European economy is touted as the homeland for the automobile sector with over 250 plants in 18 EU countries. According to ACEA, Europe is the worlds leading vehicle producer with one third of the 50 million cars produced globally being manufactured in the Euro bloc.
The car industry is often termed as the engine house of European economy. It accounts for six percent of total European employment with over 12 million European families depending on the automobile sector in terms of 2.3 million direct jobs and another 10 million jobs in related sectors.
Moreover, vehicle taxes contribute more than € 400 billion yearly to the government revenues which account for 3.5 percent of Europes GDP. EUs auto exports are valued at € 70 billion per annum.
However, the ongoing financial and economic turmoil in Europe is badly twisting the arms of the mainstay of European economy. There is a radically limited credit access for both automobile manufacturers and their suppliers, as well as for the potential buyers.
Besides, there is a drastic drop in demand for both passenger cars and commercial vehicle amid personal debt and government austerity biting into consumers income, thus leading to a harsh sales crash.
According to the recent results released by ACEA, a total of 150,910 new commercial vehicles were registered in the EU in the month of September, which is 13.7 percent less than in the same month last year.
This slump prevailed across the Euro zone, ranging from a plunge of 3.2 percent in Ireland to 51.2 percent in Greece. The UK was the only market to post a trivial growth of 0.7 percent.
Amid severe crisis, the car makers are forced to apply brakes to their manufacturing operations in Europe. The car giant, FIAT has repetitively warned to button up one or more of its five massive production plants in the EU as all of them are operating well below their designed capacities. Moreover, Ford also announced to cut its production capacity in Europe by 18 percent; that is only 355,000 vehicles a year.
The continuously plummeting levels of automotive manufacturing and sales in Europe have a huge spiraling effect on the wider economy because of the industry having one of the largest numbers of multipliers. Thousands of small and medium sized companies are involved in the supply chain, sales and after-sales services of the automobile sector.
Reportedly, the cut in the production levels of Ford alone would result in 10,000 job losses in Europe. This multiplier effect may prolong the wider EU economic recession and obstruct the initial pace of its recovery.
With auto industry buckling under dwindling demand and surging costs, a future downgrade in auto production and sales cannot be ruled out. Moreover, the European auto industry is seen as improbable to receive federal support from the already debt burdened governments. According to Economist Intelligence Unit, European governments are in the middle of vicious cost cuts and hence they cannot afford to shore up the car sales in the way that they did immediately after the crisis.