Post-Covid Government support – an industry own goal?
As those dealerships that were closed reopen across Europe, we are starting to get a feel for the level of customer demand that will – or will not – help pull the industry, and our broader economies, out of the slump caused by the pandemic. We won’t see the pan-European registration data from ACEA for May until the middle of next week, but in the major markets that had started to reopen, sales were down by 50% to 60% year-on-year, whilst in the UK where dealerships were still closed, but some click and collect deliveries were being made, sales remained down by 89%.
A range of consumer surveys suggest that a significant factor in the slow return of buyers has been the expectation that there will be great deals available, backed by some form of Government support for the industry. The industry itself has been intensively lobbying in all markets – even those that did not have a full lockdown – for intervention in some form of scrappage scheme. We endorsed the need for stimulus, but felt that the combination of heightened levels of consumer engagement on green issues, and the economic cost to governments of Covid-related support across all sectors, meant that a straightforward appeal for government funds was unlikely to be successful.
We suggested that a ‘self-help’ scheme which did not depend on government funds (though that would always be welcome), but which allowed OEMs to develop tailored offers that traded off scrappage incentives against credits on the 2020-21 CO2 targets might be more acceptable politically, win some positive PR for the industry through solving it’s own problems, and give flexibility to each OEM recognising their own product offer and progress against the targets. The principles of such a scheme are outlined in a briefing available here on the ICDP website.
It does not give me a great deal of pleasure to say that what has actually happened looks to be an industry ‘own goal’. The support announced so far in France, Germany and the Netherlands does not provide the broad stimulus that is needed to the industry. In Germany, other than a short term 3% reduction in VAT rates, there is support only for pure electric and plug-in hybrid cars. In France, whilst the scrappage allowance already available for those buying a new IC-engined car has been doubled to €3,000, the bulk of the €8 billion package is aimed at EVs and a longer term aim of making “France Europe’s top producer of clean vehicles.” In the Netherlands, there are new subsidies for pure EVs, but also a row about tax changes that the trade associations claim will increase the tax take on business cars due to the change to using WLTP figures as the basis for calculation.
The reality is that the inventory on the ground and orders in the pipeline reflect a pre-Covid mix of environmentally friendly Euro 6 cars, with the vast majority not having any plug-in functionality, and therefore not being eligible for some of these new incentives. Conversely, the cars that are incentivised are BEVs and PHEVs where margins are lower, and parts supply constraints exist that prevent dramatic volume increases.
We therefore risk facing the worst of both worlds - a lack of incentives on the cars that most customers want and the industry needs to sell to rebuild profitability, and increased demand for cars that the industry can’t build at margins that it can’t afford. Meanwhile, consumers are likely to sit on their hands rather than head to the dealership (virtually or in person). It may be embarrassing for the lobbyists to go back for a second bite of the cherry, but if they don’t, I fear that we are looking at an L-shaped recovery extending well into 2021, rather than the shot in the arm that is needed to get everyone back on their feet.