The automotive industry is behind the unexpected and sharp slowdown in the Eurozone economy from the second half of 2018. And not so much for cyclical reasons as for structural factors. Therefore, the car's ballast is destined to remain, at least until these factors have been overcome. With consumers fleeing diesel vehicles and wanting to buy electric or hybrid or at most petrol motorized cars, producers find themselves with inadequate production capacity: a part of it is destined to be dismantled (with effects on depreciation and therefore on corporate balance sheets) and another part is simply not there yet. There are two factors which have prompted demand to reorient towards fuels other than diesel: the most stringent EU standards; advertising and car manufacturer announcements regarding the introduction of electric cars.
The regulatory crackdown is not finished and tends to put diesel cars out of the market. Therefore, the weakness in production and ex post demand for passenger cars will continue to persist because diesel production will have to adapt to the decreasing demand for this engine and the production of electric cars will remain late in equipping itself for the growing demand for this fuel. The final effect, however, is depress the growth of the Eurozone.
Structural factors behind the car crash
When the economic cycle takes a turn for the worse, it is usual that consumer durables are affected, and indeed lead the downshift, which, like investments, follow the trend of confidence and expectations about the future. In particular, this applies to the purchase of cars, which for families constitute a significant economic commitment (“big ticket”, according to the American nickname), which is given up when there is a fear of not being able to make ends meet. So it is natural that the worsening of growth is correlated with the halt or even the reverse of the demand for cars. However, last year the dynamics of household income in the Eurozone continued to be generously fueled by the increase in employment and real wages, albeit at uneven rates in the different countries.
Consumer confidence also fell more rapidly in late 2018, but not enough to justify the sudden pullback seen in auto sales. Confidence indices remained well above the long-term average; the same can be said for intentions to purchase durable goods, in the present and in the near future. This explains why there was stability in car sales throughout 2018 (-0.4 percent for the whole EU, after +3.3 percent in 2017). On the other hand, total consumption in the euro area increased by 1.3 percent in 2019, after 1.8 percent in 2017; this is also a sign that household demand has not stopped. There was indeed a slowdown in the second part of the year, but the changes remained positive (+0.1 per cent in the third quarter and +0.2 per cent in the fourth quarter).
Il car sales profile during 2018, however, it was two-sided: +4.4 per cent annually in the first eight months and -10,8 per cent in the last four. Net of monthly fluctuations, the twelve months ending in April recorded a contraction on the corresponding twelve months. The watershed was the start of the second stage of the introduction of the new anti-pollution regulations, ie the transition from the NEDC (New European Driving Cycle) system to the WLPT (Worldwide Harmonized Light Vehicle Test Procedure) system. In reality, the NEDC was not "new" at all, having been conceived in the 80s and applied on the basis of a 2007 directive. It was based on laboratory driving conditions and very unlikely to occur in reality.
Lo diesel scandal broke out in September 2015 (control units that modified performance and therefore consumption and emissions in the test phase), thanks to the investigation by the US authorities, revealed not only the fraudulent behavior of some European and above all German car manufacturers (Volkswagen having been caught red-handed first and to a macroscopic extent), but also the futility of that test devised with the approval and lobby of the car manufacturers themselves. In other words, the European Union, both in its most political body (the Council) and in its most executive one (the Commission), had been captured (without putting up much resistance) by the car manufacturers, primarily the Germans.
