The auto industry is in that awkward position of having once relied on government support in order to survive the 2008 financial meltdown. However, that does not mean that government interference is always good for the industry.

In Europe, governments stand in the way of capacity reduction stopping many companies from returning to profit. European factories are capable of building about four million more vehicles than the industry can sell. This is a problem peculiar to Europe and stops the industry competing on equal terms with American and Japanese companies which do not suffer from overcapacity in their respective markets.

On emission, Europe is heading toward adopting new rules that oblige automakers to cut average CO2 emission to 95 grams per kilometer, which is the lowest level in the world, by 2021. This rule helps the EU meets its target of reducing greenhouse gases by 20 percent in 2020 compared to the 1990 levels.

Philippe Houchois, UBS Head of European Automotive Research, told an automotive conference recently that carmakers are having a particularly difficult time in trimming the weight of their vehicles, since additional CO2 reduction technology inevitably increases the weight of a car — which in turn increases emissions.

He added: “The rule of thumb in the industry is every 100 kg of weight you take off the car you remove 6 grams of CO2 output. At this point, this industry needs to remove 300 kg to 400 kg per car within the next few years, and we’re nowhere near that situation.”

On the overcapacity issue in Europe, Houchois said: “In Europe, if you take into account what has been done already in terms of capacity reduction and the chance of recovery in the European market, we are not going to see a balance of capacity and demand match in Europe in the foreseeable future.”

He concludes that despite the bright growth outlook for the auto industry at the moment, there is a lot to be less optimistic about the industry. One might add that with such levels of government interference, there is not much incentive for investors to enter or continue in the automotive industry.

Governments should monitor markets but keep their hands off the industry and let free-market mechanism take its course.

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Adel Murad is a senior motoring and business journalist, based in London.

Email: [email protected]