In Focus Risk
vehicles will go into terminal decline ahead of being outlawed, in the UK and France by 2040; 2030 in India. Yet most established automotive leaders
are still some way from offering a full range of electric-powered vehicles.
Production Production of cars in the UK was 129,030 in November last year – down by one fifth on November 2017. More than 80% of British cars are exported. About 1.7 million cars were manufactured in the UK with an estimated 60% of their components coming from abroad, making the industry uniquely sensitive to the outcome of the Brexit negotiations. VW reported record sales in January,
though some analysts fear that this may have come at the expense of profits as the company is thought to have discounted heavily. The company’s over-dependence on diesel has prompted a massive investment programme in electric and self-driving technology which is yet to bear fruit. European automotive stocks slumped in December. The markets have assigned poor valuations to Germany’s three major car manufacturers while assigning optimistic valuations on more speculative stocks such as Tesla, despite the efforts of the short-sellers. All of the European volume manufacturers
have huge fixed costs and enormous pension- fund deficits. That is not likely to change.
Globally The global automotive industry faces a systemic threat. Demand for new cars is falling as the economy slows; people are delaying new purchases in anticipation of electrification and driverless technology; and life-style factors cool demand thanks to the sharing economy. The traditional barriers to entry which
have protected established volume producers are falling. A successful manufacturer of vacuum cleaners and hand dryers, Dyson, is currently building a factory which will produce electric cars in Singapore for the East Asian market. The disruption of the global automotive
market could not have come at a worse time for Germany and France. In both countries, car production accounts for a large proportion of total manufacturing.
March 2019
www.CCRMagazine.com 39 A slump in Germany, in turn, could have
dramatic consequences for the future of the single currency. Brexit has restated the fundamental question of what the EU project is about. Is it a Europe of sovereign nation states trading amicably, or a federal European super-state led by Germany? Frau Merkel’s open-door immigration
policies have led to the anti-immigrant Alternative für Deutschland shooting up from zero votes in 2013 to the third-largest political party in the September 2017 elections. Not to mention the open hostility of the Hungarians, the Poles, and now the Italians.
The French automotive industry is
particularly skewed towards diesel since diesel was actually favoured by tax incentives until about a decade ago. Diesel fuel is still cheaper than petrol in France – the opposite is true in the UK. Meanwhile, France is distracted by a
slow-burn revolution caused by an elitist globalist president who slashed taxes for billionaires but slammed new carbon taxes on semi-skilled tradespeople. As I write this, last Saturday, another
Demand for new cars is falling as the economy slows; people are delaying new purchases in anticipation of electrification and driverless technology; and life-style factors cool demand thanks to the sharing economy
60,000 people rioted in most major French cities, confronted by 80,000 combat-clad policemen. French friends tell me that resentment about police conduct is now reaching boiling point. It is sad to see a country one loves in a state of such distemper. Thus a protracted downturn in European
manufacturing, with fewer cars produced, is likely to come at a moment of extreme economic and political uncertainty. The Chinese – who already buy over
one million electric cars each year – will probably ride out the great disruption of the automotive sector with relative equanimity. I doubt if Europe will. CCR
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