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Abu Dhabi, UAETuesday 19 March 2019

Geneva International Motor Show comes amid tough times for manufacturers

Brexit, a US-led assault on trade liberalisation and billions spent developing electric vehicles on unproven markets have all served to rattle the automotive industry

Two of Europe's bestselling cars, the Renault Clio and Peugeot 208, go head-to-head at the Geneva International Motor Show on Tuesday, as the car market they dominate faces transformative pressures on its future profits and jobs.

As industry executives gather to discuss Brexit, trade-tariff threats, new emissions rules and fines, or waning ambitions for autonomous driving, the two staple subcompacts will be wheeled out in apparent defiance of the profound changes underway.

In other ways, though, they show an industry that is fast adapting.

Both models are poised to abandon what remains of their French production, completing a once controversial shift to lower-cost plants in Turkey, eastern Europe and Morocco, Reuters said.

Both will also introduce electric and hybrid drivetrain options, which themselves pose a further challenge to supplier jobs.

"There’s an ongoing need for compact, efficient urban models,” said Jean-Philippe Imparato, head of the Peugeot brand. “The market is robust.”

Small certainties are welcome in an industry facing hard-to-quantify strains, including Britain's planned exit from the European Union, a US-led assault on trade liberalisation and the many billions spent developing a new generation of electric vehicles for which mass demand remains largely unproven.

Major auto markets are now in decline or stagnating and, no mater what flavour it is in the end, Brexit is an unwelcome spanner in the works.

Production of BMW's Mini, for instance, will still be disrupted if there is a delay to Brexit, the carmaker's CEO said on Tuesday.

Britain's car industry, which employs around 850,000 people and is largely owned by foreign manufacturers, has been rushing through plans to cope with the potential disruption of a no-deal Brexit, such as building up inventories and in some cases organising plant closures around Brexit day, according to Bloomberg.

However, Prime Minister Theresa May said last week that if UK policymakers once again rejected her Brexit deal, she would offer them a series of votes that could lead her to ask Brussels for a delay.

BMW said in September it was moving the annual maintenance shutdown for its Mini plant in Oxford, southern England, to April in case of disruption caused by Brexit.

Harald Krueger speaks on the opening day of the car show. Chris J Ratcliffe / Bloomberg
Harald Krueger speaks on the opening day of the car show. Chris J Ratcliffe / Bloomberg

"We have made preparations. If Brexit is delayed we can postpone some measures, but the early summer break remains scheduled for April," CEO Harald Krueger said at the Geneva show.

Shutdowns and stockpiles take time and money to arrange, as, for example, employee holidays and suppliers are affected, making them hard to move.

And so while carmakers are keen to avoid a no-deal Brexit, they also do not want the process to drag on.

BMW made 234,183 cars in Britain last year, out of the country's total production of about 1.5 million.

The German-based manufacturer may move some engine production out of Britain to Austria in the event of an uncontrolled exit from the European Union by the UK, BMW board member Peter Schwarzenbauer said on Tuesday.

"We have some flexibility on the engine side with Steyr in Austria. We would need to make some adjustments toward Steyr. We are preparing to be able to do it. Like we are preparing warehouses in the UK to produce cars," Mr Schwarzenbauer said.

A final decision on whether to transfer some production of engines from Hams Hall, England, to Austria has not yet been taken, he added.

"Frankly speaking, we would just like to get certainty [on Brexit] as quickly as possible," Johan van Zyl, president and CEO of Toyota Europe said at an event on Monday, echoing recent comments from UK luxury sports-car manufacturer Aston Martin.

Mr Zyl said Brexit planning had come at a "huge cost" and warned Britain needed to secure a frictionless trade deal with the EU.

"If anything happens between the EU and UK that will have a negative impact on competitiveness of the UK operations, it will put the future in doubt," he said, referring to the entire UK car industry.

Japan's Toyota made 129,070 cars at its Burnaston plant in central England in 2018 and is currently ramping up production of its new Corolla model.

Carlos Tavares, CEO of Peugeot and Citroen maker PSA Group, was more relaxed about a potential Brexit delay, saying he was in favour if the time was used to find a deal.

Daimler boss Dieter Zetsche, meanwhile, was hopeful a deal could be reached.

"It's a game of poker. I am an optimistic person, and I hope that a no-deal Brexit is not realistic," he said.

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In addition to potential Brexit woes, manufacturers risk hundreds of millions of euros in fines for missing the EU's 2020-21 emissions goal averaging 95 grams of carbon dioxide per kilometre.

The bloc's parliament and member states have agreed on a further 37.5 per cent cut by 2030.

According to new industry data published on the eve of the show, European new-car CO2 emissions actually rose in 2018 for a second consecutive year, as sales of relatively efficient diesels continued to collapse.

“Instead of moving forwards, the industry is regressing at a time when emissions targets are getting tougher,” said analyst Felipe Munoz of consulting firm Jato, which compiled the data.

PSA Group’s Peugeot and Citroen line-ups came in below 108 grams of average CO2 emissions last year – just behind hybrid leader Toyota’s 99.9 grams – while the Opel division acquired from General Motors in 2017 topped 125 grams. Fourth-placed Renault averaged 109.1 grams.

Strong sales of the new 208 will not be enough to avoid the early retirement of some Opel models before the new rules take effect, a PSA source told Reuters. “Expect some announcements later this year.”

Assembly of the 208 will end at the group’s Poissy plant west of Paris, which had handled overflow production of the current model built mainly in Trnava, Slovakia. The new vehicle will also be produced in Kenitra, Morocco, according to two sources with knowledge of the matter.

Renault’s Flins plant is similarly unlikely to keep the Clio as the model upgrades, industry sources said. The factory now has a growing output of Zoe electric cars and alliance partner Nissan’s Micra to keep its lines humming and unions happy.

A new affordable Renault hybrid drivetrain will launch in the Clio next year, as Peugeot debuts its pure-electric 208 – both part of the industry's scramble to electrify, cut emissions and avoid fines.

But the abrupt shift from combustion engines to batteries, which can account for 40 per cent of the final price of a car, has sparked fears and warnings about the fallout for jobs in Europe, which lacks battery makers to compete with Chinese, South Korean and Japanese groups.

To avoid "ruinous" fines, Mr Tavares said in an interview with Le Figaro on Monday that manufacturers were forced to "reserve battery volumes with Asian suppliers who only are happy to see us coming" and extract high prices.

"The European Parliament's decision is quite simply forcing the auto sector to export 40 per cent of its vehicles' value to Asia," he said.

Updated: March 6, 2019 10:14 AM

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