View from Brussels: Car renewal incentives will probably be linked to climate targets

The automotive sector has had to halt manufacturing for an average period of 29 days in Europe, costing carmakers like Fiat, Peugeot and Volkswagen millions of euros in lost revenue.

According to official figures, factory shutdowns have caused production losses of more than two million vehicles and affected the jobs of more than one million European workers, at least 65,000 of whom ply their trade in the United Kingdom.

Nearly 300 factories ranging from light vehicle plants in Portugal to bus builders in eastern Ukraine had started to open their doors and restart assembly lines by 6 May, all of which are expected to stick to national virus-mitigation requirements.

The European Automobile Manufacturers Association (ACEA), which represents 16 Europe-based marques, has pointed to the industry’s massive employment and production footprint as reason for governments to help the sector get back on its feet. “A successful relaunch of the auto industry post-coronavirus will clearly be vital to Europe’s wider economic recovery,” said ACEA director-general Eric-Mark Huitema, who called on the EU to coordinate uniform measures across the bloc.

“Measures will also need to be taken to stimulate demand, given that sales have crashed to an all-time low in many key markets,” Huitema added.

Carmakers want renewal schemes to help boost sales – already projected to fall before the virus reared its head – as well as purchase incentives linked to similar criteria across the whole European market.

History shows that scrappage or ‘cash for clunkers’ schemes – most notably illustrated by a $3bn US programme that ran in 2009 – fail to stimulate a long-term economic benefit and struggle to make any kind of meaningful green impact.

But this time could be different, as the world is in a slightly different place and Europe’s priorities have changed. Despite the pandemic’s massive scale, environmental policies are still ruling the roost.

A new ‘EU cash for clunkers’ looks likely to be heavily linked to the ongoing drive for electrification, as industry leaders like VW are moving rapidly towards clean vehicles anyway, so would be more on board with stricter conditions.

Clean mobility expert Julia Poliscanova says: “we will spend a lot of public money at once, it must be done wisely. We should prioritise sustainable, zero emissions and ask manufacturers to develop the entire electric value chain. Europe should not invest public money in thermal engines.”

The idea is starting to gain traction. Germany’s economic’s minister said earlier this month that any renewal scheme would have to respect the Bundesrepublik’s climate targets. In a country where carmakers are king – or at least kingmakers – that is no small thing.

Brussels climate chief Frans Timmermans – who hails from the Netherlands and perhaps has the luxury of being less heavily tied to carmaker interests – has also said that green incentives are a possibility. The Dutchman recently batted off the advances of the all-powerful German car lobby, insisting that emissions reduction targets set to bite at the end of the year will not be delayed due to coronavirus. His words should therefore be taken seriously.

Wheels are already in motion. The EU’s strict state aid laws have been relaxed so that countries can help companies survive the pandemic, with Renault being the only major marque so far to benefit from a bailout.

France’s government decided to prop up the firm with €5bn, which Brussels quickly gave the green light to. But in its assessment, the Commission made a point of highlighting Renault’s big investments in electric cars and how it will help the EU as a whole reach its climate targets.

There are weaknesses in scrappage schemes though, and not just the concern that they only offer incentives to motorists who would have bought a new car anyway.

Analysts are worried that instead of scrapping cars, rich western countries will just ship them east towards Bulgaria and Romania, to a less regulated secondhand market.

It looks certain that the car industry will get plenty of assistance to pull through the virus downturn. Automakers will have to dance to someone’s else tune for once though.