“removing a tonne of CO2 emissions from transport costs €500, ($730) yet making the same reduction by improving household heating and insulation costs just €10 ($15)”

    Those whom the gods wish to destroy, they first make mad. Allowing unelected bureaucrats from the European Union to laud it over us was our first mistake. Now, in the name of unproven human influence on climate change, European politicians we haven’t elected and some home grown fools that we have, threaten the cars we drive, and the industry that employs millions. They are about to come up with over-the-top fuel efficiency rules which will have us driving around in golf carts at best, and waiting for the public transport that never comes at worst.

    The European industry that they threaten has made superb progress in recent years in squeezing ever more miles out of every gallon. Europe’s average fuel economy for cars is streets ahead of America’s. Yet the industry here is being forced to ratchet miles per gallon up even higher to a point which threatens its health, and where other sources of energy-saving offer more obvious and scrumptious low-hanging fruit. 

    The average car’s fuel economy in Europe is currently about 42 miles per gallon (6.7 l/km), according to Citigroup. This is a magnificent achievement largely thanks to a massive investment in diesel engine technology which has produced a combination of powerful, smooth performing cars which sip fuel at an impressively low rate.

    The performance is all the more impressive when you remember that in the U.S., arguments are currently raging about the feasibility of reaching an average of 42 mpg by 2020 – about 40 per cent above the current figure.

    As well as the investment by the car manufacturers, European fuel efficiency has undoubtedly been helped by the incentive to be frugal imposed by draconian taxation of fuel. In Britain it costs more than twice as much to fill your fuel tank. My BMW 330 costs the equivalent of $110 to fill up here in Britain. That would cost about $45 in the U.S.

    And the E.U. is about to impose a huge burden on its automotive manufacturers by insisting that average fuel consumption is raised again to about 52.9 mpg (5.4 l/km) by 2015.

    Biggest employer
    Experts say this will cost billions of dollars, and jeopardise a world class industry that, according to the European Car Manufacturers Association (ACEA), is Europe’s largest employer, accounting for 2.3 million jobs directly and another 10 million indirectly.  (ACEA is known by its French acronym).

    And industry leaders wonder why it is taking the heat, when the resulting saving in carbon dioxide (CO2) is so small and expensive in comparison with the possibilities in other industrial sectors.

    Mercedes Benz’s vice-president of research and advanced engineering Herbert Kohler said last month that removing a tonne of CO2 emissions from transport costs €500, ($730) yet making the same reduction by improving household heating and insulation costs just €10 ($15).

    “Is it better to pay tax on the home or the car,” Kohler said. We are not denying our responsibility, but the effect on the climate is the same; you just get 50 times more effect for your money,” Kohler told London’s Daily Telegraph.

    Market analyst Global Insight points out that transport accounts for only 26 per cent of Europe’s total CO2 emissions, and cutting this by 20 per cent would effect just 12 per cent of overall CO2 emissions.

    Churlish, selfish
    ACEA has refrained from joining in the argument about climate change and its causes, presumably because European politicians were so overwhelmingly in favour of the theory that global warming is caused directly by increased emissions of CO2. Disputing this could have made them look churlish and selfish. Now the manufacturers are perhaps regretting this line of least resistance, because they might look like the climate’s enemy if they resist this extra squeeze, which is being planned in the name of saving the planet.

    ACEA could have said the science blaming humans for warming the climate was tenuous to say the least, but that everyone could agree that fossil fuels will expire sooner rather than later.  ACEA could have pledged to continuously improve fuel efficiency, and to husband and respect this scarce resource, and promised to invest all that it could afford to find renewable alternatives, which it has done anyway.

    Garel Rhys, Emeritus Professor of Economics at Cardiff University’s Business School believes the manufacturers will, at least in private, make their position known, and reckons that the industry’s powerful position will tell in the end.

    “Will they (manufacturers) confront the decision makers and ask them. What do you want? You will destroy the industry in Western Europe if you take away its unique selling points (high performance and luxury) in which Europe is the number one in the world. What you are asking for will lead to a completely different motor industry and lead us to making little more than transport appliances,” Rhys said.

    When push comes to shove
    Rhys doesn’t believe that all is yet lost.

    “I don’t think, frankly, that when push comes to shove, any major automotive industry country is going to make it impossible for that industry to survive, and take out a huge part of its gross domestic product,” Rhys said.

