COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(92) 166 final 
Brussels, 8 May 1992 
The European Motor Vehicle Industry: 
Situation. Issues at Stake, and Proposals for Action 
Communication from the Commission 
to the Council, the European Parliament 
and the Economic and Social Committee 
The European Motor Vehicle industry: 
Situation. Issues at Stake and Proposals for Action 
Page 
A. Introduction 1 
B. Development and economic importance of the 
European motor vehicle and motor vehicle components sector 2 
1. Trends and forecasts 2 
2. Underlying conditions 3 
C. A framework for improved competitiveness 
in the motor vehicle industry 6 
1. The single market: a factor in competitiveness 6 
1.1 The internal market and the harmonization of technical and 
environmental rules 6 
1.2 Approximation of indirect taxation 8 
1.3 The contribution of competition policy 8 
2. Research and development policy 10 
3. Training and retraining 13 
4. Activities upstream and downstream of motor vehicle assembly: 
two factors in overall competitiveness 15 
4.1 Equipment manufacturers and materials suppliers 15 
4.2 Motor vehicle distribution 16 
5. Improving the Community industry's access to third markets 17 
6. The responsibilities of the social partners 18 
D. Conclusions 19 
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A. Introduction 
The purpose of this Communication is to apply to the Community motor vehicle 
industry the concept of industrial policy as defined by the Commission in its 
Communication of November 1990 "Industrial Policy in an Open and Competitive 
Environment" and as reflected in the new Article 130 of the Treaty agreed in 
Maastr icht. 
The Communication follows that of January 1990 on "A Single Community Motor 
Vehicle Market" (SEC(89)2118 final), which summarized the Commission's views on 
the conditions for completing the single market in the motor vehicle sector. 
In a rapidly changing competitive environment and with the advent of 
fundamental changes in product and process technology and in the management and 
organization of people, the EC car industry is facing severe adjustment 
problems. 
A structured Community-wide approach is called for in support of the adjustment 
of the car and car component industry for at least two reasons: the high level 
of intra-Community car trade makes Community coordination necessary to avoid 
distorting national policy measures; and the Community's responsibility for 
external trade policy can have an impact on the EC's car industry as a whole. 
The Commission has therefore announced that it will apply Community instruments 
to facilitate the adjustment of the car industry's structures with the aim of 
supporting its competitiveness and thus making it fit for increased competition 
in the years ahead. The sheer size of the sector, its regional concentration, 
implying the dependency of large areas of the EC on its development, and its 
key role in the Community's technological and industrial development make this 
task even more important. 
This Communication follows a two-pronged approach in that it aims: 
- to contribute to the examination of the industrial and technological 
conditions for the success of the Community's car and car component 
industry, and 
to explain how the motor vehicle industry can benefit from the range of 
horizontal measures which exist, or have been proposed, to support the 
industry in its efforts to become more competitive. 
Given that the Community can only intervene through measures subsidiary to the 
industry's own strategies, the Commission has submitted a list of questions and 
options to the ACEA (Association des Constructeurs Europeens d'Automobiles). 
The ACEA answered with a position paper on "desirable policy measures in 
support of the European automobile industry's structural adjustment process." 
A series of bilateral meetings with representative EC car manufacturers and 
with CLEPA (Comite de Liaison de la Construction d'Equipement et de Pieces 
d'Automobiles), with car market researchers and with specialists in the field 
of process and product technology completed the fact-finding. This 
Communication owes much to the input received from all these sides, and not 
least to the work carried out in the European Parliament, reflected in the 1991 
Report on the European Car Industry (Tongue Report). 
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The Communication also draws on the findings of the Massachusetts Institute of 
Technology study on the future of the car industry, sponsored by the 
Commission, which was the first comprehensive study on the techniques of "lean" 
manufacturing and "lean" management with their revolutionary impact on the car 
industry. It draws equally on the findings of the PRS/Boston Consulting Group 
study on the car components sector, financed by the Commission. Giving a 
comprehensive view of the interactions inside the motor vehicle industry as a 
whole, this last study was particularly useful in better appreciating the 
importance of the components sector in itself, and, in a wider sense, as a main 
factor in the competitiveness of the car industry. 
B. Development and economic Importance of the European motor vehicle and motor 
vehicle components sector 
1. Trends and forecasts 
Driven by strong growth in domestic demand between 1982 and 1989, the 
production of passenger cars and light commercial vehicles in the EC has grown 
from 10.7 million to 14.3 million units. in the recent past, despite the 
increase in demand generated by German reunification, production decreased. 
Estimates are that in 1991 13.7 million cars were produced in the Community. 
With this figure and with new registrations at about the same level, the EC is 
both the largest consumer and the largest producer of motor cars in the world, 
accounting for almost 40% of world production and consumption of cars. Its net 
car exports, in terms of value, are traditionally of considerable importance 
for its trade balance although they have fallen significantly in recent years. 
The generally positive production trend over the last ten years could partially 
compensate for the effect on the labour market of substantial productivity 
growth. However, it is estimated that more than 400 000 jobs were lost in car 
manufacturing during the 1980s. EC car production in 1991 was achieved with a 
workforce of approximately 1.2 million people directly employed in car 
manufactur ing. 
Concluding from Boston Consulting's analysis, we would estimate jobs in the 
components sector to amount to 950 000, with hardly any change during the 
recent past. If employment in materials extraction and the manufacture and 
processing of materials for direct supply to car manufacturers is also take 
into account, total direct employment in the EC car manufacturing value chain 
can be estimated to be well in excess of 2.5 million. It is estimated that 
around 10% of all EC Jobs are either directly or indirectly dependent on the 
motor vehicle sector. 
Given the size of car production facilities, and the fact that suppliers are 
often grouped around a car manufacturing site, the regional importance of car 
manufacturing where it is located can hardly be overestimated. 
It is generally expected that the growth of the EC passenger car market, which 
amounted to more than 30% between 1980 and 1990, will continue in the years to 
come, although at a reduced rate. In the year 2000, the Community will still 
constitute by far the most important integrated car market in the world. This 
may form the basis of further expansion in EC passenger car production, 
although a tendency to shift part of the activity to emerging markets, e.g. 
