EUROPEAN VEHICLE MANUFACTURING – A WARNING?
There are undeniable headwinds for the European-based vehicle manufacturers, which force the question about what the near future looks like. These problems boil down to:
1. Excess manufacturing capacity, which means paying for factory space as well as tools that simply are not used enough.
2. Significantly higher labour costs right across all aspects of the operation compared to some competitors outside of the region.
3. The whole so-called transition to pure electric powered vehicles.
Let’s look at each of these in turn.
Too many factories
A vehicle manufacturing plant is like a small town, in that a huge community of workers arrive there every day, fed with parts made by many other factories. To not only keep a plant running but allow its utilisation to be greater than break-even (the maximum number of vehicles that could be built and the actual number built) is a huge task for the entire team. There are many factors on the path to success, not least of which is product that consumers want to buy.
The UK did slaughter its automotive sector, which reduced the market for the numerous suppliers, forcing them to either go out of business or sell to the sector elsewhere in the world. Make no mistake – there was a net loss of manufacturing jobs. The adjustment was down to unreliable products, underlying subsidies and lack of demand. In mainland Europe and especially Germany, the products were in demand around the world, the reliability issues two decades ago were not on a par with Japan based manufacturers, but accepted along with the premium price tag to pay for some of the most expensive labour in the European Union.
Study after study highlighted that the crown jewels – the business management, industrial design, engineering and some aspects of manufacturing – could remain in the present locations, the bulk of the business needed to move. That was politically unacceptable, and so continued the long, long dance to ignore the problem of excess overhead costs.
Yes, factories were established with great success in lower cost countries to the East of the EU27 region, but this was too little, too late.
European wages in a global manufacturing market
In part driven by the success of the automotive sector, the manufacturing jobs were, and still are, well paid. This point was not lost on the Chinese Communist Party who made the establishment of a significant domestic automotive manufacturing sector a top priority in every single five-year plan for the past four decades. The economic effect for component suppliers, tooling manufacturers., logistics, foreign currency and more caused by a core of well-paid workers is significant.
Some time ago EU27 manufacturers ceased to have sufficient profit margin in their products to be able to compete head-to-head with lower cost base economies. Instead, consumers were encouraged to spend more because of ‘brand values’, to luxuriate in the products evolved from long held traditions as well as quality technology innovation.
Except…
The manufacturers in the process of trying to minimise cost out-sourced more and more technology to suppliers, who in turn traded globally. Component by component that advantage of being a slightly pricy but well-built vehicle was eroded. Every single investor from Jakarta to Rio could access such technologies, if they wanted. The long-held idea of selling off old production lines and tooling to ‘emerging markets’ disappeared. Thanks to the internet and then social media, the buying public knew full well what the latest vehicles looked like, sometimes before the official launch.
The big transition
On top of the two major trends government policy to force the increased rate of pure electric vehicle sales has left vehicle manufacturers – and importers too – with a problem. Selling a vehicle with an internal combustion engine in spite of punitive taxation is still more profitable than battery electric vehicles, yet there are significant penalties in the UK for not meeting escalating battery electric vehicle sales quotas. In effect, it’s a double tax, a situation the EU27 may also adopt.
In the recent tariff ‘war’ between the EU27 and China, it became apparent the latter have profit margins of at least 30%. In effect, if the European sector builds vehicles at cost, the China based companies can undercut them and still show a profit.
The effect
Taken together, the European manufacturers carry too much overhead, struggle to finance due to poor profit margins, have increasing wage bills due to competition from other more profitable sectors, and to finish off the show, the EU27 Commission held the gun (pure electric vehicle mandates) and then fired it.
This is why some vehicle manufacturers are announcing yet more job losses – on one day in November 2024 there were 14 600 jobs put on notice around the world. In Germany the transition has resulted in 46 000 net automotive manufacturing jobs losses between 2019-24 in spite 29 000 new BEV related roles according to the VDA, with a grand total of 186 000 job losses between 2019-35 in just one country!
What happens next in Europe is uncertain. The entire sector needs to come out fighting for every single sale, harder than ever before.
For the collision repairer the reduction or even end of mass production in Europe might seem irrelevant. New vehicles will continue to be built somewhere and they will need to be repaired. However, as the UK and Australia know full well, when domestic or even regional manufacturing ceases, so the flow of parts to support the imported vehicles becomes considerably more ‘emotional’.
Collision repair is a service, one that relies on a steady vehicle population increase and – as we have in the UK – mandated vehicle insurance. Motor insurance in Europe is under cost pressure, with steadily increasing number of drivers doing so without insurance. More commonly, to manage costs many non-corporate drivers elect to get smaller repairs done directly with the body shops – a small but significant shift.
So, let’s think twice about that pesky old vehicle that could easily be flipped into salvage and think a bit harder about how it just might be repaired instead This is how the collision repair sector will survive and flourish.
A final thought
Most vehicle manufacturers operate in a global market place and indeed manufacture in multiple locations. They also know the problems of selling new cars and how most consumers don’t come back for routine service work. Perhaps the time has come for a re-think?
A vehicle built so that it can be re-skinned (see BMW i3 or Smart ForTwo 450/452/452), to use the immense recycling systems developed to give a second or third life to a vehicle rather than only build from scratch? Renault Group, Volkswagen Group, Stellantis and more have built plants dedicated to rejuvenation of fleet vehicles for retail along with systems to gather/process/refurbish components.
This is a complex and tricky business, but perhaps there is more life in the automotive business with this path rather than forever seeking the next low labour cost market to house manufacturing plants?
Story by Andrew Marsh
