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CCFA (FRENCH VEHICLE MANUFACTURERS) CONTRIBUTION TO THE EUROPEAN

COMPETITIVENESS DEBATE

CCFA welcomes the European Commission’s invitation to give their views on what (and how)
would be the more appropriate automotive regulatory framework of the next 10 years. Better results
can only come out of a better coordination between all interested parties on the matter. Although
everyone agrees on the economic importance of the European automotive sector, it is facing
important new challenges (economical, environmental and social):

• Vehicle manufacturers are operating on a world market and face increasing competition; this
implies that they must maintain and improve their profitability in order to keep up with their
competitors. Growing resources will be needed to retain their position on their home market and at
the same time win market shares on third countries markets.

• In terms of Environment Protection, for many years now, French manufacturers have responded
to the increasing pressure aiming at controlling emissions. The French vehicle manufacturers have
engaged complex technical developments in order to offer the appropriate solution to reach the
objectives of air pollutants’ and greenhouse gases reduction. They have always done their best to
comply with future standards, proposing innovative solutions. But all these efforts are not costless.
To achieve these goals, the industry needs proper lead time to develop adequate solutions but also to
ensure their return on investment. Due consideration should be given at political level to the
potential of car renewal measures.

• In terms of Road Safety, French manufacturers are taking their responsibility, and fully accept
their part in this issue. In 2002, the results of a survey conducted for CCFA, showed that 84% of
interviewed people believe that nowadays cars are safer than they were 10 years ago. Another
interesting result lies in the fact that 94% of the interviewed people consider that road safety results
mainly from the drivers’ behaviour. Today French car manufacturers insert complex on-board
devices to help the driver, but no technology will ever replace the human being.

That is why CCFA strongly recommends a systematic integrated approach while drafting
environment and road safety policies. The objectives of the industry’s competitiveness, better
environmental performances and improved road safety require a strategy based on vehicle
technology, road infrastructure and driver’s behaviour.

In the forthcoming developments, CCFA outlines the strength of the automotive sector, explaining
what its specific features are. Through an analysis of its strengths, weaknesses, opportunities and
threats, the main issues threatening the French automotive industry’s competitiveness are identified
and finally, specific actions are recommended.

I. Situation and context of the automobile sector

1) The importance of the automobile sector in the economy

The automotive industry is a driving force as a significant end market for many industries (upstream
suppliers) and due to its effects on the downstream level (distribution, repairs, and maintenance
activities). Therefore it is also a leading sector for employment:
• Direct jobs in Europe: 2 million (1 million in the suppliers’ sector), that is 7% of the
manufacturing industry;

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• Indirect jobs in Europe: 8 million (distribution network, aftermarket, maintenance, fuel supply,
financing operations, logistics…)1 ;

The automobile industry is also a strong net exporter representing 5% of the European
manufacturing industries’ export, and contributing up to 35 billion euros to the trade balance (net
profit).

The automobile industry is the first sectoral investor in the EU in R&D with 24% of European
industrial research.

It represents 340 billion euros of tax revenues (VAT, registration taxes, fuel taxes, toll etc.), that is
12% of public resources.

The sector is highly concentrated at a global scale. The level of investment, R&D etc. leads to a
reduction in the number of operators as shown by the past ten years’ mergers/acquisitions/alliances.

Europe is the first world producer with 34% of the global volume2.

2) Distinctive features of the automobile product

In a comprehensive way, « Automobile » means: passenger cars, but also commercial vehicles. All
these vehicles have distinctive features:
• The passenger car, is a durable consumer good (over 14.9 million cars sold in 2004 in the UE -
25 countries-), of high economic value (important household expenditure). The life cycle of a
passenger car is:
- Preparatory cycle: 2 to 3 years;
- Development: about 30 months;
- Lifetime3: 6 to 7 years.
• The heavy commercial vehicle (371000 heavy trucks - +3,5t - sold in 2004 in Western Europe -
17 countries) is an investment good (B to B), a specific product, subject to the « investor’s »
demand, but also to the road professional’s demand. The classical heavy truck has four phases:
- 1st phase (2-3 first years): optimization, intensive use (150 000 km/year), international routes;
- 2nd phase (2-3 years to 8-10 years): regional routes, engine renovation (the truck may have run
1 million km by then);
- 3d life (10-12 years): local use or exportation (1.2 million km);
- 4th life (up to 20 years): minor use.
• The light commercial vehicle is a capital good (1.9 million light commercial vehicles - -3,5t -
sold in 2004 in Western Europe - 17 countries), but, from an industrial point of view, it is closer
to the passenger car (as it often uses the same production techniques/facilities, with volumes
similar to those of the car industry).

At their design and manufacturing level, these products are high added value goods in terms of
research, technology and qualifications.

