ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(81)317
Vol.1981/0102

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COMMISSION OFTHE EUROPEAN COMMUNITI
COMC81 )317 final
Brussels -11th June 1981
THE EUROPEAN AUTOMOBILE INDUSTRY
COMMISSION STATEMENT

REASONS AND OBJECTIVES
1.In.October 1980,the Commission sent tothe European Parliament ,
theOffices ofthe Permanent Representatives ,the Economic and
Social Committee and the trade associations and trade unions an '
information paper onthesituation inthe automobile industry *).
The European Parliament held awide-ranging debate onthis industry ,
9 ,resulting inthe adoption ofaresolution on13January **).
The trade associations and trade unions have expressed their opinions
indetailed position papers .
The Economic and Social Committee has decided toset upaworking
party onthe automobile industry .
Finally ,the Commission has repeatedly mentioned tothe Council of
Ministers the need for acommon commercial policy towards Japan ,the
importance ofwhich hasrecently been highlighted bythe voluntary
restraint agreement decided byJapan forits automobile exports
towards the United States .
2,All the economic' and social parties involved have reached anagreement
onthe basic assessment ofthe situation and onthe extent ofthe
changes which must bemade bythe European automobile industry .The
European automobile industry must continue toplay the leading role
which itenjoys inthe Community bymaintaining its international ,
competitiveness .Faced with Japanese competition ,th^aims ofthe
American ,industry and the emergence ofnew producers ,the european
industry must continue toadapt itsindustrial and commercial base
which isvulnerable because automobile construction isheterogeneous
and components manufacture dispersed .This calls for increased efforts
* *
(
, .\ ■
*) SEC(80)4381 of30September 1980
**) EP70.304 -PV55of13January 1981 .

torationalize theapparatusofproduction,exploitanddevelop
theexistingtechnological knowhowandimprovetheefficiency
ofthedistribution systems.
Naturally,itisthecompaniesthemselvesthat.aremostdirectly
affected.Neverthelessalleconomicoperatorswithaninterestin,
orresponsible for,ensuringthatthisindustryrunssmoothly
shoulddoallthattheycantoencourageitsdevelopment .
Theeuropeanautomobile industrymustindeeddisposeofan
economicenvironment allowingittopursueandreinforcethe
adjustmentsithasengagedinordertoimproveitscompetitiveness ,
adjustments whichcanbeseenparticularly inthemagnitudeofthe
investments granted.
Inviewofthisbackground andinthefaceofthedifficultsituation
ontheworldandeuropeanmarket,theCommission considersit
necessarytoexpressindetail,bythestudyofthesector,its
opinionontheproblemsrelatedtotheautomobile industry.
Therearethreemainobjectives behindtheCommission'smovetopresent
thestudy"Structure andprospects oftheeuropeanautomobile
industry"

-3-
-togivealltheeconomicoperatorsinvolvedinthesmooth
functioning oftheautomobileindustry areplytothepositions
theyhaveexpressed andcalluponthemtoassumetheirown
responsabilitiesalongthelinesproposed.Thedocumentisin
thisrespectastartingpointwhichwillbecompleted on
thosequestionsrelatingtocomponents anddistribution and
whichwillberegularlyupdatedafterwards;
~toserveasareference intheframework ofthediscussions
withtheotherindustrialized countries (USA,Japan,Sweden,etc.)
ontheprospectsoftheautomobile industry;itexplainsthe
pointsonwhichitisnecessarytotakepositioninorderto
engageadialogueofthisnature.Theseexchangesofviewscannot
berestricted tothediscussion ofshort-term problemsandthe
examination ofeconomicquestions.Theinternational character
of.tfieautomobileindustry,whichisaccompanied bygrowing
y
interpenetration ofproduction andtradingstructures,require
that"theassessments ofthelong-termprospectsinthisbranch
ofindustryshouldbecompared;
-toreplytotheresolution ontheautomobile industryadoptedby
theEuropeanParliament on13January.Inthisrespect,thisdocu­
mentwillalsointerestalltheotherCommunityinstitutions and
bodies.ItisnottheCommunity'sroletoreplacetheautomobile
industryindetermining andimplementing therequisitechanges
forwhichitisprimarilyresponsible ;however,theCommission
wishestoensurethattheinstruments atitscommandaremanaged
asappropriately aspossibleinthecurrentsituation.

-4-
II.THE COMMUNITY 'SACTION 'S
The Commission intends tocarry out aset ofcoordinated actions
aimed atfavouring the efforts undertaken bytheeuropean auto­
mobile industry toimprove itscompetitiveness ,facilitating
thenecessary adjustments anddeveloping anappropriate economic
envi ronment .
These actions which must beengaged inclose relation with the
Member States will bedeveloped infour directions :
1.The reinforcement ofthe internal market
Itisreally vital tostrengthen the internal market and to
draw full benefit from its inherent dynamics ,i.e. from the
various advantages accruing from its size .Efforts will be
made tocreate amore propitious climate for the Community 's
automobile industry by:
-backing upagreater harmonization ofthose elements which
have not yet been brought into line ,notably where taxation
andenergy are concerned .The Commission underlines inthis
respect 1:he inconveniences resulting from thepersistent di­
vergence ofthenational taxsystems which causes afragmentation
ofthe community market .Itwishes that theefforts itisgoing
topursue inthe field ofharmonization oftaxstructures be
accompanied bymeasures oftheMember States toapproximate the
rates ofthe taxes affecting theautomobile industry ,particu­
larly those related toVAT onvehicles andtaxation offuel .
These measures should bedetermined soasnot todiscourrage
the automobile purchases inthe community and tofavour energy
economy .They could for instance lead totheapproximation of
purchase taxes atalevel significantly lower than those of
certain Member States ,while keeping thetaxes offuel ata
high rate .

-5-
-adapting le,Hslation todevelopments intheeconomic ,technological
andenergy fields .Often inthepast ,matters relating tolegislation
V
have "been discussed with toolittle concern forthegeneral context .
Anapproach must befound which covers thesafety ,environmental and
energy-saving aspects allatthesame time .Itmust bedevised collec­
tively andmust aimatsetting medium -andlong-term objectives designed
toprovide companies intheautomobile industry ,where lead times have
aprofound effect *),with theinformation that they need inorder toshape
their development .Amethod such asthis ,andtheadoption oftheeuropean .
type approval formotor vehicles would also encourage ourcarmakers tobe ■
more dynamic ,particularly intheir relations with their partners inother
parts oftheworld ,andwould setthescene foraconstructive dialogue
i
with thenon-Community countries . * "
-prompt inr.innovation through asetofone-off oron-going operations ,the
main aim ofwhich would betohelp theindustry gain abetter awareness of
requirements andpossibilities ,andwhich could consist in:
.taking stock ofresearch ,development andinnovation work andprojects
under way intheCommunity ,soastohave aclearer idea ofwhat has
been achieved andclarify theoptions ,
' c
M.
.making acontribution tothepursuit ofstudies 'orpilot projects re­
cognized as'being very important (e.g. gasturbines ,multi-fuel engines ,
etc .)»
.setting upobservation andjoint consultation machinery thepurpose
ofwhich would betoprovide alltheparties concerned with information
andaforum forexchanges ofviews onthefindings ofresearch and
development programmes ,developments abroad ,and*thelong-term require­
ments onthevarious markets throughout theworld etc.,
i
••/••
*)Ittakes about five years toadvance from thedesign stage toseries
production ofanewmodel .
I

.encouraging thesetting upoftechnical centres forresearch and
innovation concerning automobile components ,
.defining coordinated "basic research programmes involving industry ,
universities andpublic authorities ,andsetting upcentres of
excellence foradvanced technology ,bringing together carmakers ,
accessories manufacturers andstate-run laboratories (inconnection
with high-temperature materials orcomposite materials forexample ).
The favouring ofthe structural development ofthe industry
TheCommission has special responsabilities herebecause ofitspowers
inthefield ofcompetition andthemanagement ofthefinancial instru­
ments itcontrols .
Thepromotion and theimprovement ofthe european motor industry com­
petitiveness must betheessential aim ofstructural adjustments .
That iswhy :
-when applying theCommunity competition rules theCommission will
give dueconsideration totheneed forcloser cooperation both within
theindustry andwith other industries earlier orlater inthepro­
duction chain ,whilst avoiding distortion ofcompetition ,which hence­
forth will befought onaworldwide market .This appreciation is
naturally based onthefact that theCommon market remains open ;

-7 -*
-inthefield ofstate aids ,theCommission will supplement existing
legislation bysetting upasystem for"aposteriori "monitoring of
national aids ,involving thespecific aids aswell astheapplication
ofnon specific treatments totheautomobil sector .Theindistinct
recourse topublic finances could indeed lead totherisk ofover­
capacity ;itcould reinforce thetendancies towards protectionist measures
orincite totheulterior granting ofnew aids ,but inthis case
forreconversion purposes .Moreover ,theoverbidding ofnational aids
would mainly affect those -Membe'r States with alowfinancial capacity .
\
ffhis system will complete theinformation atthedisposal oftheCom­
mission .' _'
Itwould lend greater transparancy toallaidand create acommon reference
standard tobeapplied wherever theCommission andMember States meet to
discuss matters relating toadjustment bytheindustry ,thereby enhancing
theself-discipline which must beexercised when aid isgranted andaver­
ting thedanger ofover-capacity arising v/ithin theCommunity .
–Finally ,theuseofCommunity instruments infavour ofthemotor industry ,
-which has profited from important subsidies during thelast years ,will .
have tocomply with criteria stimulating theindustry 'sefforts toim­
prove itsproductivity andto rationalize production ofcomponents ,
taking into account thedifferent situation andlocation oftheplants
intheCommunity . ' . ■*
••j•»
>

-8-
Those criteria will "beconceived insuch away astocontribute to
a "better integration ofactivities inthe Community ,topriviledge
investments inthe high value added stages ofproduction and to
stimulate the technological development and automation .
Only beincreasing competitivity andrapidly applying technological
progress can weprotect employment ,not only inthe automobile industry
but inthe industries which supply itand depend onit.
These newcriteria might also serve asareference basis forassessing
the aid given bythe Member States and thus provide animpetus .
3.The facilitation oftho changes inthe employment situation
I
The Commission considers offundamental importance the questions relating to
the employment ,which must betaken into consideration atthe same time
and with the same importance asthe other aspects .Given such rapidly -
changing economic andindustrial conditions ,itisparticularly important
that all the economic operators concerned should show the dynamism and
flexibility that such major adaptation requires .Firstly ,aclearer
picture must begained ofthe effects onemployment and working conditions
that the changes which the industry iscurrently undergoing will have .
This isaprerequisite for efficient action inthis field .Inthe current
situation ,the lack ofadequate information and detailed research onthis
subject isdisturbing -itrestricts both the number ofways afadapting
tothese changes inpractice and companies' ability tofind staff which
satisfy their requirements .
The Commission will look into this problem inmore detail .Thefirst
stage will betocollect and evaluate ifpossible atthe level ofthe
various regions information and forecasts onthe possible consequences
that changes inproduction ,andinparticular automation ,might have for
employment ,qualifications and working conditions ,andtocarry onthe
work that has already been done inthis direction .