Eastern Europe, and to supply at least these markets from a local base is 
already becoming apparent. 
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Despite these tendencies towards further internationalization of the EC car 
industry's production activities, production in the EC is expected to increase 
by approximately 16% between 1991 and 2000, with 13.7 million units produced by 
1991 and approximately 16 million units produced in 2000 (including Japanese 
transplants' production). 
2. Underlying conditions 
As is the case with all economic forecasts, production prognoses such as the 
relatively favourable one given above only hold true if certain conditions are 
fulfilled, the most important being further progress as regards the 
competitiveness of the sector, and a continuous effort to develop its home and 
foreign markets. 
In third markets (outside Japan and the Community) Japanese competitors have 
increased their market share at the expense - also - of European producers, 
whether as a result of exports or (in North America) through local vehicle 
assembIy. 
However, the European motor industry's share of the world market shrank mainly 
between 1980 and 1987 in a delicate situation internally. 
The liberalization of the East European countries and the conversion of their 
economies into market economies will create opportunities for the European 
motor vehicle industry. 
These opportunities arise primarily in terms of outlets for European products 
on markets which are lagging behind considerably as regards the level of 
vehicle ownership, local product quality and the structure of the vehicle 
fleet. They also arise with regard to production where cooperation with the 
local industry offers promise of beneficial effects for all concerned. 
To make the most of these opportunities the industry needs to make itself as 
competitive as possible, defined by such features as high productivity, quick 
adaption to market evolution and trends, educated and motivated workforces, 
high levels of internal investment and strong competition within the sector. 
External competition should serve as a further stimulus to competitiveness in 
Europe. 
It is also for this reason that the European Community has decided to fully 
liberalize its car market by the turn of the century. 
The Commission feels that its efforts will succeed if Europe's industry manages 
to realize its potential, i.e. its technological advantage in several areas and 
a broad product range geared to the needs of both European and non-European 
consumers. 
Success in this area requires effective mobilization of all the parties 
concerned (manufacturers, suppliers, social partners, the Community and the 
national governments) in order to reduce, or even eliminate, the handicaps of 
Europe's industry in its attempts to regain a strong position on the world's 
markets. 
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The best known handicap is that of productivity. The studies carried out in 
this connection concentrate on assembly and thus only reflect a fraction of the 
unit costs of production, which are a key factor in competitiveness. 
The latest MIT figures show that in 1989, despite considerable efforts to catch 
up in the 1980s, non-specialist European car producers needed an average of 
35.3 hours in order to assemble a vehicle, compared with 16.8 hours, i.e. less 
than half that figure, for the Japanese. 
This is an overall finding which averages out the performance levels of the 
various locations; the productivity of the 13 assembly plants in Europe 
analysed by MIT varies between 22.8 and 55.7 hours per vehicle. 
In addition to the need for European motor vehicle assemblers to close the 
productivity gap, there is a need for European equipment manufacturers to 
increase their productivity and the quality of their products. Apart from its 
intrinsic importance within the economy it is now recognized that the equipment 
sector plays a key role in improving the competitiveness of the entire motor 
industry. Given the trend among assemblers to call more and more on the 
technological and production capabilities of equipment manufacturers 
(out-sourcing) this role will become increasingly crucial. 
However, the transformation required goes well beyond a change in production 
methods to reduce the number of hours needed in order to assemble a car. 
In fact the system referred to by the MIT research workers as "lean production" 
involves a complete change in the way a vehicle is developed, and a matching of 
production to increasingly fragmented demand. 
The European industry is in the process of rethinking its approach to the 
demand-development-procurement-assembly-distribution process to respond better 
to the rapid and far-reaching changes in technical, economic, environmental, 
social and political conditions which can be expected for the 1990s. 
Thus owing to processes of social differentiation and related changes in 
consumption patterns, customized production of technologically sophisticated 
goods of high quality will become central to the competitiveness of industry on 
the markets of advanced industrial countries. 
In the context of changing societal values and increasing environmental 
concerns, a reorientation of products and production processes remains a 
necessi ty. 
In the work sphere, job enrichment and job enlargement as well as broader 
responsibility and participation are increasingly relevant factors in any 
commitment to work. 
In response to these challenges industry is reorganizing its enterprise sector 
and is rapidly developing flexible manufacturing. For this to be possible, new 
forms of cooperation between companies must be established and human resources 
have to be adequately developed. Labour relations have to evolve to facilitate 
these changes, which will require more flexibility on all sides. 
More emphasis will be placed on product and process research and development in 
order economically to provide cars which maintain and develop a technological 
edge over competing products. 
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The internal reorganization of companies in order to make them more productive 
and to allow shorter product cycles (Japanese models remain in production for 
only four years on average, compared with six to ten years for European models) 
and the flexibiIization of production, to respond to ever more differentiated 
customer demand, in particular through improved coordination and integration 
between manufacturers, manufacturers/body makers or car and car component 
manufactures, are the main thrusts of future improvements in competitiveness. 
The differing levels of productivity in the Community demonstrate the technical 
capacity for significantly improving the level of productivity in Europe. 
However, whilst the financial structure of our companies has improved recently, 
the enormous overall gap clearly requires an increase in investment by the 
European industry in order to carry out modernization. 
In addition to the investment in equipment which is needed to improve the 
productivity of the European motor vehicle producers, a considerable effort is 
needed on research and development, training and retraining: 
Towards the end of the 1980s most of the European producers had already 
made a major effort to increase investment in equipment, the ratio of 
capital investment to turnover being not far short of 10% in the case of 
certain companies in 1989. In 1990 that trend continued and even gained 
pace. 
- R&D spending, which had stabilized at around 3% of turnover for 
non-specialist producers and at around 6% for specialist top-of-the-range 
producers, will rise still further under the pressure of increasingly 
exacting demands and ever more stringent environmental requirements. In 
1990 European motor vehicle producers had to spend close on ECU 6 billion 
on research and development. Equipment manufacturers spent over 
ECU 4 biI I ion. 