The automobile is a complex product from different points of view:


• Society: it is subject to strict requirements in terms of environment, energy (consumption
reduction), safety…;

1
ACEA source.
2
Regarding the French industry, it represents in Western Europe one car sold out of four, one light commercial vehicle
out of three and one heavy truck out of nine.
3
Furthermore, car manufacturers have the obligation to provide spare parts for a period of 10 years after the end of
production of the vehicle.

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• Consumer: a motor vehicle must satisfy various expectations, sometimes contradictory, and even
among consumers (in terms of mobility, comfort, pleasure, security, performance…). At the
same time, all these elements must be compatible with the production requirements, and the price
that the client is willing to pay.
• Technique: it integrates sophisticated materials (new, resistant, light, deformable in case of
impact) and on-board electronics4, but also complex devices allowing to deal with the
consumption, comfort, and driving issues;

The automotive industry needs to be constantly more innovative: on the one hand, consumers ask for
more differentiation, and on the other hand, the legislation is more and more demanding. We
estimate that 50% of the products that we will use in 2010 do not yet exist. The investment in R&D
is significant and is still higher for commercial vehicles for which the launch of a study on an engine
or a body generates higher costs. This is due to technical aspects and to the fact that the volumes
required to amortize those costs are smaller than those of the passenger cars.

The life cycle of the product consists of various phases: engineering (preparatory works and
development), production, sale, after-sales and recycling. Therefore the manufacturer becomes the
designer, the producer and is responsible with respect to the customer.

The automobile is an economic development factor as it enhances mobility. Its development is


linked to that of the infrastructures, and all the more as in Europe, 89% of the inland transportation
of travellers and 79% of the inland transportation of goods are done by road. Despite the EU efforts
to disparate economic growth from transport growth, in fact, they are still correlated5.

Automobile is a combination of requirements sometimes contradictory between its economic


characteristics (including energy consumption), legislation, and the expectations and means of the
consumer.

II. The issues of the automobile industry

1) Market acceptance

Today, the European Community issues a sectoral and horizontal regulation corpus, technical and
non technical, that affects more and more aspects linked to the vehicle; emissions, safety,
distribution, recycling to which are added a number of non regulatory constraints (e.g.: CO2
Commitment, Pedestrian Protection).

This high level of regulation generates costs that the manufacturers cannot entirely pass on to the
consumer, because the market is not ready to accept it. Those costs are therefore borne by the
manufacturers; they have a direct impact on their level of profitability, and thus weaken the industry,
especially the European industry. Furthermore, the global level of prices is declining in Europe
despite major new developments and improvements of equipment and vehicles.

This contradiction is due to a weak growth on a highly competitive, price constraint market and
mostly composed of medium and low range products. Furthermore, the burdensome regulatory
framework contributes to pull the market down and drives consumers to choose between their
financial means, needs and obligations, as they are highly sensitive to the vehicle’s prices. There is a
growing imbalance between the citizen’s concerns and the consumer’s demands: the citizen demands
what the customer refuses.

4
For example, high technology has always been a top priority for heavy trucks, to optimize energy consumption for
instance. Thanks to technology, the consumption of those vehicles improved from 60 l/100km 30 years ago, to
30 l/100km today.
5
Commission’s DG Transport white book entitled "European transport policy up to 2010: time for choice”.

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2) Need for a strong and profitable home market

A strong home market is a key condition to support the competitiveness of the European automotive
industry, to finance innovation and to sustain the industry’s international development.

In Europe, the manufacturers clearly operate on a renewal market. Nevertheless, even if these
markets only know weak growth rates, they are still the basis of the French manufacturers’ activities
contributing to the resources required for the financing of their strategies6 (e.g.: in 2004, Renault and
PSA Peugeot Citroën made 72% of their sales on the European market - Europe of 17 -, Renault
Trucks made 85% - Europe of 25 -).

The European vehicle manufacturers’ profitability on their home market is structurally weaker than
that of their competitors on their own referential market (3% in Europe, 8 %7 and 5-6% in the United
States and in Japan). This can be mainly explained by the highly competitive intensity, of the mix8
product less profitable in Europe and of the regulatory burden.

In Europe:
• The market is still unachieved (internal factors) because of:
- Penalizing automotive tax system due to the lack of harmonization (tax on acquisition,
registration taxes, VAT, plus user charges- toll, fuel…-);
- Conditions increasing the costs of mobility (e.g.: discrepancy between costs for the use of
the infrastructures from a member State to another);
- A deterioration of the rules of intellectual property which makes the industry more
sensitive to counterfeiting (especially for parts);
- The regulatory burden in general;
• A growing competitive intensity (external factor), because of a strong presence of all the global
manufacturers, fostered by a wide opening of the European market (in 2003, on a sluggish
market, only the Japanese and Korean manufacturers managed to increase their market shares).

