Paris Motor Show unveils Europe’s new ground realities

It was a friend who remarked that the fizz was missing at the Paris Motor Show this year. “There is something that is not quite there. The usual levels of energy and vivacity seem to have disappeared,” said this regular attendee.

Perhaps the sombre attitude has had to do with the grim possibility of a ‘no-deal’ Brexit that will see the UK completely cut off from the European Union after March 2019. This means that companies like PSA, Renault, Jaguar Land Rover, Toyota and BMW will see costs going through the roof once tariffs become a reality.

In short, imports of components into Britain will become costlier with tariffs of 10 per cent while exports of cars going to the EU will, likewise, go through a pricier tax levy. Companies will naturally need to reset their priorities, which could even include shutting down plants and rationalising workforce in their UK plants.

Brexit quite naturally became a talking point at the Paris Motor Show with CEOs admitting that things could turn tricky if Britain’s negotiations with the EU failed to yield any results. Some like Carlos Ghosn, CEO of Renault-Nissan, sounded a more optimistic note suggesting that it would not be all gloom but the overall mood was one of anxiety, albeit coupled with some hope of a saner future ultimately prevailing.

However, this was not the only reason for the rather lacklustre mood at the show. According to a car industry veteran, this changing face had to do with a host of other factors. “Governments in Europe have turned aggressive against manufacturers on issues relating to emissions. The green lobby is also convinced that car-makers only pollute the air,” he said.

Diesel in trouble

Doubtless, this perception has gained ground after the Volkswagen diesel scandal of 2015, which was a huge blow to the reputation of a top automobile brand. Things have not been quite the same since then even while there have been apologies galore coupled with a serious intent to put things in order.

“Today, the auto industry in Europe faces a credibility issue and some governments have also turned against them. Naturally, many manufacturers have come more circumspect since they are on the back-foot,” added the veteran.

In the process, electric mobility has now become the new buzzword in the intent to promote clean air even though it is quite evident that there is still a long way to go. Even while diesel is still viewed with suspicion by the green lobby, it is not as if it has been consigned to the archives. The fuel will continue to coexist with petrol in the years to come except that it will steer clear of the publicity radar as much as it can.

According to an industry observer, the wounds from the VW scam have still not healed completely as far as perception of diesel is concerned. This puts in context why electric is now being proclaimed with greater vigour even while it is not going to reach the scale of either diesel or petrol through the next decade or even longer. After all, the real wave of electric mobility will begin to happen only by 2025 and for now, it is China that is leading the way. Motor shows will naturally showcase electric as the future but will this attract true automobile enthusiasts who are passionate about power and performance?

This will remain a dilemma for manufacturers but there is really no choice given the current mood of some governments in Europe who are clearly opposed to the idea of diesel. “Companies will need to spend a lot of money on electric R&D and the next big challenge is to ensure that budgets do not go haywire,” said a component supplier executive based in Germany.

This would naturally mean that some would rather opt out of motor shows as was evident in Paris with the absence of VW and Nissan. The other big task on hand is to get the right talent for electric mobility and this means the inevitable reality of hefty salaries. “New hires from Silicon Valley will not come in cheap and manufacturers will need to prepare themselves for higher payouts,” an executive said.

New arenas

As the industry prepares for the next big unknown in the mobility space, it is obvious that the rules will also have to be rewritten for motor shows. It is in this context that the International CES (Consumer Electronics Show) in Las Vegas has become the ideal template for car-makers in the new paradigm.

After all, subjects like connectivity, autonomous driving and other technology initiatives are better suited for this event. It explains why CES has become the perfect forum for car companies to showcase their new modern avatar where startups are part of the ecosystem.

“It is very likely that motor shows in Paris, Geneva and Frankfurt will go the CES way eventually if the current trends and priorities are any indication,” continued the executive. According to him, this will only reflect a natural transition happening in the automobile arena, at least in the West.

Other mobility options

The other reality about Europe is the changing buying dynamics of young people for cars. A large percentage of them opt for used cars since they cannot afford new models. Additionally, the desire for ownership is not so overwhelming since options like Uber have made travel so much more flexible. “As in the case of all cities around the world, traffic is a real problem in Europe. In this background, there is really no compelling reason to buy a car when there are quicker mobility options available for mass transit,” explains an industry observer.

Sales of used cars, therefore, are nearly twice as much as new ones at least in big markets like France and Germany. What is even more interesting is that corporate buying takes up a large chunk of new car sales, thanks to generous fiscal sops. The smaller portion of personal buying is done by people who are 55-years-old on an average. It is obvious that youngsters opt for used cars while the preceding generation can afford newer models. “GenNext is more passionate about acquiring gadgets, which hold their attention far longer than an automobile. Their priorities have changed quite dramatically from what was seen with their parents,” continues the observer.

This, in turn, explains why the automobile industry is pulling out all the stops developing connected cars, which give users an all-new feel of a workplace/home on wheels. In short, there are a whole set of new dynamics being played out in Europe’s automobile ecosystem. While manufacturers are already working on new solutions like electric and autonomous cars, the new generation of buyers is not quite prioritising cars in their wish list.

Emerging markets important

This is the reason why emerging markets like India are so critical to car-makers by virtue of their sheer size. Sure, there are costing challenges to overcome but there is still a much larger buyer base on hand. China, of course, remains the top favourite investment destination for obvious reasons of its huge might in the global arena. As a top auto sector official says, these are the most difficult times for the industry, which has to contend with trade wars, fuel prices, new mobility challenges, higher R&D spend, scarce availability of specialised talent, etc.

Manufacturers are literally walking the tightrope in their endeavour to stay relevant in a rapidly changing era. “It is not the easiest of times but surviving the test will eventually separate the men from the boys,” says the official.

The writer travelled to the Paris Motor Show at an invitation from Renault