- An increase in training costs can be expected in connection with the 
introduction of more sophisticated production methods. This represents an 
additional financial burden on companies: the industry itself has estimated 
that for the industry as a whole, including the components subsector, which 
will have to make a big effort in this area, the extra annual cost of 
increased training may exceed ECU 700 million. 
These costs only cover training for the workforce remaining within the 
industry, at all levels, including management. In the past the industry has 
had to bear considerable costs on restructuring its workforce and on external 
retra ining. 
To focus exclusively on improving crude figures for technical productivity 
inside given companies would be insufficient in this situation, although 
substantial efforts are necessary in this field as well. 
The future of the European motor vehicle industry is to be seen as one of 
substantial structural change, including a reorganization of links with 
upstream and downstream industries and the regrouping of companies. Although 
public authorities cannot and should not actively intervene in these processes, 
their policies should be geared towards accommodating these fundamental 
changes, also by providing a business environment competitive with the one in 
which competitors are operating. 
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C. A framework for improved competitiveness in the motor vehicle industry 
In its Communication of 16 November 1990 the Commission underlined the 
strategic importance of completing the internal market, which will provide the 
main catalysts for structural adjustment. 
As in the other decisive sectors of the economy, the completion of the internal 
market in 1993 constitutes the best possible industrial policy for placing the 
motor vehicle industry in a position to meet the challenge of international 
competit ion. 
In this particular sector, the catalysts are technical, financial, commercial 
and social. Impetus is needed in these various areas in order that the sector 
can benefit from the implementation of the existing or proposed general 
measures to help industry in its efforts to make itself more competitive. 
One type of action chiefly involves the harmonization or approximation of the 
laws of the Member States relating to technical standards or taxation. 
Another type of action involves, more particularly, the creation of a 
competitive environment in which businesses can choose to restructure or to 
enter into new forms of cooperation, either at the production stage or on 
upstream or downstream activities. Developments such as these are a useful way 
of achieving greater rationalization or correcting unsuitable commercial 
structures, provided that they do not lead to situations which run counter to 
competition policy. 
The creation of this environment calls for consistency between the incentives 
which are attached to investment, business regrouping, research and development 
and the arrangement of commercial structures; they must respect the principles 
and rules applicable in these areas. 
A third type of action concerns the promotion of human resources, as referred 
to by the Treaty on European Union, particularly on the basis of the reference 
framework set out in Article 123 of the Treaty. 
1. The single market: a factor in competitiveness 
Restructuring of the car industry, a process already under way in 
anticipation of 1993, and the resultant economies of scale will have 
far-reaching positive effects on the EC industry's competitiveness. The 
contribution of the single market process in increasing the competitiveness 
of the sector is thus evident and substantial. It is also widely 
recognized. 
1 • 1 The internal market and the harmonization of technical and environmental 
rules 
The Communication of 19 January 1990 first of all touched upon the matter 
of the harmonization of technical rules, especially those concerning the 
env i ronment. 
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a) In general terms technical harmonization is a prerequisite for the 
practical completion of the internal market, whether one is referring to 
the "Europeanization" (which does not prevent differentiation) of 
production, which is over-geared towards national markets, or to the 
effective movement of products without difficulty at frontiers. 
Following the adoption by the Council on 31 March 1992 of the last three 
separate directives necessary for the operation of EEC type-approval, 
the harmonization of technical requirements for passenger cars has now 
been completed. From 1 January 1993 manufacturers need only take into 
account a single set of rules to market their products (cars as a whole, 
or their parts) throughout the Community. 
A subsequent step in harmonization involves the transition from the 
present optional system to a total (mandatory) system. 
b) In connection with the type-approval procedure, the Commission is also 
aiming at the general application of very stringent but realistic 
environmental standards. This promotes the incorporation of 
environmental constraints by the industry as an essential part of the 
competitiveness of motor vehicle production and the social acceptability 
of the products in question. 
From this standpoint, even where they require an effort in managing new 
technologies, stringent standards have a beneficial effect in industrial 
terms, particularly if they are applied uniformly throughout the 
Community, thus enabling economies of scale to be maximized and research 
and technological development to be managed better. 
In the process of preparing and implementing environmental standards, 
the Community must study the equilibrium between two factors -. a 
dynamism capable of promoting on the one hand technical excellence (with 
the advantage in certain export markets which follow from that), and on 
the other hand the guarantee for industry of an approach which is 
effective and within reach from an economic point of view, and which is 
based on recognized technical data with sufficient advance notice for 
the adaptation of products or procedures. 
The Commission has introduced and will continue to introduce 
systematically in its environmental directives a second stage, making it 
possible to aim at the highest environmental standards. In this context, 
from now until the end of the year the Commission intends to make 
proposals relating to the limit values for emissions from 1996 and also 
the objectives to aim at for the year 2000. On this subject, a 
discussion between industry, the scientific world, the environmental 
organizations and the public authorities is planned this year and should 
allow an exchange of views and lead eventually to the first common 
pos i t ions. 
Moreover, the framework for tax incentives which may be granted by the 
Member States on the basis of future European standards maintains a 
measure of flexibility for them and for the industry while removing 
discrimination and speeding up the introduction of the most advanced 
technologies. 
The Commission's responsibility for the operation of the internal market 
means that it pays special attention to the correct implementation of 
the standards and to the effects of tax incentives. 
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c) The motor vehicle sector also needs to adapt to retain its social 
acceptability. It should be noted here that the Community has undertaken 
to stabilize total emissions of C02 for the year 2000 to the level of 
1990. The Commission will present supplementary propositions with a view 
to ensuring an equitable contribution from the motor vehicle industry 
towards the objective of overall stabilization, based on the 
environmental directives mentioned in the previous point. Taking account 
of the foreseable increase of the vehicle park in the years to come, the 
undertaking by the European motor vehicle industry to reduce C02 
emissions from each manufacturer's range of passenger cars by 10 % 
(weighted according to the sales figures) by the year 2005(1) 
constitutes without doubt a useful step in the right direction. However, 
this does not seem sufficient, and will have to be accomplished by 
additional measures to improve on a technical level and to influence 
driver behaviour. 