-9-
4.The development ofthedialo^e with the commercial partners ofthe
Community
Asanexporter ,theCommunity 'scarindustry must remain competitive
ontheworld market .This will only bepossible inthecontext ofan
open market .Initsefforts tofind solutions tointernational problems ,
theCommission will draw full advantage from thecurrent trend towards
greater international integration ofautomobile production ,as^witnessed
bythegrowing number ofcooperation agreements andexternal investments :
.with aview torationalization and stabilization ofcommercial struc­
tures ,based oriincreased trade incomponents ,spare parts andtechno­
logy ?
.byadopting acoherent Cojnraunitjy commercial policy towards non-Community
countries .Thepresent situation ,and theconcomitant fragmentation of
themarket ,have slowed down adaptation bytheCommunity industry .The
efforts tobring national strategies into line under acommon commercial
policy implies evolutionary adjustment oftheimports oftheCommunity
asawhole andstimulation ofits exports towards third countries -
TheCommission will actively develop thedialogue with itscommercial
partners inorder toallov ;thedesired evolution .
*
* *
v

These orientations aswell
they are based are set out
ofthe european automobileasthe elements ofanalysis
indetail in"Structure and
industry -•1981 "(Annex ).onwhich
prospects
Itisthespirit which has presided over the drawing upofthis
document ,which the Commission proposes todevelop over the
coming months through discussions with the other Community
institutions and bodies ,governments ,professional and trade
union organizations aswith its main commercial partners .

COMMISSION
OFTHE
EUROPEAN COMMUNITIES
STRUCTURE AND PROSPECTS OFTHE EUROPEAN
AUTOMOBILE INDUSTRY
-1981 -

STRUCTURE AND PROSPECTS OF THE
EUROPEAN AUTOMOBILE INDUSTRY
-1981 -
CONTENTS
FORE WORD
SUMMARY
PART ONE :THE EUROPEAN AUTOMOBILE INDUSTRY IN THE
WORLD CONTEXT
I. DEVELOPMENT OF THE CONDITIONS OF INTERNATIONAL COMPETITION
A. ANEW STAGE IN THE DEVELOPMENT OF THE MOTOR CAR
1.The features ofdemand
2.The role oftechnology
3.Production conditions
4.Trade patternâ
B. THE COMPETITIVENESS OF THE JAPANESE INDUSTRY
1.Results
2.Hie reasons for Japan 1ssuccess
3.The future outlook
C. THE AIMS OF THE AMERICAN INDUSTRY
1.Difficulties
2.Projects
D. THE EMERGENCE OF NEW COMPETITORS
1.The rise ofthe State-trading countries
2.The integration ofthe countries that have applied for
membership
3.The industrialization ofthe developing countries
II.STRENGTHS AND WEAKNESSES OF THE COMMUNITY AUTOMOBILE INDUSTRY
A. FOCAL POINT FOR ECONOMIC DEVELOPMENT IN THE COMMUNITY
1.Carrying along basic industries
2.Driving force behind high-technology industries
B. AMAJOR TRADING POWER .BUT AT RISK
1.Weakening ofposition onthe Community market
2.Erosion ofposition onexternal markets
3.Prospects

-2-
Pages
C.WIDE INDUSTRIAL BASE .BUTMADE UPOFMANY SMAT.T. PARTS 33
1.Theautomobile industry :Aheterogeneous whole 34
2.Production ofcomponents :Damaging fragmentation 37
D.CONSIDERABLE ROOM FORIMPROVEMENT 38
1.Rationalization ofplant
2.Application oftechnical know-how 42
3.Making thebest useofdistribution networks 43
PART TWO :ALOOK ATTHEFUTURE 46
I.REORGANIZING PRODUCTION '47
A.INDUSTRIAL ADJUSTMENTS . 47
1.Mergers ,cooperation andcompetition 47
2.Intervention bypublic authorities 49
B.FINANCIAL QUESTIONS 52
1.Investment andfinancial capacity 52
2.Community financing 54
C.TECHNOLOGICAL ASPECTS ' 56–– * I
1.Research anddevelopment 56
2.Theneed foralong-term view 58
D.CHANGES INTHE EMPLOYMENT SITUATION AND REGIONAL PROBLEMS 61
1.Nature ofthechanges 61
2.Location ofactivities 64
II.THE DYNAMICS OFTHE INTERNAL MARKET - 66
A.GENERAL FRAMEWORK 67
1.Removal ofbarriers tomtra-Gommuni tytrade 67
2.Theautomotive environment inthe Gornmunity 70
B.PROSPECTS INTHE FIELD OFREGULATIONS 74
1.Theeconomic importance ofregulations 74
2.Definition ofanintegrated approach ^ ■77
./.

Pages
III .THE CHANGING BALANCE OFINTERNATIONAL .TRADE 80
A.THE REDEPLOYMENT OFTRADE 80
1.Imbalance 80
2.Stabilization oftrade relations 83
B.EXTERNAL INVESTMENT AND INDUSTRIAL COOPERATION 85
1.Integration ofproduction structures 85
2.Development ofcooperation agreements 87
ANNEXES

FORE WORD
V
InOctober 1980 ,theCommission forwarded totheEuropean
Parliament )thePermanent Representatives ,theEconomic andSocial Gommittee
andtheprofessional andtrade union organizations anassessment ofthe
situation intheautomobile industry *.
Thereactions tothis report have made itclear that allthe
economic andsocial partners broadly agree intheir analysis ofthebasic
situation .
(a)theEuropean Parliament hasembarked onawide-ranging
discussion oftheautomobile industry ,culminating inaresolution adopted
on13January t
(b)theprofessional andtrade union organizations have expressed s
their opinions indetailed position papers , •
(c)TheEconomic andSocial Committee hasdecided tosetupa
working party on -the automobile industry .
(d)Lastly ,trade links with Japan ,inthecontext ofwhich the
automobile industry isanimportant aspect ,have been discussed onanumber
ofoccasions inthe Council ofMinisters .
*
The time has therefore come togobeyond thestage ofanalysis of
the facts and think about the future . ,
Tliispaper hasbeen drafted with this aiminview ,inorder :
(a)totake stock of all thebackground information available asaresult
ofalltheposition papers ,and -
(b)topursue theanalysis work begun ,byexamining theimplications ofthe
situation with regard totheCommission 'sresponsibilities andthose of
alltheeconomic operators concerned .
1 •
•*
Cf.TheEuropean automobile industry -SEC80(1981 )-30.9.1980

STRUCTURE AND PROSPECTS OF
THE EUROPEAN AUTOMOBILE INDUSTRY
-1981 -
SUMMARY
TheEuropean automobile industry isfaced with oneofthemost
fundamental changes initshistory ,andthemagnitude oftheadjustments to
bepursued isnowgenerally realized .
The firms inthis industry are ,ofcourse ,theparties most
directly concerned ,butthestructural adjustment needed issogreat that
alltheeconomic operators affected bytheautomobile industry have apart
topiayinthis process .
Acareful examination ofthe facts isneeded inorder tosee what
thevarious parties canandmust doinorder tohelp this industry toadapt
tothechanged circumstances .
Inview oftheproblems facing theautomobile industry ,the
Oommission has thought itworthwhile toexamine all thebackground
information atitsdisposal inorder toproduce asummary report .Asthe
Commission isanxious that theresources atitsdisposal should be
administered asefficiently aspossible inthepresent situation ,an
examination ofwhat itisdoing inthis connection hasbeen incorporated
into thefabric ofthis analysis inorder togive aclear idea ofthe
emphasis itwishes toimpart .This approach ,which issetout indetail
inthis paper ,places theEuropean industry intheworld context before
taking alook atthelikely developments .

-2-
Themain conclusions g>fthis analysis canbesummarized as
follows : **
1.Automobile trends worldwide have entered anewphase characterized by
significant changes in: - ,
(a)demand :thegrowth indemand hasslowed down' ,demand hasbecome more
international incharacter ,anditsresponsiveness tocyclical factors
has increased :
)
(b)technology :this hasnowbecome afundamental factor inthe
competitiveness offirms ,which must incorporate itatafaster rate
inproducts and factories ;
(c)production :this isaffected byrapid automation andaredistribution
ofvalue added towards "upstream "industries andnewsectors ;
(d)trade :there is,atoneandthesame time ,ashift towards themost
efficient manufacturing areas andastructural reallocation whereby
finished products arebeing replaced bycomponents ;
(e)employment :influenced bytheconsequences oftheresearch fora
greater productivity andbytheneed formore qualified manpower
adapted totheuseofadvanced technologies
2.These trends obviously affect allcarmakers .In ,this context ,the
European automobile industry has tocope with :
(a)thecompetitiveness oftheJapanese industry ,with itshighly efficient
productive apparatus ,lowproduction costs 20%to30%below those of
Community manufacturers ),andunparalleled sales drive ;
(b)theambitions ofthe USindustry ,which wasputoutofitsstride by
thesecond oilcrisis ,but isdetermined torestore itscompetitive
position byinvesting enormous sums ofmoney ;
(c)theemergence ofnewcompetitors ,whowish toexpand their trade and
establish their industrial growth onthebasis oftheautomobile
industry .
3.Over thelast fewdecades ,theautomobile industry hasbeen afocal
point foreconomic development within theCommunity ,notonly because
ofitsdirect impact butalso because ofitsstimulating effect on
many basic industries .Infuture ,theCommunity automobile industry
canplay adecisive role inthedevelopment ofhigh-techology
industries (robots ,electronics ,etc.).

