Sleek car models line the stands at the Geneva Motor Show, but under the bonnet of the industry anxiety is festering.
Falling diesel sales in Europe make hitting stricter CO2 targets in 2021 more challenging, accelerating the urgency of selling electric cars, while the prospect of US steel tariffs and a trade war poses a wider risk to the global free trade that is essential to run sprawling automotive supply chains.
"There is lots of nervousness in the industry," says Erik Jonnaert, secretary-general of the European Automobile Manufacturers Association. "The demand is clearly for petrol, not diesel, and that leads to higher CO2."
The emissions challenge was underscored just a week before the show opened to the public when a federal court in Germany ruled that cities had a duty to meet EU air quality standards, including banning older diesel cars from the roads.
The landmark ruling could set a precedent across Europe, accelerating a decline for diesel-engine car sales after their 8% drop in 2017.
THERE IS LOTS OF NERVOUSNESS IN THE INDUSTRY. THE DEMAND IS CLEARLY FOR PETROL, NOT DIESEL, AND THAT LEADS TO HIGHER CO2.
Car makers that had been banking on diesel cars to help them meet the target of 95g/km of CO2 — and avoid crippling fines — are now needing to ramp up their battery plans. Transport and Environment, a Brussels-based lobby group for clean energy, estimates only half of car makers are on track to meet the incoming standards.
Some of the manufacturers have already announced ambitious electric goals, from Volkswagen’s plan to sell 3-million battery cars a year by 2025 to Ford’s pledge to invest $11bn into the technology. Geneva, seen as Europe’s most important motor show, saw additional electric models demonstrated but little extra spending in the area. Instead, companies grappled with the choices they must make today.
Thierry Bolloré, chief operating officer at Renault, says the firm was taken by surprise by the speed of the fall, and has begun to respond by planning to install more hybrid engines in its vehicles. "There is an adaptation that we have triggered already." he says. "We want to be ready whatever the reality would be."
BMW, which is among the most reliant on the tainted fuel with 58% of its European cars running on diesel, is still keen to defend the merits of new diesel technology, which is as clean as petrol and not subject to bans — nuances that often evaporate before reaching the motoring public.
The German car maker has put plug-in hybrid technology into many of its mainstream models, and is already seeing half of all customers that ditch diesel move to hybrid or electric, CEO Harald Krueger says. "Even with falling diesel sales, we have further reduced our CO2 footprint last year."
Volkswagen CEO Matthias Mueller even believes diesel sales could experience a "renaissance" because of how comfortable they are to drive.
But the consensus is that the fuel’s decline is a one-way road.
COMPANIES WITH PLANTS IN THE US, HOWEVER, WARNED ABOUT THE PROSPECT OF LOST EXPORTS IN THE EVENT OF RETALIATORY TARIFFS.
"Diesel will not come back again," says Elmar Kades, MD at consultancy AlixPartners. "That is reality even if some who have higher diesel share try to defend that." One strategy for car makers is to "pool" their results, allowing brands within a single company to miss the target as long as the fleet average meets the rules. BMW is one group planning to do this, reducing pressure on its all-petrol ultra-luxury Rolls-Royce brand to comply.
PSA, which owns the Peugeot, Citroën, DS, Opel and Vauxhall brands, has demanded that each of its nameplates complies with the new rules in their own right, three executives at the business said at the show.
The issue of global trade, which car makers deem essential to operate their sprawling international supply chains, was also a dominant topic, with executives concerned about the prospect of a tariff war after US President Donald Trump threatened to tax cars coming from the EU.
Several car executives, including senior figures at Toyota, Volvo Cars and BMW, said that any barriers to free trade were a "lose-lose" situation. But others suggested that Trump’s threats to tax imported cars, initially expressed over Twitter, were negotiating tactics rather than strict policy pledges.
"We’re reacting too fast and too strongly to a negotiating stance that may not be the final conclusion," says Carlos Tavares, CEO of PSA, which plans to re-enter the US market.
Others point to the discrepancy between the US, which levies a 2.5% tariff on cars coming from outside the North American Free Trade Agreement (Nafta) and the EU, which charges 10% on imports.
Sergio Marchionne, CEO of Fiat Chrysler, says: "People need to recognise that the Trump administration is attempting to correct what it considers to be a number of injustices that the US has suffered over the past few years, in terms of trade." Companies with plants in the US, however, warned about the prospect of lost exports in the event of retaliatory tariffs against US-built cars.
Volvo Cars CEO Hakan Samuelsson said that half of the vehicles coming from the company’s new plant in South Carolina, which begins production later this year, are marked for export.
If a trade dispute means fewer exports, the factory will not take on all of the 4,000 staff it expected to employ, he says. "Free trade is creating jobs in South Carolina."
Curbs on jobs in places such as South Carolina would highlight in a clear and unambiguous way the "lose-lose" situation some car executives fear in the event of a trade war.