However, in the analysis of the future evolution of the vehicle market, 
it will be necessary to take account of particularly acute environmental 
situations, notably in urban traffic. This problem has been developed in 
depth in the Transport and Environment Green Paper^2) which in 
particular analyses the major contraints and suggests the best ways to 
reduce environmental impact. 
1.2 Approximation of indirect taxation 
The various indirect tax levels and arrangements affect both the size and 
structure of markets. 
Differences in taxation can produce major differences in the price, 
inclusive of tax, of motor vehicles within the Community.^) 
With the internal market in prospect the Commission has proposed that VAT 
rates be brought closer together. The EC0FIN Council agreed on 
24 June 1991 that from 1 January 1993 a minimum rate of 15% would apply to 
motor vehicles and that the increased rates applicable in certain Member 
States would be abolished. 
This will result in a substantial alignment of the rates of VAT on cars in 
the Community between now and 1st January 1993. During the last two years, 
these rates have already been reduced in the countries with the highest 
rates and have been raised in the countries with the lowest rates. 
In addition, the Commission notes that considerable differences exist among 
the Member States concerning other taxes applicable to vehicles. The 
Commission is examining these differences for any possible impact on the 
smooth running of the Internal Market. 
1.3 The contribution of competition policy 
A large number of general measures taken under competition law are already 
benefiting the motor vehicle industry (see annex). 
(1) C02 emissions resulting from the fuel burned by road vehicles now make up 
15-20% of total C02 emissions, two-thirds being from passenger cars. 
(2) C0M(92) 46 final of 20 February 1992. 
(3) In relation to prices exclusive of tax, indirect taxation varies on average 
by a ratio of 1:15 between Luxembourg and Denmark, viz. between 15% (VAT) 
in Luxembourg and 217% (VAT + registration tax) for a vehicle costing 
DKR 60 000 before tax in Denmark. 
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Taken as a whole, these measures provide a consistent framework for 
initiatives to provide funding or management instruments to promote 
business restructuring, research and development with a view to the 
commercial application of results and adjustment of trade circuits in 
relation to the size of a single market encompassing the entire European 
Economic Area. 
a) Business cooperation 
The Commission's approach towards cooperation in the motor vehicle 
sector is continuing to take account of certain specific aspects of the 
sector. The motor vehicle market has become a world market. Thus the 
risk of dominant positions emerging has been considerably reduced in a 
Community that has been traditionally open to trade and which, in the 
motor vehicle field, is in the process of opening up yet further as a 
result of the EC-Japan agreement. 
Analyses show that closer cooperation between vehicle makers and 
equipment manufacturers may generate significant spin-offs and hence 
considerable savings for the industry as a whole as a result of a wider 
dissemination of the technologies developed in this way. 
Moreover, cooperation between equipment manufacturers - which are often 
SMEs of a size which prevents them from taking part in research and 
using efficient production methods - may prove desirable. 
Likewise, where new products, or products catering for a narrow market 
niche are to be developed, cooperation between assemblers or between 
assemblers and bodywork manufacturers may allow the development costs, 
which are very high for the small size of the market segment, to be 
shared. Offering a wide range of models is an essential part of the 
competitiveness of our manufacturers and may even help to increase 
competi t ion. 
Cooperation of this type, carried out within the framework of the rules 
referred to in the Annex, can be viewed positively, even at the assembly 
stage, if this widens the choice. 
b) A Framework for Public Investment Aid 
The Community Framework on State aids to the motor vehicle industry was 
introduced in 1989 in recognition of the sheer scale of the industry, 
and its impact on the Community economy and, in particular, trade 
between Member States. Past experience had shown Member States' strong 
propensity for awarding generous State aids to their home producers with 
a view to attracting what was perceived as strategically important 
investments, or for continuing to subsidize loss-making producers. 
The long-term development and competitiveness of the industry, or the 
impact of individual aid measures on the Community industry seldom 
featured as relevant criteria. The result was often a competitive up-
bidding of aid offers between Member States which would be ultimately 
seIf-defeat ing. 
The two basic principles underlying the Framework are that aid awarded, 
whatever its objective, should always be in proportion to the purpose it 
seeks to achieve, and secondly, that the aid awarded must always be 
compatible with the Community sectoral interest. For example, the 
Commission fully recognizes the valuable contribution to regional 
development which can be made by the implantation of new motor vehicle 
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and component production facilities or the expansion of such existing 
activities in disadvantaged areas. However, the Commission, in each case 
assesses the regional development benefits against possible adverse 
effects on the sector as a whole. 
This particular need to take account of the Community interest was 
highlighted again when the Framework was renewed from 1991. 
The Framework on State aids stated, "Over-reliance on State aid to solve 
problems of industrial adjustment vis-a-vis third country producers 
undermines the competitiveness of the Community car manufacturing by 
hindering the healthy influence of market forces." 
These principles, and the criteria which the Commission follows in 
applying them, are implemented and explained in individual cases. In 
addition, the Framework serves as a valuable reference when intervening 
on aid measures proposed by countries with whom the Community has 
entered into Free Trade Agreements. 
Before the end of 1992 the Commission will review the question of the 
Framework, and will decide whether to renew or to terminate it. 
2. Research and development policy 
a) One of the principal ways of making the European motor vehicle industry 
more competitive is through research and technological development. 
In its Communications "From the Single Act to Maastricht and beyond: the 
means to match our ambitions" and "Research after Maastricht: an 
assessment, a stragey" the Commission emphasizes the importance of 
research and technological development in making the Community's 
industry more competitive and announces the need to increase Community 
funding for R&TD. 
These recent Communications show that the Community needs to reorient 
its R&TD policy with a view to making European industry more 
competitive. The analysis contained in these documents applies equally 
to research and technological development in the motor vehicle industry. 
