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The EU institutions (mainly the Commission) have suggested a “holistic EU strategy” for the European automotive sector to manage modern challenges and adapt needed efficiently applicable regulatory framework. The EU-wide dialogue during the next year will formulate implementing measures for a modernized sector. Besides, the reforms on Germany, the leader in the EU economy and auto-industry follow in the supplement.
Background
Already in November 2024, the Commission President announced the decision to convene a Strategic Dialogue on the Future of the Automotive Industry in Europe; the Dialogue will be officially launched in January 2025, with a view to swiftly proposing and implementing measures the sector urgently needs.
The European automotive industry has been for decade a “continental pride” and quite crucial for Europe’s prosperity: the sector drives innovation, supports millions of jobs and is the largest private investor in research and development. Presently the sector needs transformations to meet changing responsibilities to tailor solutions that are both clean and competitive. The EU institutions and the states have to support this industry in “deep and disruptive transition ahead”. However, the task is to ensure that the future of cars remains firmly rooted in Europe, underlined the Commission when calling for a Strategic Dialogue on the Future of the European Car Industry. The Commission President will check on progress made and give the necessary political impulses for further work.
Source and citation from: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_6542
Besides, about half of the EU-wide research and development spending comes from Germany; and most of that investment flows into one sector – automotive. The sector’s size is huge: the German auto industry’s annual revenue is nearly half a trillion euros; but, as experts say, innovations in the auto sector to improving an engine’s fuel efficiency are incremental. In 2003, the top corporate investors in R&D in the EU were Mercedes, VW and Siemens; in 2022, they were Mercedes, VW and Bosch, the German car parts-maker. The failure of Germany’s economic strategy was evidenced by VW’s recent announcement that it would close some German plants for the first time in its history: thus, the Germany’s auto sector, which employs about 800,000 domestically and has been the lifeblood of its economy for decades, is not any more a main contributor to the country’s growth.
Source: https://www.politico.eu/article/europe-economic-apocalypse/?utm_source=email&utm_medium=alert&utm_campaign=Europe%E2%80%99s%20economic%20apocalypse%20is%20now
Disruptive transition
Designing concrete strategies and solutions to support the global competitiveness and reforming automotive manufacturing in Europe will focus in particular on:
= boosting data-driven innovation and digitalisation, based on forward-looking technologies such as AI and autonomous driving;
= supporting the sector’s decarbonisation, in an open technological approach, given its role in achieving Europe’s ambitious climate goals;
= addressing jobs, skills and other social elements in the sector;
= simplifying and modernizing the regulatory framework; and
= increasing demand, strengthening the financial resources of the sector and its resilience and value chain in an increasingly competitive international automotive environment.
However, once synonymous with cutting-edge automotive technology, European countries are not among the 15 bestselling electric vehicles; besides, European “general competitiveness” is diminishing: only four of the world’s top 50 tech companies are European.
Something else is vital: as the EU’s largest economy, Germany’s economic misfortunes are reverberating across the bloc. That’s especially true in Central and Eastern Europe, which German car- and machinery-makers have turned into their de facto factory floor in recent decades. Thus, buying a Mercedes, BMW or VW, the chances are pretty good that the car’s engine or chassis was forged in Hungary, Slovakia or Poland.
Supplement
As soon as Germany has been the focal point in auto-manufacturing in Europe, it is well worth to see how the discussions are going on in Germany’s reforming strategy.
As large-scale layoffs in German industry begin to bite, and iconic auto-companies such as Volkswagen threaten plant closures, the country’s domestic issues (not the war in Ukraine or Germany’s role in Europe) are dominating political discussions. The most concerning issue ahead of the Germans election next February is the national economy, followed by migration; Russia’s war on Ukraine was fourth on the list.
All the parties are vowing to restore the glory days of German industrial growth, but they have starkly competing visions for how to do so. Economists have raised questions about whether the plans are ambitious enough to confront the structural problems ailing Germany’s economy: i.e. high energy costs that are hitting energy-intensive industry and the breakdown of free trade that is core to the country’s export-oriented economy. The following are the main parties’ strategic reform suggestions:
= The center-right Christian Democratic Union, CDU proposes to significantly lower income taxes, as well as cutting the corporate tax rate to a maximum of 25 percent; it also wants to cut social benefits that (as the CDU argues) discourage people from working, as well as to cut regulations. These changes would foster the private investment that would help stimulate the economy.
= The fiscally conservative Free Democratic Party, FDP has a similar policy prescription, proposing cutting taxes for most earners as well as for companies; it also wants to put an end to subsidies for renewable energies, while reviving the country’s nuclear power plants.
= The center-left Social Democratic Party, SPD is pushing for big public investments to spark industrial growth; presently ruling party proposed recently a €100 billion investment fund resembling the Inflation Reduction Act in the US and pledged to increase the minimum wage to €15 per hour from €12. The SPD still pursue “a successful, strong industrialized country, even in 10, 20 or 30 years from now”; at the same time, the SPD is calling for tax cuts for most earners and hikes on the rich, while also proposing a “Made in Germany” premium that subsidizes companies’ investments in equipment via a direct tax refund of 10 percent of the purchase price.
= The Greens are proposing a “Germany fund” to finance investments in the country’s infrastructure and to bring down the electricity tax to the European minimum. The fund, according to the party’s program, will “guarantee the younger generation a modern, functioning and climate-neutral country and a competitive economy instead of leaving them with deferred burdens and dilapidated infrastructure.”
Financing the proposed reforms is another vital issue:
= Both the SPD and the Greens ultimately wish to unleash public investment by reforming the country’s debt brake, which limits the structural budget deficit to 0.35 percent of GDP, except in times of emergency.
= The CDU, on the other hand, wants to adhere to those spending rules, arguing in its party manifesto, that “the debts of today are the tax increases of tomorrow.” German economists have criticized the parties’ plans as promising more than they can deliver, though CDU’s tax cuts have come under particular criticism.
= Economists and CDU’s opponents estimate the conservatives’ proposed tax cuts will add up to as much as €100 billion annually, and many say that economic growth won’t be anywhere near robust enough to offset the lost revenue; the CDU argues it will and argued “the decisive factor was to restore Germany’s willingness to perform and its ability to grow”; then, the CDU explained, the financing issues would appear “in a completely different light.”
Most agree that the only way for the country to reverse its decline is to pursue fundamental structural reforms and to encourage investment.
Source, reference and citations from: https://www.politico.eu/article/germany-election-economy-growth-competitiveness-friedrich-merz-olaf-scholz/?utm_source=email&utm_medium=alert&utm_campaign=How%20you%20gonna%20fix%20Germany%3F