How Can the Regulatory Framework Help to Improve the Competitiveness of the European Automotive Industry? Ivan Hodac

1. How Can the Regulatory Framework Help to Improve the Competitiveness of the European Automotive Industry? Ivan Hodac Secretary General of ACEA FEBIAC General Assembly Brussels, 16 June 2005

2. ACEA: An Overview • ACEA represents the whole European automotive industry • 13 companies, CEOs members of the Board • 24 National Associations as associate members • 17 million vehicles produced per year • 1.9 million direct jobs • 19 billion € in R&D investment • 33.5 billion € of net trade contribution • 340 billion € of tax revenues

3. Average car Production per 1.000 inhabitants2005

4. ACEA Challenges • ACEA represents an industry and a product that is constantly under the spot in many areas: • Environment (emissions, CO2, ELV, noise…) • Safety (e-safety, pedestrian, EuroNCAP…) • Mobility • Intellectual Property (design protection…) • Tax, etc. • This means we are constantly under pressure and in the public arena

5. ACEA Achievements The European Industry has made significant achievements towards sustainable mobility and is fulfilling its societal responsibilities: • Reductions in emissions / CO2 • Reductions in noise (by 90% since 1970) • Recyclability of cars (almost 95%) • Active and passive safety (belts, ABS, ESP, airbags, …) • e-Safety • Mobility (navigation systems, RTTI) We should speak up about all these achievements!

6. Economic Situation of the MV Industry • The competitive development of the European automotive industry depends on a strong and profitable home market, requesting high market acceptance of its products! • A strong home market is crucial for the industry to: • Enhance Europe as a high volume and profitable automobile production location; • Safeguard jobs at stake; • Enhance Europe’s potential in the field of R&D and technological innovation. Growth on third markets Profitable Home Market Market acceptance

7. Economic Situation of the MV Industry • Today, the European market constitutes the most competitive and at the same time the least profitable market in the world! HICP: Harmonised Index of Consumer Prices Source: Eurostat Source: Deutsche Bank

8. 1990 1995 2000 2003 2004 ACEA JAPAN KOREA 88,1% 11,8% 0,1% 87,8% 10,7% 1,5% 85,2% 11,4% 3,4% 84,0% 12,7% 3,3% 83,2% 13,1% 3,3% Economic Situation of the MV Industry ACEA members have lost market shares in their home market to the benefit of Japanese and Korean makers Source: ACEA

9. The Issue of Competitiveness The EU Commission has officially recognized in its European Competitiveness Report of 2004 that it exists a link between the Regulatory Framework and Competitiveness: “Clearly, the competitiveness of the automotive industry depends on a coherent and cost-effective regulatory framework […] Progress is still to be made in reducing regulatory complexity and in designing regulations so as to meet their goals while taking into account possible conflicts between regulations, their cumulative impact and theirexternal aspects”

10. Factors affecting the Competitiveness of the Industry The Regulatory Burden: A comparison with the US • EU has a higher number of automotive regulations • EU has not a completed internal market • EU has higher regulatory stringency and demands for the automotive industry • EU has shorter lead times than the US • EU has higher bureaucracy and red tape • EU has a lower economic growth • EU automotive market is less profitable 10

11. Factors affecting the Competitiveness of the Industry The regulatory burden Industry performance suffers from numerous and often un-coordinated and unbalanced EU regulations, that are interpreted and implemented differently in the various Member States! • Incoherency of EU legal requirements: • Ex.1 : Fuel efficiency versus NOx emissions • Ex.2: Safety requirements versus CO2 emissions • Ex.3: Pedestrian safety versus industrial design protection and CO2 reductions • Consequences: • Regulatory density increases the costs of doing business in Europe! • Budget is devoted to meet new regulatory requirements (and updates) rather than to more competitiveness-orientated investments (R&D,…) • Cumulative cost resulting from legislative • pressure

12. Factors Affecting the Competitiveness of the Industry TheRegulatory Issues • Unfavourable market acceptance of EU legislationCustomers are not willing to pay for features which are not for their direct interest:environment, recycling, pedestrian safety (ex.: low success of the green models of several B-cars in EU) • Introduction of non-technical legislation which has or • will reduce the profitability of the industry:Design protection of spare parts, distribution system, warranty • New policy of the Commission to promote ratings, • labels or transport policies which will add costs to • the vehicle or its use(Euro-NCAP, green purchasing, road pricing,…)