European research is failing to produce enough international competitive 
advantages. The European motor vehicle industry's R&TD expenditure (in 
1990: ECU 6 billion by vehicle makers and ECU 4 billion by equipment 
producers) is comparable to expenditure in Japan and the United States. 
Thus the main problem affecting European businesses is not the level of 
R&TD expenditure, but rather a lack of ability to translate R&TD 
activities into innovative products and/or processes, and these into 
shares of the market. 
In the process of rapid and continuous innovation, it is necessary to 
move rapidly from technological breakthrough to the serial production of 
quality products at competitive prices. 
Business dynamism is the crucial factor determining the success or 
failure of innovation policy. 
b) In a bid to provide a more effective response to the challenge of 
international competitiveness, the Commission has proposed a new 
approach in its R&TD policy, better geared towards business needs. 
m 
"£?*.• 
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The reorientation of the Community's R&TD policy will blend continuity with 
novelty. 
Conventional types of programmes will continue, but they will be critically 
revised and adapted to take account of an industrial environment in the 
throes of change. The current industry-oriented research programmes, 
characterized by a "technology push" approach, will take greater account of 
market expectations and will be focused on a limited number of topics 
corresponding to clearly identified industrial objectives. 
The new feature will be technological priority projects (TP projects) 
geared towards developing key technologies and achieving a better return on 
R&TD investment in terms of industrial competitiveness. 
Two complementary routes need to be followed in determining technological 
priority: from R&TD to the market and from the market to R&TD. 
From upstream to downstream Community intervention must make it possible to 
ensure the availability and mastery of a set of generic technologies, 
access to which is essential for the competitiveness of European producers. 
From downstream to upstream the task is to identify industrial projects 
emanating from businesses and based on secured or emerging competitive 
advantages. 
TP projects will be selected in accordance with a "bottom-up" procedure. 
Proposals from industry must first of all be consistent with the topics of 
the specific programmes. It is then the Commission's job to assess and to 
discuss with the relevant bodies the degree of priority that the proposed 
initiatives have in the light of the priorities set out in the framework 
programme, as well as the breadth and relevance of the project's 
implications. Proposals must address technological problems corresponding 
to industrial priorities; especially problems whose solution will make the 
system more competitive overall. Proposals will be selected on the basis 
of close dialogue between the Commission and the consultative Committees. 
The success of the TP projects will rest on increased pre-competitive 
cooperation between businesses. Taking account of previous experience, a 
definition for the precompetitive level is needed. The pre-competitive 
stage encompasses all those R&TD activities which businesses can carry out 
together before developing and marketing their own individual products. 
These activities relate to topics which, by their very nature, size or 
cost, are better dealt with by groups of businesses than by individual 
ones. The Community has an important catalytic role here. Encouragement 
of this type is perfectly compatible with the competition rules. In its 
1985 Regulation on R&TD cooperation agreements the Commission takes a 
positive view not only of R&TD cooperation, but also, under the conditions 
laid down in the Regulation, of the joint exploitation of research 
f i nd i ngs. 
The importance of increased cooperation to make the motor vehicle industry 
more competitive is shown by the Japanese experience. A far greater 
proportion of R&TD activity is carried out jointly by businesses in Japan 
than in the United States or in Europe. This is typicaily the case in the 
motor vehicle industry. In Europe, in a key technologies sector such as 
electronics for the car industry, there is virtually no cooperation between 
different companies. In Japan, on the other hand, the big companies take 
advantage of the complex structures of the industrial system in this area 
to launch R&TD initiatives bringing together the manufacturers and users of 
integrated circuits. 
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c) The motor vehicle industry will benefit from the conventional R&TD 
activities and from the new technological priority activities, both of 
which must be decided on in coordination with Eureka. 
Use of multisectoraI technologies which may also meet the needs of the 
motor vehicle industry could in the medium and long term help in the 
production of a clean vehicle, the improvement and reduction of production 
times, the achievement of increased active and passive safety in means of 
transport and the improvement of traffic management. 
TP projects will bring major benefits to the motor vehicle industry, by 
three main means: 
1) The availability of generic technologies, on which TP projects are 
concentrated, is vital to the motor vehicle industry if it is to 
maintain and develop its competitive advantages. The car industry is 
one of the industrial sectors with most to gain from generic 
technologies. The technologies which ought to be favoured relate, for 
instance, to new and improved materials, recycling, telematics for 
advanced transport, automation and robotics. 
TP projects could support the development of high-risk technologies, 
where research expenditure is highest. It is at this stage that 
businesses fail to take proper advantage of the advantages which they 
create for other businesses and for consumers. In cases such as these, 
increased R&TD cooperation between producers together with Community 
backing for the relevant research may be decisive. A suitable example 
in the car industry is the new generation of batteries, which will be 
vital to the development of the electric car. 
TP projects could also give businesses better access to specific 
technologies which meet emerging societal needs. In the motor vehicle 
sector this means environment-oriented technologies (e.g. advanced 
internal combustion, emission-reduction devices) and technologies for 
the improvement of road safety. 
2) TP projects will encourage increased cooperation between component 
manufacturers, equipment manufacturers and vehicle producers. This 
cooperation will make it possible to develop those aspects of generic 
technologies which are relevant to the motor vehicle industry. 
The need for such cooperation can be well illustrated by taking the 
example of electronic components. By strengthening the links between 
vehicle producers, equipment manufacturers, the producers of primary 
components and manufacturers of circuits it is possible to define the 
configuration and characteristics of electronic components for motor 
vehicles. Only if the four players concerned act together and take 
account of users' needs will electronic components be developed which 
achieve the set aims and offer optimal performance. 
3) TP projects will also encourage the development and mastery of new 
production methods (just-in-time, stock less production, simultaneous 
engineering), without which the motor vehicle industry will be unable to 
compete on the world market. World market requirements include, for 
instance, abandoning the Ford model of production, characterized by the 
mass production of standardized products, to flexible models combining 
economies of scale and range, where quality research and differentiation 
of goods lead to continuous product renewal. 
