May 20, 2020
Car purchase premiums - a way to save the car industry?
Car sales plummeted 81% in Europe during the lockdown. Member states came to rescue with partial unemployment schemes and credits to prevent the worst in the short term. But what next? The industry will not jump back on its feet as the economy gradually opens up. Cautious consumers, continuing to work from home and travelling less, are likely to weigh down on recovery for a car industry that was already struggling before the crisis. Forecasts suggest a plunge by 25%-30% in sales this year, and the state is being called once again to keep firms viable. There is a great temptation to maintain traditional industries like car companies because of the employment they provide. This also bears the risk that an uncoordinated approach across Europe could easily result in new competitive distortions.
Renault is already publicly considering closing down four factories in France. A €5bn credit from the state helped them to get over the coming months, but not beyond. The carmaker plans to make €2bn in savings over the next two years, and this will affect employment too. Expect the socially controversial plans to intrude into the presidential campaign in 2022, and with them a call for industrial policies.
The focus in the current debate is on stimulating demand. Renault, and German carmakers like Volkswagen and Mercedes-Benz, are calling for government support to stimulate car sales either by a cash-for-clunkers scheme or a premium for buying a new car. Acea, the European automobile manufacturers' association, called for a similar initiative at European level.
But it is not clear that these measures will even benefit the car industry, warns Anne Feitz in Les Échos. The French premium for new car purchases in 2008-2009 showed some perverse effects. It certainly helped to buffer the sales drop in the two crisis years, but when the premium stopped in 2012 car sales fell by 20% for the year. People just brought forward a car purchase they would made later anyway. Also, the measure hardly benefited French employment. The €3000 premium was used for the purchase of small cars produced outside France, in countries like Turkey, Slovakia or Morocco. Will a government be ready to support an industry if production is done in a non-European country?
But the pressure is there to do something or face a massive exodus of the industry. Will the consumer emerge from lockdown and buy cars with the savings they accumulated during it? There is much uncertainty here. Should the premium be used to push for environmentally-friendly cars? The problem here is that it does not necessarily benefit the national car industries. Acea even called on Brussels to postpone CO2 emission targets. They had to row back, though, amid a massive uproar.