Global Automaker Group Exec Urges Subsidy Restraint

BRIGHTON, U.K. – Government help in encouraging struggling automotive markets can be effective, but assistance needs to be phased out carefully to prevent sales booms from turning into slumps, the head of a global association of automakers says.

Yves van der Straaten, executive director-Organisation Internationale des Constructeurs d’Automobiles (OICA), points to the phenomenal expansion of the Spanish car market as an example. That growth likely is unsustainable, he tells WardsAuto in an interview.

New-car sales in Spain surged 40.5% in the first quarter compared with like-2014. But that growth resulted partly from the continuation of a government-sponsored car-scrapping scheme offering incentives of up to €2,000 ($2,230) to trade in old cars for new. Car registrations rose 32.2% over that time compared with an encouraging but more modest 6.9% increase in France.

“A slow and steady growth rate is important and allows business plans to be made,” he says. “Sometimes a sharp increase is followed by a steep decline, and this makes for a planning nightmare.”

The upturn in the Spanish auto market reflects positive economic growth in recent months combined with a negligible inflation rate. But it is the growth in car-leasing schemes that seems to have driven the rapid advance of new registrations.

In January alone, more than one-third of all new-car registrations were for leased cars, fueled by the PIVE subsidy program operating since 2012. While other EU countries withdrew such incentives as markets recovered after the crash of 2008-2009, Spain renewed its scheme. Automakers are matching the government’s €1,000 ($1,115) bonus for trade-ins.

“Governments can play a truly positive role – they have an important role to play,” van der Straaten says. “The scrapping schemes have helped, but when they have stopped, we can see sharp decreases in new sales.”

In France, a car-scrapping scheme gradually was withdrawn, paving the way for what van der Straaten calls a “soft landing” for the industry there.

Since the end of last year there also has been encouraging growth in Italy and Germany in addition to the U.K. and France. European figures suggest an annual auto-sales growth rate of between 6% and 7% for 2015 if levels achieved in the first three months can be maintained for the rest of the year. This compares to a headline global growth rate of 3% for 2014.

Van der Straaten is uncertain as to whether the early 2015 growth rate is sustainable.

“There are many factors at play here and of course the figures are not encouraging everywhere,” he says.

He suggests European car production could recover to pre-crash levels by 2020 “or perhaps even sooner because these figures show that the first three months of the year have been really good.”

Van der Straaten also is pleased by first-quarter growth rates in Italy: 15.1% in demand and 13.5% in new registrations. These compare with 10.6% and 8.6%, respectively, for the entire EU.

The news is not all good. Away from the heady situation in Western Europe, growth remains a distant dream in some countries further east. The OICA figures for 2014 show year-on-year production decreases of 7% and 6% in Russia and Turkey, respectively.

Van der Straaten remains upbeat about Turkey, saying that market is “relatively stable with huge potential,” but adds, “The same cannot be said of Russia.”

Although he believes growth one day will return, van der Straaten cites specific factors that likely will persist for a while. “The Russian economy is an oil economy and prices have fallen sharply. There have also been the EU sanctions and the sharp decline in the value of the ruble,” he says.

“All of this has combined to make the situation unbearable for the average Russian. Recovery won’t happen quickly. It would be great if they could afford to give tax breaks or incentives, but you can’t invest money that you do not have…2015 will be really tough.”

Van der Straaten repeats his hope that global annual car production will reach 100 million units by the time OICA celebrates its 100^th anniversary in 2019. Output in major countries totaled 88.8 million in 2014, according to WardsAuto data, so his centenary wish looks attainable at current rates of growth.