- 13 -
R&TD cannot guide industrial strategy and organization, but will play a 
key role in enabling industry to master these new production 
methodologies. 
3. Training and retraining 
a) In its Communication COM(92)2000 "From the Single Act to Maastricht and 
beyond: the means to match our ambitions", the Commission stated that human 
capital is now one of the decisive factors in competitiveness. 
Indeed, the revolutionary "lean production" methods, which were analysed in 
the MIT study, require a personnel structure and skills which differ 
substantially from those needed in the mass production system introduced 
into car manufacturing at the beginning of the twentieth century. 
A transition to leaner production and management methods is considered 
necessary by the industry given that growth in productivity through further 
automation can only be limited. This transition requires workers and 
employees to possess more interpersonal skills, a better ability to master 
change, broader training to allow multifunctional assignments and a better 
knowledge of problem-solving techniques than is currently available to the 
staff of the car and car component industry. Substantially increased 
training is needed in order to develop these skills. 
On the other hand, car and component manufacturers fear that in order to 
stay competitive in a market where growth is substantially less than in the 
past and which is under pressure from strong external competition forcing 
further marked increases in productivity, they would have to lay off 
labour. Manufacturers have also made it clear to the Commission that the 
relatively high average age of the labour force (45 years in traditional 
European plants as compared to 28 years in Japanese transplants in the EEC, 
and between 30 and 40 years in Japan) would be an important impediment to 
the necessary restructuring and adaptation of working methods. Some of our 
interlocutors mentioned the further impediment of general deficiencies in 
basic education and the illiteracy of segments of the workforce. 
b) The new Article 123 of the Treaty introduces very wide terms of reference 
for human resources policy, including the possibility of using the Social 
Fund to make it easier for workers to adapt to industrial changes and to 
changes in production systems, in particular through vocational training 
and retraining. The Commission therefore envisages a redefinition of 
Objectives 3 and 4 of the Structural Funds. In the future, in the context 
of these objectives, a major effort will be devoted throughout the 
Community to vocational training and retraining in anticipation of 
industrial and technological changes. This will of course necessitate a 
forward study of such changes and their impact on employment. 
This redefinition is wider in scope than the old Objectives 3 and 4 and 
would permit action of the kind desired by the motor industry even outside 
the regions which have priority in the context of Community regional 
policy. 
To increase employment, direction should be towards staff development, a 
key component of the new industrial context. Such action would also help 
to boost competitiveness. 
It will also help to prevent serious adjustment problems from arising in 
future and to solve existing problems arising in particular from the 
implementation of Community policies. 
- 14 -
The Commission has in mind a general approach which can be applied to 
industry as a whole without drawing any distinction between the sector, 
location or size of the company involved. 
This horizontal approach precludes specific Community assistance for 
training and retraining limited to the motor vehicle sector. However, in 
view of the changes taking place, the companies within that industry ought 
to be in a position to benefit from action by the Community intended to: 
- anticipate the effects on employment caused by these changes and the 
resulting adaptation problems 
- make changes economically efficient and socially acceptable 
- help in retraining and redeployment 
For the European Social Fund to be able to fulfiI its functions of 
preventing the effects of changes on employment, of adapting to new ways of 
production or of converting to new skills, clear rules of intervention must 
be defined. Its actions will make the object of programmes prepared in 
cooperation with the Member States, the companies concerned and the 
professional training centres. They will be developed at the workplace (on 
the job training) or next to education and training establishments for 
general culture (knowledge) and craft-apprenticeship courses (skill). 
Without prejudicing the decisions to be taken within the framework of 
document COM(92)2000, the actions may concern the personnel that will leave 
firms in phase of restructuring but equally personnel in firms where the 
effects on employment due to important industrial changes exist or may be 
foreseen, in respect of competition rules. 
These actions can cover the identification of qualifications and both 
initial and continuous professional training. 
Actions for continuous training aim notably at allowing individual adaption 
to better integrate the results of R&D into the industrial production 
process, to contribute to the development of abilities in tandem with 
developing job contents, to improve the abilities of personnel thus 
facilitating their transition to other jobs, and to assure the transfer of 
technology and expertise from the industry to SMEs. 
In implementing a qualification strategy to meet the challenges of 
competition, the Community can play the role of catalyst in defining, 
together with manufacturers and other interested parties, the extent of the 
adjustment to be made in order to obtain the highest quality standards, the 
types of training to be promoted, the job profiles, the contents of which 
are to be redefined, and the rules applying to jointly financed operations. 
In this context, Community action may enhance the significant efforts 
already made by the motor vehicle industry wherever a joint effort is 
feasible, and in particular: the involvement of industry in a joint 
analysis of qualification needs, the setting up of inter-company 
partnerships for training and the development of new forms of cooperation 
with the bodies and institutions responsible for the provision of training 
(and in particular initial training). 
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If those conditions were met, pi lot projects could be launched pending the 
realization of the possibilities afforded by the new Article 123. They 
could aim at anticipating qualification needs, redefining job profiles, 
developing joint projects for continuous training and advanced training in 
new technologies and the development of new approaches to learning and 
work ing. 
The Commission is examining ways of improving the vocational training 
programmes (FORCE, COMETT, EUROTECNET, PETRA) and increasing their 
catalytic effect on policies and activities at national level. 
4. Activities upstream and downstream of motor vehicle assembly: two factors in 
overall competitiveness 
4.1 Equipment manufacturers and materials suppliers 
Owing to its quantitative importance and also to its extremely diversified 
structure, the motor industry supply sector is an important asset to the 
European industry. 
As far as the Commission is concerned the increase in the proportion of 
value added in motor vehicle production stemming from the independent 
equipment manufacturing subsector is a step towards improving 
competitiveness in terms of specialization, flexibility and economies of 
scale. 
