How Can

the Regulatory Framework

Help to Improve

the Competitiveness of the

European Automotive Industry?

Ivan Hodac

Secretary General of ACEA

FEBIAC General Assembly

Brussels, 16 June 2005

ACEA: An Overview

ACEA represents the whole European automotive industry 13 companies, CEOs members of the Board 24 National Associations as associate members 17 million vehicles produced per year 1.9 million direct jobs 19 billion € in R&D investment 33.5 billion € of net trade contribution 340 billion € of tax revenues

Average car Production per 1.000 inhabitants

2005

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BEL CZ J AP SPA GER SK SLO KOR FRA CND SWE UK NL ITA POR USA WOR

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ACEA Challenges

ACEA represents an industry and a product that is constantly under the spot in many areas:

Environment (emissions, CO2, ELV, noise…) Safety (e-safety, pedestrian, EuroNCAP…) Mobility Intellectual Property (design protection…) Tax, etc.

This means we are constantly under pressure and in the public arena

ACEA Achievements

The European Industry has made significant achievements towards sustainable mobility and

is fulfilling its societal responsibilities:

Reductions in emissions / CO2

Reductions in noise (by 90% since 1970)Recyclability of cars (almost 95%)Active and passive safety (belts, ABS, ESP, airbags, …)e-SafetyMobility (navigation systems, RTTI)

We should speak up about all these achievements!

The competitive development of the European automotive industry depends on a strong and profitable home market, requesting high market acceptance of its products!

A strong home market is crucial for the industry to:Enhance Europe as a high volume and profitable automobile

production location; Safeguard jobs at stake; Enhance Europe’s potential in the field of R&D and

technological innovation.

Economic Situation of the MV Industry

Profitable Home Market

Market acceptance

Growth on third markets

Economic Situation of the MV Industry

Today, the European market constitutes the most competitive and at the same time the least profitable market in the world!

EU Car Price Index : Price indices between 1996 and mid-2003

90

93

95

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108

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113

115

Indice : base 100 en 1996

HICP

Nominal Car Prices

Real Vehicle Prices

Estimated Operating Margin by Region 1991 and 2002

-3,0% -2,0% -1,0% 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% 7,0%

Europe

N. America

Asia

1991 2002

Source: Deutsche BankSource: EurostatHICP: Harmonised Index of Consumer Prices

Economic Situation of the MV Industry

ACEA members have lost market shares in their home market to the benefit of Japanese and Korean makers

Source: ACEA

 

  1990 1995 2000 2003 2004

ACEAJAPANKOREA

88,1%11,8% 0,1%

87,8%10,7% 1,5%

85,2%11,4% 3,4%

84,0%12,7% 3,3%

83,2%13,1% 3,3%

The Issue of Competitiveness

The EU Commission has officially recognized in itsEuropean Competitiveness Report of 2004 that it exists a link between the Regulatory Framework and Competitiveness:

“Clearly, the competitiveness of the automotive industry depends on a coherent and cost-effective regulatory

framework […] Progress is still to be made in reducing regulatory complexity and in designing regulations so as to meet their goals while taking into account possible conflicts between regulations, their cumulative impact and their

external aspects”

EU has a higher number of automotive regulations

EU has not a completed internal market

EU has higher regulatory stringency and demands for the automotive industry

EU has shorter lead times than the US

EU has higher bureaucracy and red tape

EU has a lower economic growth

EU automotive market is less profitable

The Regulatory Burden: A comparison with the US

Factors affecting the Competitiveness of the Industry

Factors affecting the Competitiveness of the Industry The regulatory burden

EU directives & regulations concerning vehicles

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EU directives & regulations concerning vehicles

Amendments to these EU directives & regulations

Incoherency of EU legal requirements:

Ex.1 : Fuel efficiency versus NOx emissions

Ex.2: Safety requirements versus CO2 emissions

Ex.3: Pedestrian safety versus industrial design protection and CO2 reductions

Consequences:

- Regulatory density increases the costs of doing business in Europe!

- Budget is devoted to meet new regulatory requirements (and updates) rather than to more competitiveness-orientated investments (R&D,…) - Cumulative cost resulting from legislative pressure

Industry performance suffers from numerous and often un-coordinated and unbalanced EU regulations, that are interpreted and implemented differently in the various Member States!

