European Auto Makers Knock CO2 Rules, Free-Trade Deals

BRUSSELS – European auto makers warn the European Commission is handicapping them with unrealistic carbon emissions-reduction demands while exposing them to more mid-market import competition with free-trade agreements.

In an interview with WardsAuto, Ivan Hodac, secretary-general of the European automobile manufacturers association, says, “We don’t understand why the European Commission has to impose on us the toughest targets in the world.”

The 2020 target of 95 g/km of carbon dioxide set by the EC is by far the world’s toughest, outstripping those in China, the U.S., Japan and South Korea, Hodac contends. A target of 105 g/km would have been far more reasonable, he says.

Indeed, achieving this new target technically is impossible at the moment, warns Hodac. “With the existing technologies, we cannot get to 95 g/km on average. There has to be, or there will have to be, a very high level of hybridization, plug-in hybrids, electric cars and alternative  powertrains, investment that requires enormous amounts of money.”

The EC estimates it would cost €1,500 ($1,834) per car to reduce emissions to 95 g/km. “Whatever it is, it’s a huge amount of money,” Hodac says. “You can’t pass all the costs on to the consumer, because of the competition on the market. Nobody has a clue how much it would be.”

Electric vehicles are not popular enough to help auto makers make much headway in reducing CO2 emissions, the industry official says. Reasons include high prices, lack of charging infrastructure and unacceptably limited ranges.

“You would like to have approximately the same range as you have for the classic car, which is between 310 miles (500 km) and 620 miles (1,000 km),” Hodac says. “And the electric cars today have a range of 93 miles (150 km) for one charging, and in the winter maybe of 46 miles (75 km). So the batteries and the technology have to improve.”

Adding to the pressure on European auto makers that, according to Hodac, are making little if any money on domestic sales, the EU is preparing to negotiate a free-trade agreement with Japan after concluding a trade pact with South Korea last year.

Exports of duty-free cars from South Korea to Europe have exceeded European exports to the Asian country, while non-tariff barriers and consumer prejudice against foreign cars keep European makes out of showrooms in those countries, the ACEA executive contends.

“We want a level playing field,” Hodac says. “We are not saying that we need protectionism, but by the same token we cannot see other markets not being open and the European market being open.”

His view of the year-old EU-South Korea FTA is not positive: “We still have a number of non-tariff barriers (NTBs) to trade in Korea, and mainly the Korean market is saturated.”

In announcing plans to negotiate an FTA with Japan this year, EU Trade Commissioner Karel de Gucht stressed the EU would wait for Japan to eliminate its non-tariff barriers before lowering its tax on Japanese imports.

“I know he says that. But one thing is theory, and the other thing is practice,” Hodac says. “If you eliminate all the NTBs in Japan, theoretically speaking it would ease our access to the Japanese market.”

But even then, he argues, Europeans only would be able to sell luxury brands such as Mercedes, BMW and Audi, because small and medium-size cars from Europe never have been successful in Japan. “The Japanese market is protected by invisible NTBs. Outside Tokyo, in small towns and villages, nobody would buy a non-Japanese car.”

He also is convinced the Japanese will do nothing to impact local sales of tiny, domestically built Kei cars, which command a 35% market share. Because Europeans produce nothing like these small-motor vehicles, one-third of the Japanese car market still would be outside of their reach.

“Even with the elimination of all the NTBs in Japan, I don’t believe that the prospect for a balanced trade is very good,” Hodac says. “The market is saturated; we know that it’s going to go down as time progresses.” He adds, citing Japan’s declining population.

The situation at home looks gloomy, too, with the ACEA chief predicting European light-vehicle sales will fall 7% to 8% this year. After five consecutive years of decline, Hodac believes the market might bounce back in 2015 or 2016. But for that to happen the EU would need to improve its economic situation and consumer confidence must return.

If an effective regulatory framework can be created, then “we can talk about the labor market, the economic conditions, the free-trade agreements and the level playing field,” Hodac says. The auto industry then would “have a good future in Europe.”