum necessary and safeguards against undue distortions of competition (OJ C 10, 15.1.2009, p. 2).
 Temporary Framework for State aid measures to support access to finance in the current financial and economic crisis (OJ C 16, 22.1.2009, p. 1).