Last week, France announced plans to inject more than EUR8bn into its automotive sector. The hope for the European industry is that it's not the only country to act.
According to GlobalData analysis West Europe is forecast to bear the brunt of a global industry that faces a near 20% fall in volume in 2020 due to the impact of COVID-19. In a global industry forecast to lose nearly 16 million sales in 2020 compared with 2019 West Europe alone will account for more than a quarter of the decline.
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The state of the region's industry and its strategic importance to countries' economies due to its high economic value add in terms of employment and innovation has prompted much discussion among governments and the industry as to the best way to support.
Delayed talks between the German auto industry and the nation's government put increased pressure on OEMs hoping to breathe life back into their flagging sales figures
Representatives from Germany's biggest automakers were hoping to meet with members of the German government on 2 May to flesh out the details of a stimulus package to mitigate the financial damage done by the COVID-19 outbreak. However, the German Association of the Automotive Industry (VDA) has now confirmed that these talks have been delayed as the coalition of parties that make up Angela Merkel's government have yet to agree on what measures they will ask of manufacturers in return for financial assistance.
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Great forces are pulling in opposite directions on this issue. On the one hand, Germany is a powerhouse in the automotive industry – the nation's OEMs contribute a great deal to the country's economy and are held as world leaders, especially in premium segments. The outbreak of coronavirus has caused sales and production in Europe particularly to slow to a halt, leaving vast gaps in German automakers' balance sheets as they go weeks without meaningful sales. Conversely, there are growing calls from members of Merkel's own government to attach environmental stipulations to whatever stimulus package they provide to counter the obvious impact the auto industry has on climate change.
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By GlobalDataWith lockdown measures in Germany and beyond beginning to ease, automakers feel that now is the time to incentivise buyers to purchase new cars to quickly make up for the recent shortfall in sales. This could come through financial stimulus that would enable OEMs to sell cars at more favourable prices, or through a scrappage scheme that incentivises potential buyers to trade their older models for newer ones.
Adding to the pressure is that fact that German automakers will be nervously looking over the border to France where the government there has agreed an ambitious EUR8bn plan to resuscitate French car sales. In addition to EUR5bn to shore up struggling Renault, the plan also includes as EUR12,000 subsidy for consumers buying an electric car, specifically intended to help France become the main producer of electric vehicles in Europe.
Bailing out Germany's auto industry is a contentious topic for Merkel's government. It must balance the need to support automakers, which employ large swathes of the populace and contribute a great deal to the economy, with the need to fight climate change and disincentivise more buyers purchasing fossil-fuel-powered vehicles. In Germany, more details on a support package for the industry are expected to emerge this week. In the UK, however, direct support for the car industry seems way down the list of government priorities.
It is essential that governments act fast if incentives for new car purchase are to be introduced. If there is delay, the risk is that consumers adopt a wait-and-see position, further weakening an already depleted car markets.
See also: France moves first to bolster the automotive sector