13. CARS 21 In January 2005, the Commission has launched CARS 21, an innovative initiative to address competitiveness of the automotive sector: • HLG composed of EU Commissioners, MEPs, National Ministers, Industry (auto, suppliers, oil), NGOs, Trade Unions and Motorists • Meetings throughout 2005, leading to a final report with recommendations to improve competitiveness, reduce costs and avoid cumulative effects of regulation, draft a new regulatory framework for the next 10 years • Focus on: Competitiveness, better Regulation, Environment, Safety CARS 21 is a recognition by decision-makers that regulatory issues do affect competitiveness

14. CARS 21 ACEA Priorities (Horizontal) • Define an efficient and competitive automotive policy process and framework • Support the full and rapid completion of the Internal Market • Promote an efficient R&D and innovationframework • Promote an efficient European Transport Policy • Promote a dynamic trade and investmentenvironment in third countries • Reinforce the Competitiveness Council so that it can more effectively and coherently fulfil its mandate

15. CARS 21 ACEA Priorities (Vertical) • CO2 emission reductions (incl. Integrated approach) • Future legislation on emission standards (PCs and CVs) • Safety (incl. integrated approach) • Design protection for visible spare parts • Taxation • WVTA Framework Directive for CVs

16. Example: Design Protection The proposal to abolish design protection rights on visible spare parts, adopted by the EU Commission in September 2004, is a good example of « bad regulation »: • No proper impact assessment done and little consultation with the industry • No respect of review procedures contained inprevious legislation • Inconsistent with EU overall policy on intellectual property • No proven price benefits for consumers • Open door to quality and safety issues (compliance with pedestrian protection rules?) • A 2,5 billion Euro present for parts producers outside the EU

17. Example: Digital Tachographs The date of entry into service of Digital Tachographs (5 August 2005) has been confirmed, but Member States and suppliers are not ready: • National legislation not in place in 12 MS • Tachographs Cards not in place in 15 MS • Workshop Authorisation not in place in any MS • Enforcement Agencies not in place in 17 MS • 3 out of 4 digital tachograph producers have still not started deliveries To date the EU Commission has taken no steps to clarify the situation, despite an EP vote calling for a moratorium. Commission must have the means and the will to correct such a situation!

18. Example: CO2 Reductions So far, CO2 reductions have been achieved exclusively through technological measures put in place by manufacturers, while significant and less costly progress could be made through an integrated approach comprising: • Vehicle • Infrastructure • Driver • Other Stakeholders Situation is similar for Road Safety !

19. Example: China China is becoming an increasingly important market in the global automotive scene. European manufacturers play a key role in China, but are faced with a number of specific issues: • Chinese Compulsory Certification • Joint-Ventures • Local Content • Emissions • Intellectual Property Rights This penalizes access to Chinese market. Support from the Commission is needed.

20. ACEA Better Regulation Principles • Prioritazion and coordination of EU policies • Proper IA methodology and processes • Proper and timely consultation of the industry • Holistic approach to legislation • Technology neutrality • Split-level approach • Art. 95 as legal basis • Global harmonisation of technical rules • Sufficient lead-time • Simplification of EU legislation

21. ACEA Three Pillars Approach Pending Legislation Review, applying better Regulation principles, pending legislation proposals Reducecost of legislation Future Legislation Applybetter Regulation principles & pro-competitive regulatory process to all future legislation Put on hold any legislation proposal not respecting these principles Better Regulation Developbetter Regulation principles on which to base effective EU automotive policy (incl. review of regulatory process)

22. Conclusions • CARS 21 is the first test case for a new,holistic • approach to sectorial regulation • Competitiveness must becomes a guiding principle • of EU industrial policy and must be translated into • concrete actions ! • Cars need to remain affordable ! The EU needs to take into account the global dimension of the automotive market and its future challenges (China, India) Only a competitive and healthy automotive industry can continue to prosper and innovate, and to contribute to European economies and sustainable mobility !