Stellantis e la tempesta auto

Analysis

Cars, the epoch-making crisis in the automotive industry: from dieselgate to EU green policy

The reasons for the crisis in the automotive industry: dieselgate and European green policy

by Pier Luigi del Viscovo

4 October 2024

Il montaggio di cablaggi in una Audi Q6 .

4' min read

Key points

Green and covid effect
The hard curve of cars on tap
The misinterpretation of the Tesla phenomenon

4' min read

Dieselgate was not the cause of the disaster into whichthe Western automotive industry got itself into, but its thermometer was. All the weaknesses of the industry and all the pitfalls of the external environment, that so-called 'anti-car party' formed by large portions of civil society that, although they use cars, have never fully digested them, identifying them as the symbol of certain frenzies and complexities of urban life, emerged from the handling and reactions to that attack by the American authorities on German manufacturers.

This broad and deep front discouraged the manufacturers from reacting in the appropriate manner, i.e. by stating that what was at issue was not the technology of the diesel engine, but the artifice of a single manufacturer, which in turn gave way to contrition and excuses, perhaps due to cultural legacies. In short, diesel ended up in the dock, but the entire industry showed itself incapable of resisting and defending itself: it was attackable and vulnerable.

Green effect and covid

In the years that followed, the green movement, which had found its standard bearer in a young girl with pigtails, sniffed that it was the car that was the underbelly and, once in office in the Commission, pushed through two pieces of legislation that would in fact hinder car production. On the one hand, the ban on the sale of thermal cars, but far away in time so as to avoid immediate clashes. On the other, the demand as early as 2020 for a certain market share for plug-in cars, between 5 and 10 per cent.

In the pre-pandemic world it would have been complicated, as the competition was on volume and therefore they were pushing thermal cars with price. But then Covid came along and shuffled the cards and strategies. No longer volumes, which were impossible to chase given the shortage of chips and other things, but margins and consequently a focus on medium-large cars, price lists increased twice a year and discounts reduced to a bare minimum. The under 14,000 euro list segment, which accounted for 7 per cent of sales, was wiped out.

Thermal car volumes dropped, surprising only those completely unfamiliar with the basics of economics, making the share of plug-in cars more affordable. Massive communication and incentives did the rest, convincing those customers that they could recharge and use their cars in the city, so the fines were avoided by almost everyone, except for the purchase of a few credits from Tesla and Geely.

The difficult curve of the cars on tap

Of course, it remained an industry that, while closing excellent balance sheets, with 30% less production in Europe was struggling to keep all 12.9 million employees working. Moreover, in the second half of 2023, the main market, Germany, was closing the incentive taps on electrics. Then there are the fleets, with car policies that are very electrically oriented but whose executives are barely willing to drive a plug-in hybrid. Everything goes for the green cause, but once delivered they could only be counted on to be replaced after four years. A country that had been a forerunner for electric company cars, the Netherlands, had been showing a stable share for years, almost 30 per cent yes, but stable. In short, the growth curve of plug-in cars was starting to flatten out in the major European markets.

This brought up a huge problem: the limits on average CO2 emissions, which will fall from 116 to 94 g/km from 2025, will be unattainable for almost all manufacturers. With the usual rather long lead times, and curiously enough by letting the European elections pass first, the ACEA, the European manufacturers' association, blew it up after the summer: since the market is not absorbing the 20/25% or so of cars on tap that would be needed, to stay within the average and avoid fines we have no choice but to reduce the production of thermals. By how much? But nothing, more or less four cars that will never see the light of day for every electric that customers do not buy.

The question remains as to why an industry that has raised prices and lowered discounts, squeezed suppliers to the limit and eliminated many low-margin car sales is reporting survival problems. It can happen if in the meantime you have made investments in electric car production, the market for which was only in the power points of consultants, whom you obviously paid to be told it was there, not 'if' it was there. It can happen if in the meantime you made investments to turn your engineering company into a hi-tech company, under the illusion that the car was turning into a mobile phone on wheels and that billions of dollars would come from software and an unidentified mobility-as-a-service.

The misinterpretation of the Tesla phenomenon

Finally, two more questions remain, which circulate among normal people. One, why has politics so brutally cornered one of its best industries, instead of strengthening it to compete with China's? To this one there is no answer, and perhaps it is for the best. Two, how is it that managers have succumbed to the pressures of politics, deluding themselves into thinking they can steer customers, and to the temptations of the rubberized smartphone? Here some answers can be ventured. Certainly a well-established self-referentiality, typical of large, product-oriented industries, which clouds the capacity for consumer intelligence.

Hence the misinterpretation of the Tesla phenomenon, the real big news of recent years. With the same awe manifested at the time of dieselgate, they mistook it for a competitor, even a forerunner to be imitated and chased, as if the tens of millions of customers who buy a car every year were doing so by mistake, wanting something else underneath. Hence also the idea of bringing together the customers' desire for a car with their environmental sensitivity as citizens and the desire for social always-on.

In conclusion, a disaster such as the one that lies ahead, however heralded, is the result of a series of proximate and remote causes that have overlapped and intertwined over the years, and not of a mistake or weakness. Otherwise, it would be easy to remedy. Instead, all that remains now is to pick up the pieces and start again.