3) Third market access

European legislation is too self-centred, and does not take into account the evolution of third
countries whose objectives are different (example of the Kyoto protocol aiming at the reduction the
emissions of dioxide and other greenhouse gases that the United States did not ratify, which leads to
very strict environmental policies in Europe).

Due to the high number of contradictory and restricting EU regulations, “genetically European
designed products” are created, with numerous specific and costly features, which make the
European vehicle unsuitable with regard to:
• Third countries legislations;
• The demand of third markets whose customers do not always value the European characteristics
(EuroNCap does not mean much outside Europe);
• Local capacities, for example: manufacture (lack of raw material, complex processes,
suppliers…) and repair (complex electronics, sensible components - airbags etc.-).

The lack of global harmonization contributes to third markets’ protection and limits the access of
European products to these markets (e.g.: the cost of adaptation of the product to the local regulation
and the costs of the test).

Additionally, European exports on third markets are negatively affected by the exchange rates.

6
Even the Chinese automotive market fell (prevision for 2005: 7%; against 17% in 2004 and 56% in 2002).
7
All manufacturers established in the zone (including Japanese).
8
Part of each segment in the market.

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As a conclusion, to remain competitive, the vehicle manufacturers must be able to meet the political
pressures, the customers’ demand on their own market and on third markets.

III. Analysis of the Strengths and Weaknesses/ Opportunities and Threats for the French
Automotive industry

STRENGTHS WEAKNESSES
The French automotive industry, a strong Complex automobile product, submitted to strict and
economic driver: growing demand:
• Leading job sector; • Society: environment / energy / safety;
• Strong net exporter; • Consumer: mobility/comfort/pleasure/security/performance;
• 1st sectoral investor in R&D; • Need of competitive prices (market acceptance problem: the
• Economic development factor. citizen demands what the consumer refuses);
• Steady real prices despite the subsequent acquiring of wealth
The French vehicle manufacturers: of the equipments and the vehicles.
• Value and brand recognition;
• Strength of the groups (alliance/partnership The market:
Internal strategy); • European Market (UE 15) is mature / renewal / weak growth /
• Product creativity. low margin vehicles;
• The manufacturers’ profitability on the European market is
The market/the resources: structurally weaker than that of the third markets, notably
• Wide internal market (450 million / 1st world because of the competitive intensity;
market); • The structure of the market is still fragmented: different
• Various/sophisticated demand; demand from a member State to another and single market
• Modular value chain; unachieved (e.g.: non harmonized automotive tax system);
• Skilled labour (low-cost in the new member • Strong foreign penetration in Europe;
States); • Rigidity and costs of labour;
• Strong innovation capacity / strong potential in • Inadequacy of public expenditures in R&D: lack of
R&D; integration between national expenses and European
• Quality of the infrastructures (transport and expenses;
telecommunication networks). • Inadequacy of public expenditures in education / training;
• Abundant, complex and sometimes contradictory regulation,
+ lack of visibility for the industry (lead time). Legal basis
(art.95 VS art.175).

OPPORTUNITIES THREATS
• Growing internationalisation of the French • Absence/low market share of the French manufacturers on
vehicle manufacturers; the profitable developed market (United States and Japan);
• Extended opportunities due to the good results • Growing tendency to over-regulation affecting profitability
of the French groups; in Europe but also disqualifying the European products on
• Opportunities in emergent countries: China but third markets (third markets’ legislation is often less
also other growing markets (Argentine, Brazil, restrictive, absence of appreciation of the European
Turkey, Iran); characteristics); e.g.: Hardening of the CO2 emissions
External • Tendency to improve market access (WTO); norms;
• Technical harmonization in progress (WP29). • Technical harmonization still insufficient;
• Lack of forthcoming investment in road infrastructures +
congestion problems not yet entirely resolved;
• Euro/Dollar’s exchange rates;
• Jamming of the international negotiations (WTO, Mercosur
etc.);
• Multiplication of the non tariff barriers;
• Potential capacity problems of some markets.

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IV. Recommendations

As regards the Lisbon objectives, and within the sustainable development framework, the balance
between the competitiveness of the industry, the protection of the consumer and the preservation of
the environment must be restored.

1) Improve the regulatory framework

ƒ EU regulations must always be thought, elaborated and applied within the framework of
industry’s competitiveness and take into account the cost efficiency approach.

ƒ While drawing up the regulatory framework, economic impacts should be taken into account to
maintain the conditions in which the industry operates and to promote its competitiveness.
« Over-regulation » must be avoided as much as contradictory effects. In this respect, systematic
impact assessments9 must be a prerequisite for launching any major new policy or regulatory
initiative. The predictability of regulation must be improved.

