L'Ombre de l'Olivier

The Shadow of the Olive Tree

being the maunderings of an Englishman on the Côte d'Azur

12 January 2007 Blog Home : January 2007 : Permalink

EU promises economic depression

That isn't how they spin it, but the EU's attempts at reducing vehicle emissions seem almost certain to cause much pain to the EU's motor trade and could well cause significant unemployment and result in the closing of car plants. Western Europe's manufacturers are already under some pressure from foreign rivals, from Toyota and Hyundai to low cost Eastern European planst such as Renault's Dacia Logan. The Wapping Liar's Parisian correspondent, Charles Bremner; had a blog post about the decline of the French manufacturers and, while his points do not necessarily cross over the Rhine, the Channel or the Alps I think there remain a number of common points. To go back to the EU though, the Torygraph article reports that:

Gas-guzzling sports cars, 4x4s and people carriers could be priced off the road within five years after a crackdown on carbon emissions to be announced by the European Commission this month.

The average new car in 2012 will have to emit no more than 120 grams of carbon per kilometre under proposals to be announced by Stavros Dimas, the European Environment Commissioner. The rule change could add more than £3,300 to the cost of a vehicle.

I think that this is actually incorrect and the fact that the EU can't understand this is liable to lead to
  1. a continuing failure to meet emissions targets
  2. a severe economic downturn
Why? Let me runs some numbers. If £3,300 (€5000, US$6500) is required to be added to the price of a new vehicle then the hit will be on the sales of lower priced cars not the higher ones. People who can afford £30,000 chelsea tractors can afford a 10% increase to a £33,300 version of the same (worst case they skip a few of the extras and only pay £32,000) however people who are in the market for a £10,000 little runabout are going to look for a second hand car instead of a new one since £13,300 is a massive 33% increase. This means that the sector that is likely to be hit hardest is the mass market one not the high end. Furthermore no one doubts that Western European vehicle workers are extremely costly - recall VW's recent negotiations to try and reduce their labour costs - so this means that imported vehicles with lower labour costs are going to be more attractive. Am I going to go for a French built Peugeot when a Hyundai offers similar features for €2000 less? In other words the most likely result of the EU's planned regulations is for the low/mid western European vehicles - the Peugeots, Citroens, VWs, Fords and Opels - to lose market share compared to rivals made elsewhere. They could still be badged Opel or Renault or VW but they won't be built by workers who only work 30 hours a week, take over 30 hours to build a car and get paid top end wages to do so.

Funnily enough people in Europe won't simply find a way to fork out an extra £3,300 (€5000, US$6500) just to keep their fellow Europeans in jobs. In fact I'd say that it isn't so much won't as can't. Rather than buy a new fuel efficient car I would anticipate more and more people buying used cars thereby reducing the sales of new cars significantly. If the motor industry in Europe sees a 10% drop in new car sales and a 20% drop in new cars built in Western Europe then there will be a few thousand job losses because someone is going to have to close a factory or three. Thus we will see a major economic impact because the closure of a car factory affects far more than those directly employed by it and, unlike in the USA,

Just for example, I present myself. I just went shopping for a car and decided on a €7000 10 year old Honda CRV because I got a lot more vehicle in good condition that I would if I bought a new one. A roughly equivalent new Honda would be well over €20,000 (actually looking at Yahoo it would be more like €30,000).

This is important not just because of the job impact but also because it hurts the emissions - a new CRV has emissions of 192 g/km compared to the Prius' 104g/km and my 10 year old CRV undoubtedly has worse emissions and fuel efficiency than a brand new one would have. I wouldn't be surprised if an older one is up at the 250 g/km range. But even with fuel prices at the levels they were this summer the cost of using say 1l/100km less in fuel would only save me money if I drove something like 1 million km.
[sums. 1l fuel costs €1.25. Assume new car costs €20,000. Hence €13,000 more expensive. €13,000 buys 10,400l of fuel. Saving 1l for every 100km driven means that  I have to drive 10,400 x 100 = 1,040,000km to start saving]

Since I actually drive a bit under 20,000km/year this would imply keeping the car for 50 years or more. Ahh, you say but instead of a new CRV I could have bought a new something else. Well yes but the Honda garage offered a new Honda Civic for arounf €14,000. Assume that that car saves me 4l/100km compared to the CRV and we are still looking at my needing to drive 140,000 km or so before we get any savings i.e. at least 7 and more like 10 years of my average driving.

I have no idea what a new super efficient Prius goes for - I didn't bother asking at the Toyota garage in Le Cannet - but I'd be surprised if it sells for less than €20,000 and Yahoo reckons €22,740 is the cheapest. Allegedly it has fuel consumption in the 5l/100km range. I expect my CRV will be doing about double that (10l/100km) but with the price difference being the equivalent of over 10,000 more litres of fuel we're looking at a minumum of 200,000 km (or ten years) before I see an economic benefit. Of course I have a car with double the CO2 pollution of the Prius so I'll be chucking an extra 2 tonnes more CO2 into the atmosphere but the price difference makes that kind of eco-friendly behaviour unaffordable.

Oh and I'm sure someone might say I should take public transport. I want the car primarily for trips where public transport is impossible; for example the first major trip I do with the car will be to Barcelona for 3GSM. This is (roughly) a 6 hour drive. It is possible to take a train but there is only one practicable train journey a day and it takes 11 hours from Cannes (and I'd have to add another hour for getting to Cannes from my house). Another journey I'm likely to do is to go to Milan. 4 hours by car vs 6+ by train. Even travelling to Nice takes 1hour vs 30 minutes by train (and is slower by bus) and so on. I could of course fly to Barcelona, but not only is that inconvenient because I still have to get to the airport, everyone seems to think that flying is worse for the environment so it is probably better to drive for 650km.

I despise l'Escroc and Vile Pin