Motor vehicles are important for Europe’s economy. According to the European Automobile Manufacturers’ Association, the automotive industry accounts for 6.9% of the EU’s GDP and employs 12.9 million people (5.3% of employment in the EU). The 3 million people involved in automotive manufacturing represent 10% of Europe’s manufacturing jobs. Also a big spender on R&D, automobile companies account for 25% of total R&D spending in the EU, investing €32bn in innovation each year.
The automotive sector is a significant player in Europe’s FDI landscape, with 293 vehicle assembly and production plants active in 25 countries across Europe. As well as the original equipment manufacturers, which are often big employers, there is also usually an extensive local supply chain for each manufacturer, plus lots of associated business services activity.
The global automotive industry is continually in a state of change and Europe is having to adapt to a host of challenges, including tightening regulatory pressures, consumer demand for more digital connectivity, the development of alternative powertrain technologies, the move to megaplatforms (modular manufacturing templates), and the huge growth in demand and supply in the BRIC countries of Brazil, Russia, India and particularly China.
The biggest issue at the moment, however, is the fact that Europe suffers from production overcapacity. A recent study by consultancy AlixPartners identified that about 58% of the top 100 European production plants are operating below 75% to 80% of capacity, considered to be the optimal level. Allied to this, near-future sales forecasts are pretty flat. Europe is going to have to address this situation and we may see some major restructuring of manufacturing capacity in the next few years. Hopefully the various investment promotion agencies covering Europe’s automotive hotspots have got this on their radar and have their best investor development people on the case.
Douglas Clark is director of Location Connections, a site selection and FDI consultancy. E-mail: firstname.lastname@example.org