Friday, January 12, 2007

EU to ban cars

OK. It's a slightly misleading title, but only slightly.

The Telegraph reports that the EU is to introduce regulations limiting car emissions to a maximum of 120 grams of carbon per kilometre by 2012 under proposals unveiled by the European Environment commissioner, Stavros Dimas.

To put this into perspective, The Telegraph points out that even a modest Ford Focus 1.6 will have to reduce it's emissions by a third to remain on sale in Britain. Mr Dimas reveals his startling lack of business sense by claiming that car manufacturers will be able to offset the cost of meeting these targets by subsidising the cost of producing the "cleaner" cars and recouping the money lost on sales of the bigger, "dirtier" cars.

The way he sees the legislation working is that manufacturers would subsidise cheaper, volume family cars and pass the increased costs of developing new, low-emission vehicles on to the buyers of more polluting cars.

This is what is already believed to happen with Toyota, which effectively subsidises the Prius, which entered the market at around £16,000 whereas the true cost of producing it is far more. The extra cost is passed on to luxury models in its range.

What Mr Dimas forgets is that Toyota can do this for now because they can still sell their Landcruiser, RAV4 and Celica models. If they can't sell them - because they do not meet the emissions target, then how will they be able to subsidise the Prius? As a result of that the cost of a Prius will shoot up considerably.

And how will car manufacturers who do not make big volume, cheap runabouts be able to survive? Companies like TVR for example. If you want to know why the world is now run by big, global conglomerates it is because of short-sighted dimwits like Mr Dimas. They create these ridiculous regulations that suit nobody but the big global companies and force the little companies either out of business or into being swallowed up by the global players.

The way the EU is taking Europe, we'll soon be back in the Middle Ages.

6 comments:

Dark_Heretic said...

Another example of moronic nearsighted thinking.

If these car company are not going to be allowed to sell these cars in the EU what do you think will happen?

option 1. Destroy all of the cars not allowed by the EU. Surely a negative setback for the environment?
option 2. transport all illegal cars from the EU and sell them someowhere else in the world where they are allowed. An even more negative result for the environment as huge amounts of emissions will be produced just by transporting them. Then they will still be sold and used creating more emissions.

Don't these green enviro-nuts and the EU for that matter know that these green hybrid cars are more damaging to the environment than 4X4's especially when looked at through the dust to dust cycle!

Stan said...

I'm no car industry expert, but I believe this is far more serious than is realised. I believe this will be the death of car manufacturing in Europe leading to the loss of thousands of jobs and billions of pounds of revenue.

For example - look at Land Rover. There is nothing they make that will qualify to be sold in Europe. If they do manage to make a car that does qualify it will be so expensive and so weak compared to other models that no one will buy it. If they can not sell cars in Europe, what is the point in making cars in Europe? Might as well move production to China. Same for BMW and many others - including Ferrari, Lamborghini, Bentley, Rolls Royce and TVR. Unless the costs are very low, nobody makes something in a country ore region where they can not sell their product.

The volume manufacturers - like Fiat and Citroen just do not generate enough revenue from sales of smaller cars like the Punto or C3 to cover the R&D costs of developing new cars. Sure they will sell more of the smaller cars, but over time they will fall behind Japanese, Korean and even Chinese competitors because they do not have the expensive (and lucrative) models to bring in the revenue to fund the R&D on new models.

How anyone can support the EU when they are so determined to ruin Europe is beyond me.

Voice of reason said...

"Don't these green enviro-nuts and the EU for that matter know that these green hybrid cars are more damaging to the environment than 4X4's especially when looked at through the dust to dust cycle!"
Dark_Heretic, you've been reading that report that was paid for by General Motors and the like, that made some wildly offbeam and totally flawed assumptions (like 4x4s get driven 3 times as many miles as hybrids, therefore the environmental cost of their construction can be divided over 3 times as many miles, assuming that the batteries contain lead and are non-reusable (both wrong)).

Stan said...

The trouble with the "dust to dust cycle" report - or rather the reporting of it - is that it featured heavily on the Hummer v the Prius. From what I have read, the study was exhaustive and fair - the projected lifetime mileage, for example, was Toyota's prediction. A comparison between a Prius and a Focus would have been more fair.

The other thing that bothers me about this is that we'll see an increase in diesel engined cars. Diesel - which is reckoned to be carcinogenic - is far more dangerous in my opinion.

John said...

To Stan -

The EU is the largest market in the world, if Land Rover don't sell their cars here then another company will and given that the EU would have the strongest environmental regulations in the world why would a non-EU company find it easier to sell cars in the EU? This would actually increase the amount of cars being bought from European companies because foreign companies have a choice as to whether they export to Europe (and thus could stop if the environmental costs are too great) whilst European companies have no choice and will adapt to the regulations regardless. Land Rover cannot just get up and leave any more than an American company like Dodge could waltz into the EU and achieve the same market share as it does in the states.