    Europe’s biggest car maker is Germany, with its Volkswagen mass car maker, and BMW and Mercedes luxury car companies. France’s Renault and Peugeot–Citroen and Italy’s Fiat are hugely important makers of mainly small cars although all have pretensions of moving upmarket one day into the premium sector.

    Last month, the European Parliament recommended that average fuel consumption of cars made in Europe must hit about 53 mpg, but put back the effective date to 2015 from an expected 2012. But the Parliament, which mainly debates issues and has no executive power, didn’t add any detail to its recommendations.

    Environmental groups, like Brussels-based Transport and Environment, think this doesn’t go far enough and want 82.9 mpg (3.4 l/km) by 2020, and a further 25 per cent by 2025. 

    Obviously companies like BMW and Mercedes couldn’t meet such a tough target without scrapping all their models and starting again. The same goes for luxury sports car maker Porsche. But the possibility remains that Porsche might be allowed to include its products with VW’s – which it now controls – which would bring its average down sharply.

    Different targets
    The parliament also mooted the possibility that companies making less than 300,000 a year might be allowed to have different targets. Other E.U. bureaucrats have suggested that the likes of BMW and Mercedes might be given a different regime of perhaps annual targets for efficiency improvements.

    The E.U. is expected to recommend the final legislation by the end of the year. The rules would then have to be approved by the E.U.’s 27 governments before becoming law. This could take between one and two years.

    Investment bankers are worried about the implications for the industry.

    “CO2 (legislation) is arguably the greatest current threat to the health of the European automotive industry,” said Credit Suisse.

    “The CO2 issue is not going away, and, in our view, the impact on volume and mix may prove more dangerous even than higher costs. CO2 costs will hit EBIT (earnings before interest and tax) margins for all manufacturers, but proportionately more for (VW’s) Audi, BMW. Mercedes or Porsche,” Merrill Lynch said.

    According to Global Insight analyst Paul Newton, the actual cost to the likes of Mercedes and BMW can’t be known exactly, but could be between $1.8 billion and $2 billion. The industry as a whole will be forced to downsize, although that wouldn’t start until the end of the current model cycle about 5 years from now. Weight saving would be the norm, SUVs would have to smaller, but car design wouldn’t change drastically.

    Harmonisation
    More mergers and acquisitions are unlikely, but there will be a significant increase in alliances, technology sharing and technology harmonisation by suppliers.

    “Industry in 2020 is really when we see the true impact of this legislation becoming apparent. 2015 is too soon for the requisite technologies to be fitted, available, even developed. Even if they were, production capacity constraints of key technologies will hinder the mass roll-out. 2020-2025 is when we will truly start to seen the results en masse,” said Newton.

     John Wormald, analyst with automotive consultancy Autopolis, doesn’t buy the argument that Europe’s manufacturers look impressive compared with the U.S. ones

    “Saying we Europeans are OK because the Americans are so much worse isn’t going to wash politically or with the public,” Wormald said.

    He also believes the 2015 target tentatively set by the European Parliament can be met, at a price.

    “They can easily achieve 125 grammes per kilometer (about 54 mpg/5.2 l/km) with smaller, slower cars. The effect of course is murderous for Daimler, BMW all the up-lines and powerful cars. It’s much less damaging to the French and Italian manufacturers – and especially to the Asians, who have plenty of smaller and indeed micro-cars. If this objective has to be met, there will be exits from the industry,” Wormald said.

    Mobility packagers
    Wormald looks to the time when instead of individual car ownership there is mixed system of mobility packagers who provide public and private transport. Vehicle makers will be commodity suppliers. He also criticizes the manufacturers for wasting huge amounts of development money on pointless spending.

    “(Manufacturers) produce endless me-toos and rehashes. When did you last see a real product innovation, as opposed to restyles, facelifts, and additional cup holders? They are also strangling the suppliers - the real technological innovators – through relentless pressure for cost-down, which is really price-down and to hell with the consequences,” Wormald said.

    Cardiff University’s Rhys though pays tribute to what he calls the industry’s “amazing achievements” over the last 10 to 15 years in fuel economy. He agrees that the industry hasn’t been forceful enough in pointing this out, and it has been slow to make clear the consequences of overly tough rules from government.

    “New rules have to be realistic or they risk destroying the industry and that would be the ultimate case of throwing out the baby with the bathwater,” Rhys said.