Unfavourable market acceptance of EU legislation Customers are not willing to pay for features which are not

for their direct interest: environment, recycling, pedestrian safety (ex.: low success of the green models of several B-cars in EU)

Introduction of non-technical legislation which has or will reduce the profitability of the industry: Design protection of spare parts, distribution system, warranty

New policy of the Commission to promote ratings, labels or transport policies which will add costs to the vehicle or its use (Euro-NCAP, green purchasing, road pricing,…)

Factors Affecting the Competitiveness of the Industry

The Regulatory Issues

CARS 21

In January 2005, the Commission has launched CARS 21, an innovative initiative to address

competitiveness of the automotive sector:

HLG composed of EU Commissioners, MEPs, National Ministers, Industry (auto, suppliers, oil), NGOs, Trade Unions and MotoristsMeetings throughout 2005, leading to a final report with recommendations to improve competitiveness, reduce costs and avoid cumulative effects of regulation, draft a new regulatory framework for the next 10 yearsFocus on: Competitiveness, better Regulation, Environment, Safety

CARS 21 is a recognition by decision-makers that regulatory issues do affect competitiveness

Define an efficient and competitive automotive policy process and framework

Support the full and rapid completion of the Internal Market

Promote an efficient R&D and innovationframework

Promote an efficient European Transport Policy

Promote a dynamic trade and investmentenvironment in third countries

Reinforce the Competitiveness Council so that it can more effectively and coherently fulfil its mandate

CARS 21ACEA Priorities (Horizontal)

CARS 21ACEA Priorities (Vertical)

CO2 emission reductions (incl. Integrated approach)

Future legislation on emission standards (PCs and CVs)

Safety (incl. integrated approach)

Design protection for visible spare parts

Taxation

WVTA Framework Directive for CVs

Example: Design Protection

The proposal to abolish design protection rights on visible spare parts, adopted by the EU Commission in September 2004, is a good example of « bad regulation »:

No proper impact assessment done and little consultation with the industry

No respect of review procedures contained inprevious legislation

Inconsistent with EU overall policy on intellectual property

No proven price benefits for consumers

Open door to quality and safety issues (compliance with pedestrian protection rules?)

A 2,5 billion Euro present for parts producers outside the EU

Example: Digital Tachographs

The date of entry into service of Digital Tachographs(5 August 2005) has been confirmed, but Member States and suppliers are not ready: National legislation not in place in 12 MS Tachographs Cards not in place in 15 MS Workshop Authorisation not in place in any MS Enforcement Agencies not in place in 17 MS 3 out of 4 digital tachograph producers have still not started deliveries

To date the EU Commission has taken no steps to clarify the situation, despite an EP vote calling for a moratorium. Commission must have the means and the will tocorrect such a situation!

Example: CO2 Reductions

So far, CO2 reductions have been achieved exclusively through technological measures put inplace by manufacturers, while significant and lesscostly progress could be made through an integrated approach comprising:

Vehicle Infrastructure Driver Other Stakeholders

Situation is similar for Road Safety !

Example: China

China is becoming an increasingly important market in the global automotive scene. European manufacturers play a key role in China, but are faced with a number of specific issues:

Chinese Compulsory Certification Joint-Ventures Local Content Emissions Intellectual Property Rights

This penalizes access to Chinese market. Support from the Commission is needed.

Prioritazion and coordination of EU policies

Proper IA methodology and processes

Proper and timely consultation of the industry

Holistic approach to legislation

Technology neutrality

Split-level approach

Art. 95 as legal basis

Global harmonisation of technical rules

Sufficient lead-time

Simplification of EU legislation

ACEA Better Regulation Principles

ACEA Three Pillars Approach

Better Regulation

Develop better Regulation principles

on which to base effective EU automotive policy (incl. review of regulatory process)

Pending Legislation

Review, applying better Regulation principles, pending legislation proposals

Reduce cost of legislation

Future Legislation

Apply better Regulation principles & pro-competitive regulatory process to all future legislation

Put on hold any legislation proposal not respecting these principles

Conclusions

CARS 21 is the first test case for a new, holistic approach to sectorial regulation

Competitiveness must becomes a guiding principle

of EU industrial policy and must be translated into concrete actions ! Cars need to remain affordable !

The EU needs to take into account the global dimension of the automotive market and its future challenges (China, India)

Only a competitive and healthy automotive industry can continue to prosper and innovate, and to

contribute to European economies and sustainable mobility !