Itmust ,however :
(a)keep upitstrading strength ,which isbeing undermined byaweakening
ofitsposition onthehome market andtheerosion ofitsposition on
foreign markets ;
(b)reorganize itsindustrial base ,which has avulnerable look about it
because ofits heterogeneous character where motor vehicle manufacture
isconcerned ,and itsdispersed character where themanufacture of
components isconcerned .
Despite these structural weaknesses ,theGommunity automobile industry is
capable ofmaking considerable progress by:
(a)rationalizing itsproductive apparatus ,i.e. bystreamlining its
structures andmodernizing itsequipment ;
(b)byexploiting anddeveloping itstechnological lead ;
(c)bymaking better useofitsdistribution systems ,which canmake a
bigger contribution totheeffectiveness ofitsmarketing efforts .
Inorder toadjust theproductive structures ,with aview tomaking the
industry more competitive ,there isaneed :
(a)where theindustry isconcerned :forcloser cooperation ,which can
quite easily "beorganized without affecting the conditions of
competition adversely ,and forparticular attention tobepaid to
state intervention .
(b)Inthis connection ,aCommunity system forthepost-monitoring
ofstate aidwould make itpossible toguarantee therequisite
degree oftransparency andpave theway forthe Commission and
theMember States topool their thoughts with aview tomaking
theadjustments easier ;
(c)where thefinancial side isconcerned :forlarge-scale investment
programmes entailing themobilization ofconsiderable financial
resources .Itmight bedesirable torethink the criteria forthe
granting ofCommunity support ,inorder toencourage improvements
inproductivity ar.dtherationalization ofcomponent manufacture ;
(d)where technology isconcerned :forthestimulation ofresearch
anddevtlopnent aspart ofalong-term view ofthedevelopment
ofthemoto ;*vehicle ingeneral .This canonly beachieved
byexploiting the spin-off resulting from cooperation not
only among firms but also with public authorities ,theuniversities
and alltheparties concerned ;

-4-
(d)where regional andsocial aspects areconcerned :forthegeographical
reorganization ofproduction for thebenefit oftheless-favoured
regions ,for theredistribution oflabour between sectors and for the
qualitative redistribution oflabour .Aconsensus between theeconomic
andsocial partners andtherelaxation ofinstitutional rigidity
would appear ,inthis respect ,tobeprerequisites foradjustments
,capable ofreconciling animprovement inivorking conditions with
better useoftheproductive apparatus .
7.Thedynamics oftheinternal market would appear tobetherequisite
catalyst forthis process :
(a)bymaking itpossible tocreate amore favourable general environment ;
this presupposes closer harmonization oftheconditions affecting the
motor vehicle ingeneral intheGommunity (transport ,taxation arid
insurance matters )and the continuation ofthe work toremove the
barriers tothecreation ofagenuine Gommunity motor vehicle market ;
(b)asaresult oflegislation being adjusted inline with economic ,
technological andenergy developments .Inthis respect ,theGommission
takes theview that anoverall approach isneeded which takes into
account ,atone andthesame time ,energy-saving ,environmental and
safety considerations with aview toobtaining aharmonious body of
legislation which will help todefend theCommunity industry 's
competitive position .This presupposes ,ofcourse ,that decisions
taken onthesubject inrelation toother markets should also be
taken into account .
8.Lastly ,itisofvital importance fortheGommunity that itsautomobile
industry should make suitable adjustments sothat itcanslot into the
future framework ofinternational equilibria .Tothis end :
(a)trade patterns must notevolve insuch awayastocause ashrinkage
oftheEuropean industrial base asaresult ofexcessive ,one-sided
concentration oftrade onfinished products .Acareful analysis of
trends inthedevelopment ofthemotor carclearly reveals the
economic andindustrial capacity forsecuring -asaresult of
increasing integration ofmotor vehicle manufacturing worldwide -
stable ,healthy commercial structures founded onincreased trade
incomponents andontheorderly future location ofproduction units ;

(b)investment outside thethree main producing areas isthemost suitable
wayofbringing about this newequilibrium byencouraging economic
interpenetration ,anobjective which isdesirable inthecontext of
industrial cooperation ,which would nowseem tobetheonly wayof
increasing thesector 'seconomic effectiveness andrelieving the
tension onthe markets .Such investment should therefore be
encouraged inthecontext ofcloser consultation between theeconomic
andpolitical agencies concerned .

/
PART ONE
THE EUROPEAN AUTOMOBILE INDUSTRY INTHE WORLD CONTEXT

-2-
Inorder toassess theoutlook fortheEuropean automobile industry ,we
should first ofallplace itintheworld context ,since theonly wayto
pinpoint theadjustments needed sothat itcantake itsplace onfavourable
terms inthecontext ofthefuture pattern ofeconomic ,industrial and
commercial equilibria istoexamine thestrengths andweaknesses ofthe
Community automobile industry inrelation tothedevelopment ofthe
conditions ofinternational competition .
With this aim inview ,Part Oneofthis report seeks :
(a)tobring outthelikely trends inthedevelopment ofthemotor carand
thefactors liable toaffect thecompetitive position ofthemain
producing areas ;
(b)toanalyse ,against this background ,theCommunity industry 's
advantages anddisadvantages .
X
* *
I.DEVELOPMENT OFTHE CONDITIONS OFINTERNATIONAL COMPETITION
Theexpansion ofthemotor car v.orldwide hasentered anewphase
characterized bysubstantial changes indemand ,technology ,production
conditions andtrade patterns .This isafact oflife forallcarmakers ,
but itisnottheonly factor with which theEuropean industry must come
toterms .There arealso the ambitions ofthe USautomobile industry ,
and theemergence ofnewcompetitors ,not tomention thecompetitiveness
oftheJapanese industry .

A.ANEW STAGE INTHE DEVELOPMENT OFTHE MOTOR CAR
I'<ost experts whohave examined themain factors inthedevelopment of
themotor carhave come tobroadly similar conclusions which infact
tend togive the'lie totheidea ofasector incrisis ,atleast inthe
sense inwhich this term has been used todescribe other industries in
very serious difficulties .
Thetrends which have determined thedevelopment ofthemotor carever
since itwasinvented arestill there inthebackground influencing
thesector 'slong-term prospects .Themain factor is,ofcourse ,the
increase incarownership worldwide ,andthefollowing figures give
some idea oftheimportance ofthis factor :while there are 540cars
intheUnited States (and 332intheEEC )per 1000inhabitants ,
theworld average isonly 79cars per1000inhabitants *.
However ,theworld automobile industry hasentered anewphase not
because ofachange inthenature ofthe factors determining its
growth ,butbecause ofchanges intherelationships between these
factors which have combined tolaythe -foundations foraneworder .
Anexamination ofthese changes ,which concern thefeatures ofdemand ,
therole oftechnology ,production conditions andtrade patterns ,makes
itpossible both tounderstand theprocess ofchange which isunder
way andexplain theadjustments which require tobemade .
1.The features ofdemand .
Thedemand formotor vehicles is,ofcourse ,'responsive tothe
general economic environment ,andinparticular theconsequences
oftheenergy crisis .Thegeneral downturn indemand ,asaresult
ofthesecond oilcrisis ,isnodifferent inthis respect from the
downturn following the1973 crisis ,andtheexperts aretherefore
notexpecting demand topick upin1981 .
Inthelonger term ,most ofthesources available take theview
that demand will probably have three main features intheyears
ahead :
*See Annex 1
Cf.Europe anCarIndus try
No.4Eurofinance -March '80

-4-
(a)Slower growth
Thenumber ofcars sold worldwide rose by5.6% perannum between
1975 and 1980 ,but theestimated average rate forthenext five
years issome 3%perannum ,probably mainly because ofthegradual ,
saturation ofthe traditional markets incountries where car
ownership hasreached afairly high level *,andthesensitivity of
thenewmarkets togeneral economic trends .Moreover ,theevolution
ofthedemand isvery uncertain ,for itisdifficult toassess the
repercussions oftheprofound changes which will affect the
automotive production anduse (rail/road balance ontheonehand ,
andpublic /private transport ontheother ).
Anumber offactors liable toinfluence thevalidity ofthese
forecasts and thepossible consequences ifthey turn out tobe
accurate shoud beemphasized :
(i)Theestimates inquestion relate tothenumber ofvehicle
registrations .However ,theincreasing sophistication ofmotor
cars ,which islikely tobeaccentuated asaresult offuel
restrictions ,entails aconsiderable increase intheir value
added content **. Asaresult ofthe lack offorecasts ofvalue
added ,the foreseeable trend indemand inreal economic terms
istherefore underestimated ;
(ii)Thegrowing saturation ofthemotor vehicle market inthe
developed countries ,onwhich -these forecasts arebased ,could be
called into question asaresult oftherapid obsolescence of
thevehicles nowontheroad ,asaresult ofsubstantial technical
advances .Inthis case ,motor vehicles might bereplaced more
quickly onthetraditional markets ,andtheUnited States will
probably bethe first country to.witness such achange .
(b)Greater responsiveness tocyclical_factors
The reasons for this are that thedemand forreplacement vehicles is
now thepredominant factor inthedeveloped countries ,andthat the
developing countries andthepianned -economy countries (where most of
thegrowth potential ofthenewmarkets lies )areheavily dependent
onexternal energy sources .
(c)Greater vehicle standardization
This applies atleast asregards thebasic features andistheresult
offuel-consumption andcost constraints .
This factor isparticularly important asithasmajor structural
implications with regard toproduction conditions .
*See Annex 1.
Seeinparticular theEuropean industry 'sposition paper (CCMC-CLCA ),
./.