ƒ An integrated approach should be systematically implemented while drafting the EU legislation,


so that all interested parties are involved (e.g.: with regard to road safety, the manufacturer is not
the only parameter to be taken into account, the driver’s behaviour and the quality of the
infrastructures should also be taken into account).

ƒ The « technological neutrality of the legislation » principle should be kept in mind while
elaborating EU legislation. To maintain competition between the manufacturers, regulations
should be drafted in terms of goals to be reached instead choosing the best available technology
solutions.

ƒ To ensure uniform application of EU legislation in the 25 member States, article 95 of the Treaty
(Internal Market) should be the legal basis, instead of article 175 (Environment) (e.g.: ELV).

ƒ Global harmonization of regulations is necessary to take into account the global dimension of the
automobile product and the international operations of the industry when setting up the various
European policies (for example in terms of environment - CO2/émissions - and safety). In the
harmonization process, preference should be given to the existing European regulations.
Harmonization is a strategic issue as regards third market access.

ƒ About the consultation process : electronic consultations, doubtful on a methodological point of


view, cannot legitimate future European policies as the way it is formulated does not meet the

9
The French vehicle manufacturers fully support ACEA’s position on Integrated Impact Assessment: impact assessment
applies essentially to major EU regulatory proposals and should be extended to technical updates, including adaptations
to technical progress.
The impact assessment should be objective and transparent. A specific formation within the Commission, independent
from the lead DG, should be created to carry out impact assessment in a scientific, balanced and objective way. This
formation should assess macro-economic and sectoral aspects of proposed EU legislation, providing the EU institutions
and industry with a fact-based cost-benefit assessment, taking into account the existing regulation. It should also carry
ex-post impact assessment on existing legislation.
The impacts should as far as possible be expressed in economic, social and environmental terms: assessments should not
only evaluate the cost-benefits but also the cost-efficiency of the EU regulatory proposal.
Furthermore, in a world characterised by continuous globalisation, it is essential that impact assessments are carried out
with a global perspective: proposed policy should also, where relevant, be assessed in terms of their internal (within the
Union) and external impacts (outside the Union).
Involvement of stakeholders in the assessments at as early a stage as possible should be systematic, and according to a
coherent, well-established and predictable consultation process.

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objective pursued; the public it is aiming at is not well-targeted, and the simple counting of the
answers give rise to demagogic interpretation (e.g.: recent consultation on air quality).

2) Strengthen the home market

ƒ Proceed to the achievement of the single market with the harmonisation of the European policies,
especially in terms of taxation (example of the automobile tax system: French manufacturers
support the principle consisting in replacing tax on acquisition by tax on use).

ƒ Increase the R&D budget and promote innovation:


ƒ Generally speaking, national and European subsidies are still compartmentalized, which
leads to a poor efficiency of the public funds.
ƒ In the United States, 127 billion dollars per year are devoted to research, and the innovative
sectors contribute up to 50% to the economic growth. For the European Union, less than 3
billion euros (4 billion dollars) per year are invested; the member States are not yet meeting
the EU objective of spending 3% of their GDP in R&D by 2010. But, if Europe wants to
reach that goal, the volume of these spending should raise by 10% per year that is 4 times
faster than the possible GDP growth10.
ƒ Even if the efforts granted by the manufacturers are the most important of the whole French
industry, the public contribution, national and European, is still insufficient. With an annual
investment of more than 24 billion euros, the automotive industry represents the largest
sectoral R&D investor in Europe (24% of total R&D spending). Therefore the industry
needs a adequate Intellectual Property protection to preserve a return on their investment.
ƒ The automotive industry welcomes the proposition of the Commission on land transport in
the 7th Framework programme but would highly recommends the creation of a specific
programme devoted to R&D and innovation needs of the road transportation sector.

ƒ Develop and improve the infrastructures, especially EU road infrastructures, to promote


mobility. Due to the importance of the mobility factor in economic growth, it is essential to
maintain a competitive access to these infrastructures. A consistent flow of all modes of
transportation should be provided as they account for the European prosperity, and they also
allow meeting the environmental targets set by European policies (emissions reduction).

3) Promote third market access

ƒ Promote third market access by reducing the tariff and non tariff barriers in major emerging
markets as regards vehicles, spare parts and components.

ƒ Develop the technical harmonization efforts to limit the costs due to adaptation to the local
regulation for vehicles sold on third markets.

Benchmarking with other regions. In a world characterised by continuous globalisation, it is


essential to open up, and eventually take as an example what is being done in the field of industrial
policy in other areas. In the United States for example, industrial policy is a major political concern.

10
Source : Institut Montaigne 2004 report.

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