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Statement by Max Mosley, President of the FIA,
to the CARS 21 Meeting

11.04.2005

The FIA welcomes the establishment of the CARS 21 initiative. The High Level Group (HLG) provides an important opportunity to define the future direction of automotive regulation to ensure that the motor industry in the European Union (EU) is able to offer the consumer reliable, safe and clean cars at an affordable price. The FIA, representing some 43 million motorists across the EU, will provide a strong consumer perspective to CARS 21 and practical experience in promoting high standards of vehicle safety and environmental protection. The FIA believes that the following issues should be carefully considered by the HLG.

Competitiveness

The terms of reference of the HLG place considerable emphasis on the competitiveness of the European automotive industry and the impact of the EU regulatory system. However, the competitiveness of an industry or a company depends on a blend of macro- and micro-economic policies. The exchange rate of the Euro, the productivity of the workforce, the levels of corporate taxation are all examples of policies that profoundly affect the competitiveness of all European industry. None of these policies is influenced by the traditional areas of automotive regulation. The HLG, therefore, should perhaps reflect on the fact that the overall competitiveness of the European motor industry depends more on general issues of economic and industrial policy than on ‘sectoral’ automotive regulatory issues such as safety and the environment.

The FIA believes that existing automotive regulatory standards concerning safety and the environment achieved in the EU represent an important benchmark for consumer protection and product quality. There is no competitive advantage whatsoever to be gained from any erosion of these standards.

Affordability

More significant than competitiveness is the issue of affordability. Properly understood ‘affordability’ combines both the producer’s capacity to offer a product, and the consumer’s willingness to pay. It, therefore, addresses issues of profitability as well as customer choice. Of course, it is highly desirable that the citizens of the EU drive the cleanest and safest vehicles “that money can buy”. But we all know that there are limits to how much money the consumer is prepared to spend, and there are limits to the technology that industry can afford to offer at a price that is both profitable and marketable.


It is also obvious that industry, not unreasonably, wants to generate profits whilst the consumer wants to purchase at attractive prices. This ‘marriage’ between producer and consumer interests is the essence of a free market, but it focuses on price rather than safety and environmental standards. Left to customer choice alone, the industry would not have reached the high levels of safety and environmental performance now offered by motor vehicles in the EU. Although the public are clearly motivated to buy cars that are safer and less polluting, price will always be the key determinant of their purchase decision. Regulation has, therefore, been required to stimulate the development of cleaner and safer cars.

Over the last decade, EU regulation has successfully promoted the safety and environmental standards of motor vehicles (notably through the Directives for crash test standards and the Euro I –IV emission limits). Despite warnings to the contrary, industry has been able to meet these higher construction standards and still produce cars that fall within the purchasing range of the consumer. However, it is possible that the threshold of ‘affordability’ – the point at which car makers can profitability produce and consumers are willing to buy - is becoming more critical. Without careful consideration this could impede further progress in the safety and environmental performance of motor vehicles.

If profitability is seriously eroded, industry will no longer be able to sustain investment in new technologies and products, and if car prices rise too high consumers will defer new purchases (using less safe and clean cars for longer) or opt for reduced specification new vehicles which may further undermine or retard progress in safety and environmental standards.

The FIA, therefore, believes that affordability is the key issue for the CARS 21 HLG.

New Approaches to Regulation

In developing a new EU strategy towards the automotive sector and its regulatory system, ‘affordability’ should be a key consideration. Under the traditional regulatory approach, the Commission proposed Directives that required industry to meet new engineering standards, and the question of whether or not the marketplace would be willing to purchase the new products was not fully considered. The role of Member States was essentially passive other than to implement the Directive. A new more dynamic approach to regulation should be introduced in which measures to influence the level of demand for new products are investigated as thoroughly as industry’s capacity to supply. This more comprehensive system would examine how Member States themselves can raise consumer demand for safer and cleaner motor vehicles.

The FIA would like to see a better balance between traditional ‘regulatory push’ policies (by which the Commission force higher standards by means of legislation imposed on industry) and new ‘demand pull’ policies (by which Member States stimulate consumer willingness to pay for new technologies). For example, the Euro NCAP crash test programme is a ‘demand pull’ measure that rewards manufacturers that are willing to exceed the basic legislative standards. It has successfully stimulated industry to develop products that achieve a much higher level of occupant protection than required by the original 1996 front- and side-crash test Directives.


The most potentially powerful ‘demand pull’ measures available to the EU are the fiscal powers of Members States. The use of fiscal incentives to promote environmental technologies have already demonstrated their efficiency in encouraging consumers to buy ‘green’ products such as catalysts and ultra low sulphur fuels. Europe now needs an EU-wide framework for fiscal incentives that would enable Member States to promote the ‘affordability’ of safer and cleaner cars. It is important to recognize that a common framework for fiscal incentives does not require full EU wide tax harmonization, but rather a predictable and clear set of principles for use by individual Member States. The FIA believes that it would be sensible to combine the development of such a framework with the further development of a coherent overall system for motor vehicle taxation in the EU.

Establishing Consistent Priorities

In the future, the EU should establish a clearer method of setting priorities for motor vehicle regulation. The industry has some justification in the complaint that the European Commission has presided over a proliferation of regulatory initiatives which risk unintended cumulative effects. Expecting the automotive industry to produce cars that are safer, cleaner, and more fuel efficient than ever before, and then combine this technology challenge with major changes to the distribution system and to the spare parts market is bound to put the goal of ‘affordability’ under stress. The FIA, therefore, strongly welcomes the proposal of a roadmap that will identify mutually consistent priorities over the next ten years.

Clearly this roadmap will have to respect fully the existing major policy commitments already agreed by the EU such as the 50% road safety casualty reduction target for 2010, and the agreement on limiting greenhouse gas emissions from motor vehicles by 2012.

The roadmap should also take account of the regulatory developments in other major markets such as North America and Japan. The FIA strongly supports the goal of international harmonization of automotive regulations. As far as possible the major industrialized countries should offer a level playing field of safety and environmental standards developed through the UN World Forum for Vehicle Standards at the UNECE in Geneva. The Commission should urgently explore ways to accelerate the adoption of Global Technical Regulations in partnership with other UNECE members.

As the automotive industry has become far more global than European, the Commission should systematically explore whether developing global standards is preferable to taking regulatory initiatives within the EU alone. This is particularly important given the rapid increase in levels of motorization in some newly industrialized and developing countries. The EU should take a lead in encouraging these countries to adopt global standards in a time frame that is realistic and can meet the ‘affordability’ threshold that is relevant to the countries concerned.


Conclusion

The CARS 21 initiative is a welcome opportunity to define a new strategy for the automotive industry in Europe. The EU should continue to lead the world in developing safer, cleaner and more fuel efficient vehicles. The European Commission should develop new regulatory instruments to ensure that this further progress is ‘affordable’ to industry and the consumer alike, and it should promote an increasingly global agenda of harmonized standards.
 
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