-5-
2.Therole oftechnology
Therole oftechnological advances inthedevelopment ofthemotor
carandthepace ofimplementation ofthese advances have notbeen
particularly significant inrecent decades .Theautomobile industry
hasexperienced along period ofcomparative technoligical stagnation
present motor vehicle design dates back tothe1910s ,series
manufacturing tothe 1920s ,andfront-wheel drive ,four-wheel
independent suspension andmonopiece bodies to1935 orthereabouts .
Allthechanges that have occurred since thefirst energy crisis have
nowmade theability toget togrips with technical advances oneof
thedecisive factors infirms' competitiveness .
Thescientific back-up fortheautomobile industry will increase
considerably inthenext fewyears asaresult ofusing new
technologies forengine design ,forreducing vehicle weight ,for .
greater streamlining ,andforoptimizing functions bymaking greater
use ofelectronics .
While themost rapid progress will obviously beachieved byimproving
existing systems ,itisextremely difficult topredict theradical
innovations that will bemade andthetime that will berequired to
make them generally available ,because ofuncertainties surrounding
future energy availabilities andcosts ,thedecisions ofthepublic
authorities andthestrategies ofthemain manufacturers .
.•
Cnthing iscertain ,however -thefirms' technological capability
will nolonger besimply oneaspect oftheir competitiveness but
avery condition oftheir survival .In'theyears ahead ,therefore ,
theautomobile industry will bethescene ofasignificant .
technological revival asregards both products andproduction
processes ,andmotor vehicles ingeneral will constitute ahighly
strategic sector forthecompeting countries .
3.Production conditions
Theautomobile industry 'sproduction conditions have developed over
theyears aspart ofaconstant striving foreconomies ofscale .

-6-
Asaresult oftheconsiderable advances made intheequipment
industries ,thanks totheuseofelectronics andtheincreasing
uniformity ofdemand ,this striving istaking newforms -which may
besummarized under three headings :
(1)Automation ofproduction processes
(ii)Structural alterations totheproduction set-up
(iii )Switching ofvalue added between sectors
Automation ofproduction processes
Themost advanced aspects ofmotor vehicle manufacturing areinthe
forefront oftheautomation ofmanufacturing processes :some plants
arealready 97%automated Thegeneralization ofthis development
will beafeature ofthecoming decade forthecarmakers themselves
and forthecomponents manufacturers andthe "upstream "industries ,
asitisanessential element ofthe firms 1competitiveness .
Forexample ,50%ofJapan 'sindustrial robot production (Japan being
theleading producer worldwide )isalready earmarked forthe
automobile industry ,USmanufacturers areplanning tobuy 5billion
dollars worth ofnewmachine-tools inthenext five years ,and
certain European motor manufacturers areproducing automated
equipment which isnotsurpassed anywhere interms oftechnology .
This move towards automation ,which isalso adecisive factor inthe
context ofgreater production flexibility ,combined with the
increasingly international character -ofofthesector ,isfuelling
aradical change intheproduction set-up .
Structural alterations totheproduction set-up
Theautomobile industry hasfor along time been theepitome of
assembly -line -based mass production .Tv.ofactors have foranumber
ofyears been exerting agrowing influence :
(i)The "world car"concept resulting from theincreasing uniformity
ofthe motor vahicle market .The term "world car "does not refer
tothemanufacturing ofidentical vehicles fortheentire world
market ,buttothedesigning ofcars which canbeassembled for
different markets from components made onalarge scale ina
small number ofproduction units ;
./•

-7-
(ii)Varying scales ofproduction runs :carmaking canbedivided into
stages each ofwhich ,according tostudies carried outonthe
subject *,have different optimum scales ofproduction .Afew
figures will help tomake this clearer -.Forexample ,theminimum
production level would seem tobearound 500000units perannum
forthemanufacture ofengines .Ontheother hand ,where assembly
isconcerned ,annual runs of100000to150000units would make it
possible toexploit theessence ofeconomies ofscale .Unit
distribution and associated costs would behalved if500 000 .
vehicles were produced instead of100000 .
These twofactors naturally have aconsiderable effect ontheoverall
production set-up .
Switching ofvalue added between sectors
Increased useofhighly automated equipment ,theneed tomanufacture
components onanadequate production scale ,andincreasing
sophistication ofvehicles ultimately entails aredistribution of
value added between sectors :
(a)towards themanufacture ofcomponents ,theprime target area
fortheincorporation oftechnical advances ;
(b)towards theequipment industries which produce themachinery
used ;
(c)towards maintenance activities ,.meaning both themaintenance of
production equipment andthemaintenance ofthevehicles
themselves (useofsophisticated checking andcontrol equipment
forexample ).' -
Special attention should bedevoted tothis aspect ,notonly inorder
toassess thesocial effects ofthechanges under way (atransfer of
value added will also entail atransfer of jobs ),butalso inorder
toassess theregional impact (alteration ofthegeographical
distribution ofproduction units )andtheinternational impact
(imolications fortrade patterns ).
4.Traae patterns x,
»
Theabove factors will inevitably have aconsiderable impact onthe -
development oftrade patterns ,especially inconjunction with the
economic decisions ofcertain countries with regard tothegeographical
distribution ofproduction activities .
*
CfTheWorld Automobile Industry
DAFSA 1980

This in ,pact islikely tobefelt inthefollowing ways :
(a)Agrowing tendency forassembly units tobelocated inthemarkets
tobeserved ,asaresult ofatechnical capability combined with
thepolitical will ofmany countries todevelop anautomobile
indus try ;
(b)Acorresponding increase intrade incomponents ,equipment and
technology tothedetriment oftrade incomplete cars .TheEEC
hasalready been affected bythis development *.In1979 ,spare
parts accounted formore than 31%ofCommunity automotive exports ,
compared with 23% in1970 .This phenomenon should soon spread to
theUnited States .USmanufacturers areexpected tomake considerable
purchases from their European subsidiaries andfrom Japan whose
sales ofspare parts abroad will ,according tocertain estimates **,
account for40%ofautomotive exports in1985 ,compared with 20%
atpresent .
O
o o
Thevarious manufacturing zones are invery different positions
forembarking onthis newstage inthedevelopment ofthemotor car ,and
they have already pencilled intheir strategies .When looking atthe
competition with which theCommunity industry will have tocome toterms ,
three main factors should betaken into account :thecompetitiveness of
theJapanese manufacturers ,theintentions ofthe USmanufacturers and
theemergence ofnew producers .
•/.
*
See Annex 2.
**Analyse financière n"37.

-10-
(i)Along-term development strategy
Japane.se firms generally adopt anapproach focusing more onthe
industrial side than thefinancial side ,inthat they attach less
importance toimmediate profitability than totheconsolidation of
trading positions .This expansionary policy hasledJapanese manufacturers
todevote agreater proportion ofvalue added toinvestment than that
earmarked bytheir American orEuropean competitors .Between 1974 and
1977 ,theproportion ofvalue added earmarked forinvestment bythe
three main Japanese manufacturers was 35% ,onaverage ,compared with
only around 18%forthe 10main European companies andbarely 14%for
thefour main American groups *.
This investment effort ,thefunding ofwhich wasmade easier by
considerable internal resources andtheimplementation ofwhich was
facilitated byfavourable taxprovisions ,hasfocused onincreasing
production capacity andimproving productivity through theintensive
automation ofproduction lines .According tosome estimates half ofall
the industrial robots atpresent inexistence worldwide are installed
inJapanese factories **.Accordingly ,inthelast 20years ,the
productivity oftheJapanese automobile industry hasincreased twice as
fast asthat oftheEuropean industry andfour times asfast asthat
oftheUSindustry ***. Furthermore ,this investment bytheJapanese
manufacturers could not have been soeffective had there not also been :
(a)avery rapid improvement inthequalifications oftheworkforce :
inJapanese car factories ,two-thirds ofskilled andsemi-skilled
workers have theequivalent ofGCEAlevel qualifications ;
(b)considerable improvements inproductivity inthecomponents industry :
according toaninterim report onthecarcomponents industries
intheEuropean Community andJapan ****, productivity inthis
sector istwice the Ctorrmunity average .This factor isofcourfee
particularly important inview ofthestrategic role ofcomponents
manufacture and the structure oftheJapanese automobile industry
inwhich subcontracting (buying-in )canbeasmuch as65%to80%
compared with 50% to55%intheEEC .
TheWorld Automobile Indus try ,1960 .
**Itshould beemphasized inthis connection that thefigures available are
very difficult tointerpret andareoften disputed ,asthere isnoclear
definition ofthe term "industrial robot ".According tothecalculations
made byRenault using theJapanese classification ,thenumber ofrobots
used intheEuropean andJapanese automotive industries seem tobe
about the same .
***Cf.Information report oftheFrench Senate ,1980

-9-
B.THE COMPETITIVENESS OFTHE JAPANESE INDUSTRY
This isthefirst challenge which theEuropean automobile industry will
have tomeet .Japan isthecountry which ,inrecent years ,hasbest
succeeded incoping with the constraints which are afeature ofthe
newconditions surrounding thedevelopment ofthemotor carworldwide .
Theresults arethere foralltosee ,buttheimportant thing isto
analyse thereasons forthis competitiveness and theoutlook forthe
future .
1.Results
In1952 ,there were 100 000foreign cars inJapan outofatotal of
130 000 .
In1980 ,Japan made 7050 000passenger cars ,more than 3800000of
which were exported .Between 1970 and 1980 ,EECautomobile production
remained virtually stable andexports fell bynearly 23%interms of
units ,whereas Japan 'sproduction rose by122% andherexports
by426% .
2.The reasons for Japan 'ssuccess
Many reasons have been advanced toexplain thesuccess oftneJapanese
automobile industry :productivity ,social andlabour factors ,the
exploitation ofcurrency fluctuations ,etc .However ,thereasons for
thehigh degree ofcompetitiveness achieved bytheJapanese manufacturers
cannot bebroken down into neat ,individual packages ,since itis
theend-product of (i)along-term development approach whereby
investment decisions areguided byencouraging themodernization of
processes andproducts ,and (ii)anintegrated organizational set-up in
which theoptimum level ofindustrial andcommercial efficiency is
encouraged :
See Annexes 1and 3