Apart from analysing the economic importance of the sector (950 000 Jobs, 
3 250 companies, 21% of the value added to European motor vehicle 
production), the PRS/Boston Consulting Group study referred to above shows 
clearly that despite the existence of leading companies and advanced 
technologies the European industry suffers from major competitive handicaps 
when compared with the Japanese industry in particular. The study 
concludes: 
"The EC automotive components industry has relatively low productivity, 
quality and operating efficiency and is not improving at high enough 
rates to match Japanese industry performance. The gap is significant 
and needs to be closed. The speed of product development is a key 
competitive variable and Europe lags significantly behind Japan. 
In order to close the competitive gap, in addition to company-specific 
programmes effectively to adopt modern, flexible manufacturing and new 
product development processes, there is a need for structural change 
towards fewer suppliers with enhanced systems capability, and changes in 
the OEM-supplier relationship." 
The authors consider radical changes to be necessary. This view is shared 
by both car and car component manufacturers. These changes, at company 
level, but which would also extend to inter-company relations, must be 
carried out by the interested parties. Community and national policies 
should assure an environment which will allow their implementation. 
The Commission welcomes the founding, in 1991, of a permanent CLEPA 
secretariat in Brussels, which is cooperating with the ACEA in different 
f ieIds. 
- 16 -
Aware of the fact that the automobile sector as a whole can only flourish 
with a sound supplier base, the Commission will monitor the development of 
this subsector with particular attention. It invites component 
manufacturers actively to participate in its R&D programmes and in its 
programmes in the field of vocational training. It also urges car and car 
component manufacturers to submit Joint projects in both areas, which might 
thus become a nucleus for closer cooperation in general. It would point 
out that the regulations referred to in the annexe constitute the legal 
framework for this cooperation. 
4.2 Motor vehicle distribution 
The motor vehicle industry has since the earliest stages of its expansion 
based itself on a structured distribution network, whose task has been to 
establish and maintain trusting relationship between manufacturers and 
customers. 
The arrangements which the Community introduced in regulation 123/85 are 
based on this situation. In an exception to the general competition rules, 
they allow the manufacturer to make use of an exclusive and selective 
distribution system for the sale of new vehicles and spare parts. 
These arrangements were based, in the light of the existing situation, on 
the need for a balance between the interests of producers and distributors 
and those of consumers; The regulation expires in June 1995. 
The practical functioning of the system of selective distribution has been 
• criticised from various quarters : 
i) Constructors and distributors have been concerned that parallel 
importers have been operating as "resellers" rather than as legitimate 
intermediaries authorised by Regulation 123/85. For their part, 
intermediaries have been concerned that they were being obstructed in 
their operations. 
Accordingly, the Commission felt that, after six years of operation, 
it was time to clarify the role which the regulation confers upon car 
intermediaries in order to remove any confusion between their 
activities on behalf of final consumers and the activities which could 
be carried out unlawfully under this umbrella by agents in fact acting 
as resellers. This clarification was issued in December 1991.^1^ 
ii) There have been complaints, notably a complaint by the European 
Consumers Organisation (BEUC) in 1990 that price differentials for 
cars between different Member States have exceeded the levels 
specified in regulation 123/85. 
To respond to this concern, the Commission commissioned a study with the 
aim of producing an objective comparison of prices of specific models in 
the Member States. 
There appear to be considerable price differences in respect of certain 
models on certain national markets. 
It is hard to tell at the moment to what extent the differences which 
emerged are due to imperfections persisting in the internal market (quotas, 
(1) O.J. C 329 of 18.12.91 
- 17 -
customs duties, etc.), objective factors (distance of markets from 
production factories), faulty analysis or that, in its operation, the 
selective distribution system has not given sufficient scope for dealers or 
arbitragers to play an active role in homogenizing the market. 
If the selective distribution system were employed to allow major price 
differences between the various national markets it would create the risk 
of a sizeable parallel market emerging. This could make it considerably 
more difficult to implement the EC-Japan agreement. At the same time, the 
Commission considers that the implementation of the EC-Japan agreement 
calls for a system over the transitional period to ensure that the 
objectives of the arrangement are not endangered by large-scale 
importations of vehicles built in Japan. Provided that it works in a 
satisfactory and efficient way, selective distribution would help in the 
management of the transitional period. 
Accordingly, in order to increase public confidence that the system of 
selective distribution is not a cause of fragmentation of the Single market 
and without taking any position on the merits or demerits of the system in 
other respects, the Commission calls upon all interested parties to do all 
they can to demonstrate that the "safety valves" built into Regulation 
123/85 (dealer to dealer sales across national frontiers; consumer 
purchases and operations by intermediaries across national frontiers) are 
fully operational in practice. 
5. improving the Community industry's access to third markets 
When examining the external aspects of motor vehicle policy in 
December 1989 and then in April 1991 the Commission analysed the Community 
motor vehicle industry's ability to stay highly competitive in certain 
thi rd markets.^1) 
Moreover, the increasing sophistication of motor vehicles means that R&D 
spending takes up an increasing proportion of the investment needed to 
produce new models. The outcome is that the ability to sell more 
diversified models not only at Community but also at world market level 
gives a competitive advantage to worldwide manufacturers who are able to 
maintain such a broad sales base. 
Finally, the maturity of the main motor vehicle markets in the 
industrialized countries means that those markets are exposed to the risk 
of marked cyclical variations. This makes increased geographical 
diversification of sales even more important for our industry. 
For the above three reasons, the growing internationalization of the 
Community motor vehicle industry is a key factor in its competitiveness. 
(1) See SEC(89)2275, "The future of the motor industry" (sectoral analysis), 
Commission Staff Working Paper. 
- 18 -
The Commission therefore attaches particular importance to the satisfactory 
functioning of international trade in this sector, including the absence of 
dumping situations in the case of finished vehicles or components and the 
lowering of third countries' tariff and non-tariff barriers, including 
barriers to investment and access to distribution networks. The Commission 
is pursuing that aim in the multilateral discussions within the GATT. 
It seems desirable for the industry itself to contribute to the achievement 
of that aim by assessing existing barriers or discriminatory practices and 
the dynamic impact which their removal would have. 
in addition, the Commission will endeavour to bring about the harmonization 
of technical and environmental standards in a multilateral framework so 
that the Community's internal policy on motor vehicles can have an external 
knock-on effect. 
