Mediaroom

Final stretch to 2021 to remain bumpy, industry sentiment slightly improved – Newsletter Editorial November 2020

2020 has been an incredibly challenging year for the world, and the remaining weeks will not change that picture. The fall-out from the US elections, the cliff-edge scenario posed by a no-deal Brexit, the second wave of COVID infections and the related restrictions to economic activity to help contain the spread, and renewed incidents of fundamentalist attacks on human and democratic values: all of these ask for leadership and clear directions to strengthen the resilience of our society.

 

Relations between Europe and the USA are expected to improve with President-elect Joe Biden taking office in 2021, but Donald Trump still has some 70 days to cause tension on the international scene, whether by his own actions or by others misusing the void in direction and diplomacy for their own interests. This may contribute to further uncertainty in the global economic outlook.

 

In the meantime, businesses will try to understand the future President’s intentions in the areas of global trade and climate policy. The return of the US to the Paris Agreement on climate would be welcome, but same as for the EU, the question for the US will be in how to achieve the ambitions: technology openness and coherent policies for energy efficiency and energy carriers across all sectors will be crucial.

 

Brexit exposes 90% of automotive suppliers to risks

 

The talks between the EU and the UK to secure an orderly exit by the end of the year are in their final stages, and time has already run out to secure the best-possible preparations. The heavily integrated automotive industry on both sides of the channel continues to advocate for transition arrangements to enable all stakeholders to implement a last minute deal, and realistic local content requirements to ensure that trade between EU and UK is not needlessly hit by tariffs.

 

The most recent CLEPA business barometer shows that 90% of automotive suppliers are exposed to risks from Brexit. Only 50% however, have a detailed risk mitigation plan in place – due to a lack of clarity on what exactly to prepare for. High costs stemming from customs processing are seen as the biggest headache.

 

COVID-19 is accelerating the fundamental transformation of our society to green and digital, as well as adding high economic stress.

 

It is promising to see that the second wave of COVID-containment measures seems to be having an effect. Like before, effective and coordinated policy response remains essential: a response that ensures public health and minimises the impact on the economy in the longer term. Nevertheless, the measures will again depress overall economic and consumer sentiment.

 

Borders, factories, and dealerships should remain open

 

How can public authorities help companies retain their employees and secure the economic contribution that the industry provides to society?

 

Over the past few months, many companies have been allocating resources to ensure the safety of their employees, in line with public health guidelines. That is why we ask public authorities to avoid the closure of factories as much as possible.

 

EU Member States should also maintain the central information exchange on border measures set up by the Commission, to enable the continued flow of goods, but also cross-border commuting and necessary travel. The automotive supply chain is highly integrated, and preventing one single piece from moving countries, can stop production for weeks.

 

To avoid another devastating drop in demand, all dealerships and motor vehicle workshops should remain open as much as possible as well. This will also ensure that public services and consumers can access repair and maintenance services as needed.

 

51% of suppliers expect their revenue to continue to fall over the next 12 months

 

The impact of the COVID crisis on the automotive industry has already been severe. Since March, a loss of over 100 thousand jobs has been announced, half of which of suppliers.

 

In this context, the Skills Pact launched by the European Commission this week is a timely action, with the potential to make a real difference for economic recovery as well as in managing the twin transition to digital and green mobility. The automotive sector is one of the three first sectors to engage in the Pact, and CLEPA has been actively contributing since its conception.

 

To gain a deeper understanding of the business sentiment in our industry, we regularly conduct the CLEPA Pulse Check with the support of McKinsey. The latest edition shows that 51% of suppliers expect their revenue to continue to fall over the next 12 months.

 

On the upside: 73% of suppliers anticipate being profitable again in 2021 due to market recovery and drastic cost-saving measures which will start to bear fruit. The pressure on jobs and investment capacity however remains considerable as industry restructuring continues to play a significant role. The slimming down of research & development and production facilities is expected to remain an important feature of crisis recovery.

 

A further important result of the survey: Over 60% of automotive suppliers are accelerating the change in their product portfolio to shape the automotive transformation, drive the move to green and digital mobility, and make the most of the many opportunities while managing the many challenges.

 

The EU should leverage all instruments at its disposal to support research and innovation

 

CLEPA underlines the need for an honest debate about the effects of policy decisions via an open dialogue. The key question remains not if, but how to achieve the many societal objectives, securing innovation, manufacturing and employment in Europe as well as reaching the climate and digital goals. International supply chains and cooperation remain essential as well.

 

Are we optimistic in this last stretch to 2021, in times of Brexit, heavy pressure on globalisation, a strong, assertive China, and a health crisis that will not recede for some time to come?

 

We have to be. Europe is home to advanced technology competence, a skilled workforce and a strategic, high value industrial base. The automotive industry is crucial for the economic fabric of Europe. The sector is vast, innovative, with long value chains and strong eco-systems.

 

To underpin Europe’s long-term competitiveness, the EU should leverage all instruments at its disposal to support research and innovation. This includes the EU budgets for Horizon Europe, public procurement and financing tools from the European Investment Bank. Rules-based trade, high-standards and a focus on innovation are no hollow phrases. They cannot be.

 

This is a crucial moment to discuss forward-looking strategies related to society, mobility and industry. And we invite everyone to take active part in this discussion.

 

Sigrid de Vries

CLEPA Secretary General

 

 

Attachments


    In: CLEPA News
    • Topics