-11-
(c)byanexcellent balance between supply anddemand ,particularly
oninternal markets ,owing tothemanufacture ofproducts which
satisfy thespecific needs ofthese markets (whereas ,inmany
cases ,their competitors tend totryandexport thesurplus of
aproduction adapted totheir ownmarket )and due tothe
immediate reaction ofmanufacturers toconsumers' wishes .
(ii)Aperfectly integrated_industrial andsales system _
TheJapanese automobile industry 'sproduction andmarketing set-up
hassome very individual features which arereflected intheoptimum
integration ofallindustrial anddistribution aspects .
Themain advantages are asfollows :
(a)Very fluid production flows :Asaresult ofnumerous financial
links ,Japanese motor vehicle manufacturers have aconsiderable
measure ofcontrol over their components suppliers .Inaddition ,
theKanban system fortheordering androuting ofmaterials
developed byToyota ties most ofthesuppliers tothemanufacturers
whocan therefore efficiently coordinate supplies toproduction
lines ,keep thelevel ofstocks ofspare parts toaminimum ,and
benefit from atwo-way flow ofinformation which facilitates the
close coordination ofproduction ;
(b)Extremely efficient distribution systems ,thanks tothedelivery of
vehicles asaresult ofusing sophisticated data processing
facilities (and even asatellite for the transmission oforders )and
acentralized transport fleet with rates 40%below European rates .
Last butnotleast ,oneofthemain factors intheefficiency ofthe
Japanese industry istheextremely favourable social climate ,resulting
forexample inthevirtual absence ofstrikes andtheextremely high
rate ofutilization ofproductive equipment (theaverage period of
utilization inJapan isestimated tobearound 2000hours perannum ,
compared with 1717 inFrance and 1626intheFederal Republic of
Germany according totheFrench Chambre Syndical andtheGerman VDA ).
All these factors combine togive theJapanese automobile industry
*considerable advantages over itsrivals ,themost striking advantage
being thedifference inproduction costs ,which are20%to30%lower
inJapan than inEurope *.
Inthecircumstances ,itisvery important that weshould analyse the
likely developments .
TheJapanese Automobile Offensive inEurope CCMC ,18.9.1981

-12-
3.The future outlook
Atthis stage ,let usconfine ourselves toananalysis oftheJapanese
manuf acturors 1known projects andstated objectives ,since thegeneral
question offuture international equilibria intheindustry ,which
will depend onthedecisions taken inthevarious manufacturing zones ,
isconsidered indetail inPart Twoofthis report .
TheMITI recently said that Japanese manufacturers aregoing tomake
12billion dollars worth ofinvestment inJapan over thenext three
years inorder toreplace models andproductive equipment ,increases
inproduction capacity being confined mainly tosmall-engined (500cc )
vehicles .Although this information contradicts certain forecasts
predicting a20%increase inJapanese production capacity between
1981 and1983*,nofinal judgment canbemade onthis basis ,since :
(a)according toarecent French Senate report ,theMITI hasjust
adopted anew automobile industry policy providing forthe
accelerated computerization ofproduction processes with aview
todoubling labour productivity in5years .Thefirst incentive
under this newpolicy istobeaspecial depreciation subsidy to
begranted tomanufacturers purchasing high-technology robots .
Information from various sources also indicates that Toyota has
ordered 720welding robots and isplanning tohave itsfactories
running completely automatically by1984 ;
(b)thefigures quoted only refer toproduction units located in
Japan .Infact ,there areseveral signs ofachange in -Japanese
automobile strategy towards moderation inthegrowth ofexports ,
the establishment offacilities abroad and industrial diversification .
Ittherefore looks asiftheJapanese industry ischanging its
emphasis insuch away astomake production andautomobile assembly
activities more international incharacter andtopursue apolicy
ofinvesting outside theautomobile sector .Theincreasing number
ofagreements between Japanese ,European andAmerican companies .
andtheemergence ofdirect investment projects (Nissan inGreat
Britain )tends toconfirm thefirst part ofthis change ofpolicy .
*The JSAuto Industry 1981 -Dept .ofTransport

-13-
The available financial resources ofthe Japanese companies are so
great that they cannot ,inany case ,all beploughed back into
the'automobile industry .For example ,according toareport that
has already been mentioned *,Nissan isgoing inforthe manufacture
ofoutboard motors and theseries manufacture ofcomplete boats ,
whilst Toyota ,which already has banking interests hasstarted to
make mass-produced prefabricated houses .
O
All inall ,the Japanese automobile industry has attained such a
standard ofefficiency ,profitability anddrive that itconstitutes
amajor threat forits main competitors ,and above all for the
North American industry ,onthebasis ofthestrength that ithas
built upinrecent years alone .
French Senate report

-14-
THE AIMS OFTHE (JSAUTOMOBILE INDUSTRY
1.Difficulties
In1980 ,the USautomobile industry experienced themost serious
difficulties initshistory :
(a)theaggregate losses ofthethree main manufacturers in1980 are
estimated atover 4.5billion dollars ;
(b)production fell byalmost 30%compared with 1979 ;
(c)theautomobile sector 'strading deficit totalled over 13billion
dollars andtherate offoreign penetration oftheUSmarket
exceeded 25% ;
(d)nearly 300000workers were laid offbythemanufacturers ,
representing over *one-quarter oftheworkforce employed inthe
sector .
The reasons for this state ofaffairs can besummarized inafew lines :
TheAmerican manufacturers were notprepared for thesudden shift m
demand towards small cars inthewake ofthesecond energy crisis .
Accustomed asthey were toservicing amarket thespecific features
ofwhich constituted abarrier toforeign competition ,they went infor
policies involving superficial changes tomodels instead ofinvesting
inproductivity andtechnological improvements .Faced with thepressure
from theJapanese manufacturers ,which account for80%ofautomobile
imports into theUnited States ,the USmanufacturers were ata
disadvantage intworespects :
(i)They were unable tohandle thequalitative change indemand ;
(ii)Their cost prices were much higher ;according tofigures published
bythe USDepartment ofTransportation ,Japanese firms have acost
price advantage over American firms of1000to1500dollars per
car ,after taking into account thecost oftransport andaccess to
the American market .-
*Most oftheinformation analysed inthis chapter istaken from arecent
report (The USAutomobile Industry 1980 ;bythe USDepartment of
Transportation .

-15-
Theautomobile industry plays amuch more important role intheUS
economy than itdoes intheCommunity economy ,notbecause ofits
intrinsic importance -which isdirectly comparable -butbecause of
itsrole intheAmerican transport system :95%ofurban passenger
journeys and83%ofinter-city passenger journeys aremade bycarin
theUnited States .Itistherefore hardly surprising that theUnited
States should wish toregain itssupremacy inthe vrorld automobile
industry .While this does notconstitute animmediate threat to
European manufacturers ,since thetransition period regarded as
being necessary fortheAmerican companies will rununtil atleast
1984 ,this country 'sautomobile projects will have adecisive effect
onmedium-term equilibria inthesector .
2.Projects
Before examining theimplications oftheUSautomobile industry 's
projects fortheyears ahead ,weshould take alook attheobjectives
pursued ,theresources deployed andtheresponsibilities involved .
Cbjectives
The American manufactuers areaiming tocompletely reorganize their
productive apparatus and theproduction set-up inorder tomanufacture
competitively sufficient vehicles tosatisfy estimated demand onthe
home market in1985 .According todata worked outbytheDepartment of
Transportation onthebasis ofthe investment programmes published by
the firms concerned ,the aim istomake 11million fuel-efficient
passenger cars (or13million fuel -efficient vehicles ifvans andlight
commercial Vehicles are added )inthe United States in1985 .
Resources
(a)Total investment bytheAmerican groups mthenext five years has
been estimated at70to80billion dollars **,which ismuch more than
thecost oftheApollo programme .Most ofthis capital will ,of
course ,bedevoted toretooling anddownsizing (atanestimated cost
of56billion dollars ),theremainder being forresearch and
development andpremanufacture andlaunching costs .
This figure includes estimated VW-USA output ,i.e. 450000units ,butnot
theoutput ofanyother foreign manufacturers' plants .SeeAnnex 4.
Inconstant dollars .

-16-
This investment will ,ofcourse ,enable USmanufacturers to
considerably improve their productivity ,inparticular asaresult
ofbuying alotofindustrial robots (GMisproposing todouble its
stock ofrobots by1983 toarrive atatotal of470units ).
However ,this investment will take some time toimplement ,which
explains theextensive recourse toanother method ofadjustment :
technology andexternal supplies .
(b)American manufacturers have already signed orbegun negotiations
onanumber ofagreements with Japanese andEuropean companies for
thesupply ofengines andother components fortheir newmodels .
Forexample ,Chrysler istobuyonemillion engines from Mitsubishi
between 1981 and1985*.Atthesame time ,GMandFord will be
calling toalarge extent ontheir European andLatin American
subsidiaries ,who will thus play amuch more active part intheir
world production set-up .
What ismore ,these agreements arenot confined totrade in
components .Itshould berecalled inthis connection that there
have been strong financial links foranumber ofyears between the
USandJapanese companies :Ford holds 25%ofthecapital ofToyo
Kogyo ,General Motors controls 34%ofIsuzu ,andChrysler owns
15%ofMitsubishi .According toinformation recently reported in
thepress **.Ford would seem tobeabout toconclude twoagreements ,
onewith Toyo Kogyo for the importation into theUnited States ,
asfrom 1984 ,ofasmall-engined carcompletely assembled inJapan ,
theother for theproduction intheUnited States ,inconjunction
with Toyota and Ttoyo Kogyo ,of300000light vans each year with
components mainly imported from Japan .
Responsibilities
*Awide-ranging discussion ofthepolitical aspects oftheautomobile
sector inthe United States isatpresent under way .Without
anticipating thedecisions which will betaken ,itisworth
examining themain subjects raised ,which have abearing onthe
responsibilities ofalltheeconomic operators concerned :
Atable indicating some oftherecent agreements isgiven inAnnex 5.
■k'k
The Nouvel Economiste of2March 1981 »
./•

-17-
(a)Government :
(i)aself-restraint agreement oftheJapanese exports has
been negotiated inorder togive theAmerican producers time
tomake thenecessary adjustments Jhelp from thepublic
authorities tomake iteasier for firms tofind the invest­
ment capital required has ,moreover ,been requested ;
(ii)in -addition ,particular thought isbeing given tothequestion
oflegislative policy ,with aview toensuring closer
cooperation between industry andgovernment inthesetting of
objectives .TheAmerican administration hasalready decided
tolighten theregulatory constraints affecting carproducers
bycancelling some oftheregulations ,lengthening implement­
ation deadlines andfacilitating thecontrol ofprogrammes
already started (air-bags ,polluting emissions andenergy
consumption );
(iii )lastly ,thetaking into account ofinternational ,competition
intheenforcement ofanti-trust legislation andthetraining
campaigns tobepursued inorder toretrain theworkforce
arematters ofvital importance .
(b)The industry will have toimprove itsproductivity ,step up
itsresearch anddevelopment efforts ,accept greater responsibility
with regard totheenvironmental andsocial impact ofits
production units andproducts ,andreorganize itslabour relatioas .
(c)Thetrade union organizations arefaced with theneed tocome up
with awage strategy aimed at'reducing thedifference between
labour costs intheUnited States andthose in"Japan *.Oneofthe
ideas putforward inthis reispect iswage concessions inexchange
forprofit-sharing .
Consequences
Theeffects ofthis thorough reorganization oftheUSautomobile
industry areatonce internal andexternal ,qualitative andquantitative .
Theinternal implications have been analysed indetail bytheUS
Department ofTransportation
Thetable inAnnex 6gives theUSAdministration 'sestimates onthis matter .