In any case, again this seems to be portraying the situation as some "EU imposed law". This will not become law unless it's agreed to by the member states. If the proposal is a piece of nonsense then the member states will vote against it, the Commission can only propose legislation in this area.

Stan said...

Hello John,

Thanks for your comments. I'll answer your points one by one if I may.

"The EU is the largest market in the world"

No it isn't. I don't know where you get that from - probably reading too much EU propaganda ;-) - but the EU is roughly around half the size of the Indian market and a third that of China.

"if Land Rover don't sell their cars here then another company will and given that the EU would have the strongest environmental regulations in the world why would a non-EU company find it easier to sell cars in the EU?"

As pointed out in the original article, the cost of producing environment friendly cars (let's call them "green" to save typing)is offset by the profits made from selling non-green luxury cars.

For companies based in the EU, the loss of the EU market for their non-green cars will mean they will not make enough profit from their luxury end to subsidise the cost of green cars. So the cost of the green cars they do produce will be higher than the cost of green cars produced by companies outside of the EU who will largely retain their luxury market.

The loss of profit will also mean a cut in R&D and that will mean that what they do produce will not be as good as the foreign based competition.

So, because they can still subsidise their green cars and because they still have the profit from their non-green cars for a healthy R&D, non-EU companies will find it easier to sell their cars.

Why would anyone pay, for example, a £5000 premium for an EU produced green car that is not as good as a, for example, Korean producd green car? The only way the EU could stop that is by imposiing tariffs - and that will result in counter tariffs from other countries. It will also mean considerably higher priced cars - so people would buy fewer cars.

"This would actually increase the amount of cars being bought from European companies because foreign companies have a choice as to whether they export to Europe (and thus could stop if the environmental costs are too great) whilst European companies have no choice and will adapt to the regulations regardless."

Non-EU companies are already successful at selling cars in Europe. They tend to be more succesful at the cheaper end of the market and in the 4x4 market. The closing of the luxury car market to them will not have much effect on their EU sales. In Europe, the luxury market is dominated by EU manufacturers so the loss of that market will hit their sales (and their profits)considerably. They will still be able to sell their luxury cars abroad, though. What you may see is a short term rise in the sale of EU produced low end cars, but, as I pointed out earlier, over time they will find it harder and harder to compete both on price and on quality.

"Land Rover cannot just get up and leave any more than an American company like Dodge could waltz into the EU and achieve the same market share as it does in the states."

They will have no choice. They will either shift production to somewhere where they can sell their cars and the cost of production is cheaper - or they fold.

Think of it like this. You own a British company producing widgets -John's Widgets. You sell these widgets all over the world, but your biggest market is Britain. Suddenly, the government ban the use of your widgets in Britain - overnight 60% of your market is gone and you are now losing money. What do you do? You could try and redesign your widget so that you can sell it again in Britain, but that market is dominated by foreign companies who can produce that widget far cheaper than you - even without considering the redesign costs.

If you are going to survive you have to sell more widgets or reduce costs. So you cut your staff by over half - but that's still not enough to turn into profit. John's Widgets is losing money hand over fist. New, more advanced widgets are being produced by foreign companies and you can't match these either because you don't have the money to invest in R&D. You're now losing market share in the countries where you do sell.

Along comes a Chinese widget manufacturer who wants to buy you out. They don't care about your factory or your staff or your history of widget manufacturing. All they want is your widget design so they can copy it, produce it in Chinese factories for a fraction of the cost and sell it across Asia and maybe even in the USA - a market they have failed to break with their own widget because it lacks the "brand" or the quality. You have a choice now - sell or go bust. You sell. John's Widget lives on as a name, but is now made in China. All your employees are out of work and their skills not in demand - no one makes widgets in Britain anymore. No point if you can't sell them.

"In any case, again this seems to be portraying the situation as some "EU imposed law". This will not become law unless it's agreed to by the member states. If the proposal is a piece of nonsense then the member states will vote against it, the Commission can only propose legislation in this area."

The fact that it is on the table as a proposal demonstrates just how dmaging the EU is. They believe the answer to everything is more regulation, but it is the increasing EU driven regulation which is destroying the competitiveness of EU based businesses or drving more and more of them into larger and larger conglomerates.

Secondly, the proposal will not require the agreement of ALL member states - just enough to get through with QMV. as such it will be an "EU imposed law" for those states that opposed it should it go through.

Regardless of whether it is passed by all or only most states - the fact remains that, should this become law, it will signal the end of car manufacturing in Europe.