6- The responsibilities of the social partners 
The increasing flexibility of modern production equipment makes more 
flexible working practices - agreed upon by both sides of industry - and 
greater worker responsibility both possible and necessary. 
Dialogue between the various partners will therefore be both a democratic 
necessity and an efficient way of mobilizing the entire motor industry. 
One of the key objectives of the dialogue will be to identify how those 
working in the sector can become more involved and assume more 
responsibiIi ty. 
The objective of involving intermediate and management level staff is part 
of the process of making personnel more conscious of their 
respons ib iIi t ies. 
This dialogue needs to take place at all appropriate levels and in 
particular at regional or company level. Responsibility for its content 
lies primarily with the social partners. In view of the parallels that can 
be drawn between certain problems, in view of their transfrontier nature, 
and in view of the Community's responsibility for this key sector, the 
Commission must take account of this question. Moreover, Article 118 of 
the Treaty gives the Commission the task of promoting dialogue between the 
social partners. It therefore offers its encouragement to all of those 
involved in this dialogue. Moreover, the European Parliament has made 
known its support for the setting up of a Motor Industry Forum bringing 
together the various parties in this sector. 
D. Conclusions 
The EC car market is, and will remain, the most important integrated car market 
in the world. Its continuing growth can form the basis for further expansion 
in EC passenger car production and thus for the sound development of the EC's 
car and car component industry. 
- 19 -
However, competition in the EC's export and internal markets is increasing. 
For the latter, this results partially from the progressive opening of hitherto 
protected EC markets to Japanese competitors. This increasing competition 
represents a formidable challenge to the EC car industry. 
The technological edge of cars produced in the EC, their high quality, good 
performance (including in fuel economy) and the wide range of models on offer 
which are well adapted to consumer demand are the EC industry's strong points, 
and these could be developed to keep competition at bay and to defend or 
increase the EC's share of third markets. 
There are, however, some important weaknesses which have to be overcome by the 
industry. Changes have to be effected at the individual company level as well 
as in the interplay of the car producers with their upstream and downstream 
sectors, where better collaboration and coordination of efforts is necessary. 
One major contribution to the process of industry-wide modernization of 
structures is the completion of the single market: the fragmentation of the 
European car market, which considerably hampered our car industry's prospects, 
will come to an end once technical and environmental standards are harmonized 
and indirect taxation and charges are brought closer together. Furthermore, 
the single market will stimulate intra-Community collaboration compatible with 
competition requirements, a process already under way. 
To increase the industry's performance requires substantial adaptation of the 
size, structure and skills of the workforce. The new Article 123 of the Treaty 
provides the possibility of using the Social Fund to facilitate these 
adaptation processes, in particular through supporting professional training 
and reconversion. Pilot projects, aimed at increasing the quality of the 
training of the workforce could be implemented in the framework of existing 
EC training programmes. 
Further efforts are needed in the field of research and development. The 
Commission plans to step up Community spending in this field and to make its 
R&D policy a more efficient tool for coordinating private and national action. 
The environmental problems linked with transport require major improvements in 
technology and consideration of the possible contribution of traffic management 
and new transport concepts to their solution. European industry will have to 
watch developments regarding policies and products on the international scene 
to remain competitive in this rapidly changing context. 
The Commission is aware of the increasingly important role of component 
manufacturers. The competitiveness of this subsector is a major concern, not 
only because of its economic importance but also because of its contribution to 
the overall performance of the car manufacturing value chain. 
The Commission's analysis shows that for the necessary changes to materialize, 
considerable efforts will be required from all parties directly involved. The 
responsibility for these changes lies first and foremost with the industry 
itself, including better social partnership. National and Community 
authorities should support these efforts and thus create the environment in 
which these changes can be successful. 
ANNEX 
General acts taken under competition law 
and with a bearing on the motor vehicle industry 
- Communication on subcontracting agreements.(1^ This text allows both parties 
to avoid the ban on agreements in certain circumstances, and constitutes the 
basis for the development of cooperation between car producers and equipment 
manufacturers. 
- Regulation (EEC) No 418/85 facilitating cooperation on research and development 
for the exploitation of results and the establishment of a common policy on 
licences; in this connection, the exemption granted could include cooperation 
involving the distribution phase. 
- Regulation (EEC) No 4064/89 on the control of concentrations. This allows the 
rapid creation of certain groupings on condition that proper competition is 
maintained and that dominant positions are neither created nor reinforced 
thereby. 
- Regulation (EEC) No 417/85 on specialization agreements. This allows exemption 
for company agreements, e.g. concerning Joint production carried out either by 
a subcontractor or within the framework of a joint venture; this exemption 
could be extended to include the distribution phase. 
- Regulations (EEC) Nos 2349/84 and 556/89 applying Article 85(3) of the Treaty 
to certain categories of patent and know-how licensing agreements, facilitating 
the transfer of technology. 
- Regulation (EEC) No 123/85 on certain categories of motor vehicle distribution 
and servicing agreements. 
It should be pointed out that financial intervention in this sector is carried out 
within a framework which is due to be reviewed at the end of this year. 
(1) 0J C 1, 3.1.1979 
FINANCIAL IMPLICATIONS 
This Communication has, by its nature, no financial implications. If 
applicable, these will be specified when the Commission puts forward specific 
proposals for action. 
IMPLICATIONS FOR SMALL AND MEDIUM SIZED ENTREPRISES 
The actions described in this Communication will have a favourable effect on 
all the sectors connected with the automobile industry and, in particular, on 
the SMEs which already contribute substantially to the performance of this 
sector which is at the forefront of technology. 
ISSN 0254-1475 
COM (92) 166 final 
DOCUMENTS 
EN 10 
Catalogue number: CB-CO-92-218-EN-C 
ISBN 92-77-44267-0 
Office for Official Publications of the European Communities 
L-2985 Luxembourg