-18-
from the point ofview ofthe
(i)social andregional imnact :Even iftheaims ofthe USmanu­
facturers arefulfilled ,i.e. ifthey succeed inproducing
13million units in1985 and inwinning back their home market ,
itislikely that 200 000 jobs intheautomobile industry will be
lost between 1980 and1985 .Theregional impact isalso likely to
beconsiderable ,since thesmall number ofnewproduction units
tobebuilt will inmany cases belocated outside theregions in
which theoldones have been closed down *;
(ii)commercial aspect ;TheUS's"automobile "deficit islikely to
continue toincrease ,inparticular because ofgrowing imbalance
intrade incomponents .
Theexternal effects aremore complicated toanalyse :
(a)qualitatively ,thefuture outlook fortheAmerican industry
matches thenew trends inthedevelopment ofthemotor car
worldwide (seeA);
(b)quantitatively ,andasregards -thedevelopment ofthebalance of
trade ,forecasts canonly bebased onspeculation about the
behaviour oftherival production zones .Itshould beemphasized ,
however ,that iftheAmerican companies' projects come off ,
there islikely tobeasurplus automobile production capacity
worldwide around 1983-85 ,astheTransport Ministry has infact
already stated .
Where thecountries orproducers involved areconcerned ,of
course ,this risk isonly significant interms oftheir
competitiveness andthedevelopment oftrade .Themain problem ,
thepossibility ofwhich must beappreciated here andnow ,is
asfollows :theUnited States atpresent imports around 2.8
million cars ;ifdomestic production capacity isonaparwith
domestic demand in1985 ,what will happen tothese imports ?
Three extreme cases can beconsidered :
*
90%ofUSautomobile production isconcentrated inseven States .

-19-
(i)TheUSindustry will succeed inwinning back itshome
market :Inthat case ,where will thepresent ijmports go?
(ii)TheUSindustry will become anexporter :Whowill buyits
cars ?
(iii )Another crises will occur ,even more serious than thepresent
one inview ofthesums ofmoney committed .
Careful consideration should ,ofcourse ,begiven tothese prospects ,
inparticular inview ofthelikely increase incompetition that will
result from theemergence ofnewproducing countries .

-20-
D.THE EMERGENCE OFNEW COMPETITORS
Thenewproducer countries (countries other than North American ,Japan
and theEuropean countries traditionally engaged inmotor vehicle
manufacture )have sofarplayed alimited role .However ,their share of
world production hassteadily increased ,rising from 10.3% to19.8%
between 1970 and 1980 .Inorder toassess their effect onthe conditions
ofcompetition oftheEuropean automobile industry ,they should be
subdivided into three groups :theState-trading countries ,thecountries
that have applied tobecome EECmembers ,andtheother countries (Latin
America ,Africa ,Asia ).
1.The rise ofthe State-trading countries
In1980 ,theEastern bloc countries accounted for6.9% ofworld motor
vehicle production .Thedevelopment oftheautomobile industry inthese
countries hasbeen furthered bythetransfer oftechnology ,mainly from
Western Europe ,inparticular intheform ofturnkey factories (e.g.
Togliatti complex built byFiat intheUSSR ).Aconsiderable proportion
ofthevehicles manufactured areexported ,although thepercentages
involved arediminishing (34.7% in1970 ,butonly 27.4% in1980 ),
mainly toWest European markets .
Theimpact ofthis boom ontheCommunity industry should beassessed
inrelation to :
(a)therole ofthe State intheEastern bloc countries :foreign
currency requirements have adirect influence onthequantity and
prices ofvehicles forexport ;
(b)thefeatures oftheend-product ,which -asitismanufactured
under licence -bears direct comparison with theWest European
models .Furthermore ,thecars produced areatthelower end
oftherange andareintended forapublic which isvery sensitive
toselling prices ,andthis isthemain factor intheir
competitiveness .

-21-
Commercially speaking ,East/West transfers ofautomobile technology have
sofarenabled West European producers ,attheprice ofaslight
increase incompetition ontheCommunity market :
(a)toexport factories andknowhow tomarkets which aretightly sealed
where finished products areconcerned ;
(b)toobtain low-price vehicles andcomponents under buy-back deals :
Fiat ,forexample ,hasundertaken tobuy 820 000engines ,50000
vehicles andvarious sub-assemblies over 7years inexchange for
building two factories inPoland *.
However ,ananalysis ofrecent trends inEast -West industrial cooperation
intheautomobile sector suggests that the impact ontheCommunity
automobile industry islikely toincrease .Information inamemo
recently published bytheDevelopment Committee oftheEconomic Commission
forEurope *indicates that since 1975 three factors have combined to
produce arapid increase inautomobile-linked trade with these countries :
theincreasing number ofcontracts between Western companies andEastern
bloc countries ,the increasing number ofbuy-back deals involving
Vfcstern partners and the increasing size oftheprojects envisaged . "
Inaddition ,whereas the first cooperation agreements concluded focused
toalarge extent ontheexisting models andproven manufacturing
processes ofWestern companies ,some ofthemore recent projects involve
newmodels which will bemade exclusively bythe Eastern bloc partners
using themost advanced technology (e.g. Citroen' sagreement with Rumania
tomake theOlcit model and .Fiat 'sagreement with Poland concerning the
Zero model ).
Source :East-West cooperation UN-ECE ,1980 .

-22-
Tworeasons maybeadvanced toexplain this development :
(1)Firms inthecountries concerned canonly meet theconstruction and
quality standards oftheir Western partners byadopting themost
recent technologies (this factor isvery important ,inview ofthe
development ofbuy-back deals );
(2)TheEastern bloc countries concerned want tobecome competitive on
theworld markets sothat anadequate proportion oftheir production
canbeearmarked forexport .
The scale ofthe commercial implications ofthese various factors is
difficult toassess ,but according tocertain estimates ,deliveries
from East European firms under buy-back agreements might total between
2and 3billion dollars perannum in1982-83 orthereabouts ,compared
with 500million dollars per annum inthe 1970s .Itisalso estimated
that motor vehicle imports into theEECfrom Eastern bloc countries
might rise from 160000units in1979 toaround 500000units in1985 *.
2.Theintegration ofcountries that have applied formembership (Spain
and Portugal )
Thesituation inthese twocountries isparticularly important ,as
they will shortly bejoining the Cornnunity .Therecent changes that
have occurred intheir respective automobile industries andtheir
future prospects areobvious :gradual integration into theEuropean
production system .Thegrowth oftheir production andtheir impact
oncompetition have been characterized by:
(a)Therapid expansion oftheir home markets :between 1969 and1977 car
ownership rates rose from 49to149per 1000inhabitants inSpain
andfrom 37to85per 1000inhabitants inPortugal ;
(b)thedecisive importance ofthedecisions taken bytheir respective
governments with theaimofrapidly developing alocal industry
both forassembly andforthemanufacture ofcomponents (therate
oflocal incorporation forthevarious manufacturers hasbeen set
at50% inSpain ):
(i)toenco' iraqe theadjustment oftheproductive apparatus ,
Estimates range from 300000to800 000units .
•/•

-23-
(ii)tobrinq about achange inthebalance oftrade byrestricting
imports (there arevery considerable customs andtaxbarriers
inSpam andquotas inPortugal )andbyincr"a .-.ingexperts
(49%ofSpanish production wasexported in1980 compared with
6.9% in1970 ;
(c)theimportance oftherole played bysubsidiaries ofmultinational
corporations :inSpain ,production iscontrolled byseat (inwhich
Fiat has aconsiderable holding ),PSAPeugeot Citroen (Citroen and
Chrysler ),Renault andFord ;inPortugal ,most motor vehicle activity
iscarried outbycompanies controlled byEECfirms .
Therecent changes inthe automobile situation inthese tv.ocountries
arecharacterized bythefollowing :
(a)Cautious enforcement ofnewlegislation gradually opening uptheir
domestic markets toimports :granting quotas forimports ofvehicles
already assembled inSpain ,enlargement ofquotas inforce in
Portugal ;
(b)Launching ofrestructuring plans toimprove thecompetitiveness of
thelocal industry ;
(c)Stimulation offoreign investment :Itisestimated that carmakers
areplanning toinvest 3.8billion ,dollars inSpain inthenext five
years ,and in.Portugal twobig Renault and Ford projects arenow
being considered .EEC firms arenot theonly ones involved either ,
since Nissan recently took a35.9/holding inthecapital ofMotor
Iberica inorder toproduce commercial vehicles inSpain asfrom
1982 ,andtalks arenowreported tobeunder waybetween theSpanish
authorities andJapanese manufacturers concerning aJapanese holding
inthecapital ofSeat .
Inthis context ,theimpact ofthese twocountries ontheEuropean
industry 'scompetitive situation should beconsidered from thepoint of
view ofthe .competitive potential which they maybring totheCommunity
industry after integration rather from thepoint ofview ofthe
short-term competition they mayrepresent forcertain manufacturers .

