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The European car industry is crashing and of course governments are wondering what they should do about it. The answer “nothing” is the best at this stage. Or rather: nothing more than they are doing in general to keep economies afloat in the age of coronavirus lockdowns. But they should resist the industry’s cries for specific help — such as new “cash-for-clunkers” schemes, which have never really worked anywhere.
New car registrations in Europe fell more than 76% in April — the first full month of lockdown across the region — the European Automobile Manufacturers’ Association said this week. The fall was particularly steep in Spain (-98%) and Italy (-96.5%) — which are, as it happens, the two continental Europe countries worst hit by the outbreak. The fall in new car demand for the first four months of the year topped 38%.
Not all European car makers can boast, like Germany’s Volkswagen VOW, +0.43%, of a massive Chinese footprint that will help slowly steer the industry out of the slump. As China is recovering from the lockdown, consumers seem to be rushing to buy new cars (in part for fear of the health hazards of public transport), the company said recently. Meanwhile, the German domestic market seems to be in better shape than elsewhere in Europe, with the April fall contained (so to speak) to -60%.
Should governments do more than they actually do in order to help the automobile sector? This is dubious. What they do is already massive, in the form of credit guarantees, cheap loans, support for furloughed workers, and easing of market regulations. The French state, which is a shareholder of both national car makers, Renault RNO, +1.78% and Peugeot UG, -3.10%, announced two weeks ago that the former would benefit from some €5 billion in state guarantees. There is no reason it should go beyond what it is doing for the rest of the economy.
Car makers, notably in Germany, are pushing for a new car-scrapping bonus. But the benefits of such a measure are as debatable as they always were. Giving a fiscal incentive to consumers to change their car for a new one only provides an illusory boost — purchases are simply brought forward, and pave the way for a decline the following year. They also benefit high-income spenders disproportionately.
More globally, even if the crisis may create the illusion that governments can keep on spending without worrying about tomorrow, they still do have to set firm rules on the best ways to spend public money in the current context. Car makers already benefit from the massive government aid deployed to cushion the lockdown impact. They don’t need more.