-24-
3.The .industrialization ofthedeveloping countries
(Latin America ,South Korea andIndia ,Africa )
Atpresent ,these countries account forless than 1%ofworld production .
Themain factors determining their competitive impact where theEuropean
automobile industry isconcerned are asfollows :
(a)Theindustrial andcommercial policies adopted bytheir respective
governments infavour oftheir expanding home markets ortheir
external outlets ;
(b)Theestablishment strategies andthedegree ofautonomy ofthemajor
manufacturers ontheir markets ;
(c)Theextent ofthetechnology transfers ofwhich they arethe
recipients .
Thecompetitiveness ofthese new producers hassofarbeen predominantly
influenced bytherole ofthemajor manufacturers ,since theability to
make vehicles for theworld market depends ,where these countries are
concerned ,ontheextent towhich they canuse thetechnology andknowhow
already developed inJapan ,theUnited States andEurope .
However ,some ofthese countries represent agrowing risk fortheEuropean
industry interms ofdirect exports .Acase inpoint isSouth Korea ,which
isstarting tosell ontheWestern markets very competitive cars
manufactured under very favourable conditions characterized by :
(a)very lowlabour costs ;
(b)theuseoflarge Japanese components andtechnology ;
(c)European design andequipment .

Oitheother hand ,their import potential would seem tobevery limited
inview ofthe extremely restrictive policies pursued bytheir
governments :imports ofpassenger cars arevirtually prohibited in
Brazil ,which also imposes a250% customs tariff onother vehicles ,the
mandatory rates oflocal incorporation exceed 60%inArgentina and
Korea ,and therate isasmuch as95%forcertain types ofvehicle in
these countries .
Anassessment ofthestrengths and weaknesses ofthe Community automobile
industry can bemade onthebasis ofall these factors .

II.STRENGTHS AND WEAKNESSES OF THE COMMUNITY AUTOMOBILE INDUSTRY
The Community automobile industry has been -andstill is-apace-setting
industry inthe economy .Any analysis ofitsstrengths and weaknesses should
look atthe problem from the four different angles outlined below :
(i)Over thelast fewdecades ,the automobile industry hasbeen afocal point
forindustrial development ,not only because ofits own growth but also
because ofitsability tocarry along awide range ofbasic industries
inits wake .Infuture too ,itcan continue toplay this role byproviding
impetus for the high-technology industries .
(ii)Today the Community 'sposition asthe world 'sleading trading power in
this field appears tobeinjeopardy ,partly because its dominant
position onthe Community 'sinternal market has weakened andpartly
because its place onexternal markets has been eroded .
(iii )Over and above theefforts specifically connected with changes in
competition ,the Community automobile industry must carry onrestoring
its overall competitiveness .Inthis context itisclear that its
broad-based yet heterogeneous and fragmented structure conceals a
number of inherent weaknesses .
(iv)Despite this handicap ,which clearly hasitsroots inhistory ,the
European automobile industry has considerable potential -for development ,
though that potential can only befulfilled byrestructuring the
industry ,rethinking the technology andreorganizing thesales
networks .
A. FOCAL POINT FOR ECONOMIC DEVKIjOPMENT IN TIIE COMMUNITY
Over thelast few decades the impact ofmotor vehicles oneconomic
development inthe Oommunity has gone far beyond theeffects ofactivities
directly involved inautomobile production .
Despite slackening market growth asaresult ofthefactors outlined
above ,there arestill many reasons toexpect the automobile industry to
remain one ofthe focal points for economic progress inthe Community .

-27-
liowever ,theindustry 'scontribution toeconomic growth must develop
along thelines that arebest fortheGommunity economy asawhole -
itsrole ofcarrying along basic industries initswake cangradually
beextended into that ofpromoting high-technology industries .
~Carrying along basic industries
Afewfigures will help demonstrate thestimulating effect which the
automobile industry hasontheCommunity 'seconomy :
•i'serf-20%ofallsteel andmachine tools produced intheCommunity ,
together with 5%ofallglass androughly 15%ofallrubber ,are
intruded fortheautomobile industry ;
iii)forevery onejob provided bythecarmakers themselves roughly
tvo more are created earlier inthe chain .
torsever ,mspite ofsteady improvements inproductivity over the
last I"£vvyears ,direct employment intheindustry hascontinued to
rise steadily ,reaching almost 2000 000 ,or5.4% oftheentire
industrial workforce ,in1979 .
Natural Ly,this effect ismore than just amatter offigures (for
instance ,pressure from theautomobile industry led toincreased sales
ofspecial steels andlightweight alloys attheexpense ofless
sophisticated metals ).Nevertheless ,todate ,theautomobile
industry 'sweight asamajor customer *forthebasic industries has
been mora significant than anyqualitative improvements ,however
important these may have been .
Driv3ngforce behind high-technology industries
'Ihetechnological changes called forbythedeteriorating energy
situation combined with theneed tooptimize production costs in
order tocombat competition from abroad have provided theCommunity
automobile industry with anopportunity todevelop into thebasic
driving force behind thehigh-technology industries .

-28-
Thereasons forthis trend have already been given .What isimportant
here istheeffect that they have ontheEuropean industry andonits
ability toharness those forces inaneffective development plan .
1.Thetechnological revolution intheautomobile industry will affect
both vehicle design andthemanufacturing processes :
(i)From thetechnical point ofview ,European cars 'are already
closely tailored tomarket requirements ,anditisfair tosay
that European carmakers have themost satisfactory product
ranges ,both asregards quality andasregards theproportion cf
their products which meet market requirements .This iswhyonly
minimal changes arerequired here unlike thecase ofthe
American industry ,which will have toswitch from thechassis /
body concept totheintegral construction concept ,from
rear -wheel drive tofront-wheel drive and from rigid rear axles
tofully independent suspension .
TheCommunity industry will have tofollow twomain lines of
approach asregards theproducts themselves -one towards
lighter vehicles ,using newmaterials ,andtheother towards
improving performance through theapplication ofvery
advanced electronic components .
(ii)Themain change inthemanufacturing processes isautomation ,
which isnot aswidespread .intheCommunity asitisinJapan
(mainly because theequipment used is,onaverage ,older ).
This will entail strengthening theproduction plant bythe
addition ofindustrial robots *andprecision machine tools ,
2.Theneed fortheEuropean industry toassimilate these changes is
acknowledged byproducers andtrade unions alike ,yecatfirst
sight theprospects inEurope donotappear tobeasbright asin
Japan .Japan istheworld 'sleading producer cfindustrial robots
and hercarmakers have "maintained ,close ties with electronics
companies forsome time (e.g. Toyota with Toshiba andNissan with
Hitachi ).Although afewsimilar arrangements have been made .inthe
EECover thelast fewyears ,both onthepart ofcarmakers
(Renauit-Bendix )andonthepart ofcomponent manufacturers
(Jaeger -Matra ),there isnevertheless ground tobemade up.
Three considerations should beborne inmir.d before mai<mg any
assessment oftheeffect that developments inthis industry might
have within theCommunity ,particularly asregards employment :
*
See Section I.A.A

-29-
(i)Automation andelectronics donotaffect theautomobile
industry alone ,they concern allmanufacturing industries .
Over thenext fewyears most jobs inindustry will beprovided
bytheindustries manufacturing therequisite equipment
(i.e. industrial robots ,microprocessors andprecision machine
tools ),whereas less labour will berequired forthefinal
product andquality will improve .
(ii)Theimpact that changes intheautomobile industry will have on
employment canonly begauged byconsidering theoverall effect
onallindustries concerned .Japan isaninteresting example
inthis respect ,since ithasalready seen alarge proportion
ofitsworkforce drift away from theautomobile industry and
towards robot production andmaintenance activities .However ,
.this took place inanextremely favourable economic climate .
(iii )Thefundamental question concerns thepromotion ofthe
high -technology industries .This iswhere motor vehicles can
make acrucial contribution ,byopening uplarge enough markets
toallow rapid and ,more important ,strategic development of
these industries .
Atallevents this istheonly way tomaintain thecompetitiveness
oftheCommunity automobile industry ,thekey totheCommunity 's
trading power .
B.AMAJOR TRADING POWER ,BUT ATRISK
In1979 motor vehicles worth over US£23000million were exported from
theCbmmunity ,asagainst slightly over US018000million forJapan ,the
industry 'ssecond highest exporter interms ofvalue *.
TheEuropean industry 'sstrength inthis sector issuch that theCommunity
canpayroughly 20%ofitsoilimport bill from itstrading surplus incars .
However ,itisclear from trends over thelast fewyears that thetrading
position oftheCbmmunity automobile industry isthreatened ontwofronts -
thedominant position ofEuropean carmakers ontheinternal market has
weakened andtheir position onexternal markets hasbeen eroded .
SeeAnnex 2:Exports ofpassenger cars ,commercial vehicles and
spare parts .

-30-
1.Vteakeninq ofposition ontheCommunity market
The increase inJapanese carmakers 'share oftheGommunity market isthe
clearest pointer tothis deterioration .
Japanese penetration oftheCommunity market rose asfollows between
1970 and 1980 *:
% D .F I UKBAUX NL DK IRE GR EEC
1970 0.1 0.2 0.02 0.4 5.0 3.2 0.4 0 14.6 0.6
1980 10.3 3.1 0.1 11.9 24.6 26.2 29.5 30.5 42 8.9
Japanese carsales intheCommunity rose from 48400units in1970 to
over 754000in1980 .Naturally ,Japanese carmakers' edge interms of
production costs **isthemain reason fortheir success ontheOommunity
and international markets .
2.Erosion ofposition onexternal markets
Community exports ofpassenger cars tonon-member countries fell from
2458000units in1970 to1899 000units in1980 (down by23/6),
whereas over thesame period world carexports rose byalmost 11% ,from
approximately 4.8million units tojust short of8.5million ,and
Japanese exports shot upby426% from roughly 700000toover 3.8
million ***.
*SeeAnnex 9(passenger cars andcommercial vehicles )
See Section I.B.
SeeAnnexes 1,3,8and 10.

-31-
This decline can only partly beput down toCommunity manufacturers
constructing plants inthe USA andcertain Latin American and African
countries ,since the Japanese companies 'share ofthe market hasrisen
sharply inthose three areas oftheglobe aswell ,particularly between
1969 and 1979 when itincreased :
(i)from 5%to11%inLatin America ;
(ii)from 15%to35%inAfrica :
The North American market isaparticularly telling example .Between
1970 and 1980 :
(a)Community exports toNorth America fell by425 000units ,while only
250 00Q more European cars were produced onthespot ,(byV olkswagen );
(b)Japanese sales tothe USArose byover 1.5million units ,totake
Japan 'sshare ofthe market from 4%to21%.
The Community automobile industry 'sloss ofexports ultimately results
inaloss ofearnings .
Ifthe Community hadbeen able tohold itsshare ofworld trade inmotor
vehicles atthe 1970 level -over 51%ofallexports -itwould have
sold about 4.3million cars in1980 ,2.4million more than atpresent .
Given theaverage productivity oftheindustry (including components )
in1979*,that would betheequivalent ofapproximately 400 000jobs .
3,Prospecta
Alltheanalyses agree that thecurrent trend canbeexpected tocontinue
atleast until 1985 .This would mean :
Approximately sixvehicles per man peryear .
XSeeinparticular theanalyses byEurofinance andtheEconomist
Intelligence Unit

-32-
(i)anincrease inimports ofmotor vehicles inWestern Europe in
general andintheCommunity inparticular ;
\
(ii)areduction inCommunity exports ofassembled cars .
Together these twophenomena will bring about agradual deterioration
intheCommunity 'strade inpassenger cars .Some studies suggest that
Europe could beanetimporter ofcars from 1983 onwards ,whereas other
scenarios predict that theCommunity 'snetexports will fall from their
present level ofapproximately 550000units tobelow 300000in1985 .
These forecasts are based onanumber offactors :
(a)continuation oftheJapanese pressure ;
(b)development ofplants outside theCommunity ;
(c)restructuring oftheAmerican industry ,which will stop importing
small models such astheFord Fiesta from .itsEuropean subsidiaries ;
4
(d)increased imports from theComecon countries andanumber of
other sources (especially Korea andBrazil ).
Theprospects arebrighter asregards -trade incomponents ,though itis
difficult toanalyse thesituation ,particularly since American
companies areplanning tosell large quantities totheir European
subsidiaries *.
All these factors ,coupled with theforegoing analyses ofthetrans­
formation which theautomobile industry iscurrently undergoing andof
thechanging pattern ofcompetition ,suggest that theCommunity 'smotor
vehicle trade should belooked atinthe terms set outbelow :
(i)Thetrend towards trade incomponents supplanting trade in
assembled cars islikely tocontinue ,partly fortheindustrial
andtechnical reasons already given andpartly asaresult of
changes ineconomic policy towards imports ofmotor vehicles .
What ismore ,asregards prices ,itwill take time forthe
Community toregain itsstrength asanexporter ,andinthe
meantime itscompetitors will keep uptheir pressure onthe
Community market and innon-member countries ;
 
See Section I.C.

-33-
(ii)Large newexport markets will gradually open upfor :
/ V *
(a)spare parts :
(b)motor vehicle production plant (inparticular industrial robots ):
(c)technology andknow-how .
Jtxsimportant torealize that this isapositive development inthat
these areas ,account foragrowing proportion ofthefinal product 's
value added and that aninternational division oflabour where trade
isnotlimited tofinished products alone would make forgreater
stability .Ifdifferent stages ofproduction were carried outin
different countries ,thetrade flows would bebased onindustrial
interests inaddition topurely commercial interests .
Atanyevent the future role oftheautomobile industry inthedefence
oftheCommunity 'sforeign trade will depend onitsability tograsp
these opportunities .
C.AWIDE INDUSTRIAL BASE .BOT MADE UPOFMANY SMALL PARTS
Comparison oftheCommunity 'smotor vehicle industry with itsJapanese
andNorth American competitors gives avivid picture oftherelationship
between thesize ofthemarkets ,thehomogeneity oftheenvironment and
industrial structures . >
Themotor vehicle industry isthepredominant industry mthefour largest
Cojnmunity countries ,andtheEuropean automobile industry is,above all ,
apatchwork ofnational industries which :
(a)individually ,have acomparable structure totheJapanese andAmerican
industries ,though their market ismuch smaller ;
(b)collectively ,share theworld 'slargest market formotor vehicles ,
though structurally they have notyetfully adapted tothat situation .
SeetheUSDepartment ofTransportation andtheEIUreport :
''The West European Automotive Industry "-May1980

-34-
Amore detailed analysis ofmotor vehicle production intheCommunity
shows that although theCommunity istheworld 'sleading producer ,its
automobile industry isheterogeneous inrespect ofproduction andthe
components industry isfragmented inawaywhich isbad for it.
1.The automobile industry :Aheterogeneous whole
Compared with itsJapanese andAmerican competitors ,theEuropean
automobile industry presents aheterogeneous picture with thefollowing
salient features :
(a)Diversity ofthesituation ofthefirms asregards :
(i) Industrial options -American andJapanese companies face
direct competition ontheir home markets ,whereas various
European carmakers (e.g. BMW ,Daimler-Benz ,Alfa-Romeo )have
specialized inparticular "slots "ofthemarket :
(ii)Relations with companies inother countries -there areno
carplants owned bynon-Japanese carmakers inJapan ,and
Volkswagen istheonly European company currently
manufacturing motor vehicles intheUSA ,yetalmost a
quarter ofallcars produced inEurope come from theEuropean
subsidiaries ofFord andGeneral Motors ,which arenow tobe
incorporated more fully intheir parent company 'splans *;
(iii )Relations with thepublic authorities which exercise direct
control over certain companies intheCommunity (e.g.
British Leyland andRenault );
(iv)Finally ,thescale ofoperations andfinancial situation -
although there arewide differences inthesize ofthe
various Japanese companies andmarked disparities inthe
financial situation oftheindividual American producers ,both
phenomena exist side byside within theCommunity ;
(b)analler degree ofconcentration :
IntheUSAandJapan ,thetwoleading producers control roughly 75%
ofthedomestic market ,whereas intheCommunity thesame share of
themarket issplit upbetween thetopfive companies .This
situation clearly hasitsroots inhistory ,when production was
concentrated along national lines .
*See Section I.C.

-35-
Asaresult ,although anumber ofgroups within theCommunity have now
reached asize which places them intheworld 'stopteninterms of
annual production ,their operations nevertheless remain onamuch
smaller scale than those ofthetwoleading American producers ,ascanbeseen from thetable below :
WORLD'S TOP TEN CARMAKERS
1979
Production *
1.GENERAL MOTORS 8,533,742
2.FORD MOTOR5,230,383
3.TOYOTA2,996,225
4.NISSAN2,704,544
5.VOLKSWAGEN -AUDI 2,530,565
6.PEUGEOT -CITROEN -TALBOT 2,425,798
7.RENAULT -SAVIEM -BERLIET 1,945,289
8.FIAT -Al/rOBIANCHI -LANCIA-OM 1,542,163
9.CHRYSLER CORP . 1,429,082
10.TOYO -KOGYO 971,421
11.MITSUBISHI 938,517
12.HONDA 801,869
13.BRITISH LEYLAND 657,637
14.DAIMLER-BENZ 604,859
15.ISUZU 424,788
These figures include :
(i)allvehicles produced bythecompanies concerned both passenger
cars andcommerical vehicles ;
(ii)theproduction figures foralltheir branches abroad ,excluding
plants inState-trading countries ,since such plants cannot' be
considered asbranches (e.g. Lada andPolski inthecase ofFiat ).
Source :L'ARGUS

-36-
Thevery names ofthefirms listed inthetable betray oneofthe
weaknesses from which theEuropean industry still suffers inrelation
toitscompetitors -thecomplexity andcumbersome nature ofits
production structures .
Japanese andNorth American groups have developed mainly through internal
growth ,i.e. byinvestment inexpanding existing companies ,whereas the
European groups have had toturn mainly toexternal growth ,i.e. .
financial mergers ,inorder toattain ascale ofproduction inkeeping
with theexpanding markets .
Inevitably ,concentration ofthis type over arelatively short period
gives rise toextremely cumbersome structures .Before the full benefits
ofscale canbefelt ,far-reaching harmonization isrequired ,atask
which isrendered all the more difficult asthe economic situation
becomes more tense .
Three Oommunity carmakers areaffected inparticular -though there are
wide differences intheir financial situations :Peugeot -Citroen -
Talbot ,Fiat andBritish Leyland .Attheopposite endofthescale
Renault andVolkswagen benefit from amore rational internal
organization .
Bearing inmind theeffects ofeconomies ofscale described above
(Section I.A),itcanbeseen that thelength ofruns isamore
significant factor intheproduction ofcomponents than intherange of
models produced .Engines arenormally produced bythecarmakers them­
selves andoffer aprime example ofthecurrent disparities between
European producers .Arecent report *showed that there wasaratio of
1:10 between -atthelower endofthescale -theannual production of
HL,which fits most ofitsmodels with different engines andtherefore
produces only extremely limited series (say ,60000units peryear )
and,-atthetopend -VW ,where far-reaching standardization hasmade
itpossible toproduce series of625 000units peryear .
For thecarmakers standardization ofcomponents isaquestion of
internal organization and ,insome cases ,cooperation with other
companies **,butitshould also betackled bythespecialist producers
scattered throughout theGommunity .
*
Seethereport bytheItalian Ministry ofIndustry .
*
SeethePeugeot -Renault -Volvo agreement onthe joint construction ofan
engine within theCommunity andthecontracts between American groups
referred toinSection I.e .

-37-
2.Production ofcomponents :Damaging fragmentation
TheCommunity 'scarcomponents industry ismuch less concentrated than
itsJapanese andAmerican counterparts ,notonly interms ofthenumber
ofcompanies butalso interms ofthespecialization oftheindividual
companies andofthestandardization ofproduction .
Acomparative study drawn upattheCommission 'srequest *showed that :
(i)there areinJapan 350companies supplying components tothe
Japanese automobile manufacturers ,whereas inEurope there are
X750 ;
(ii)onthewhole Japanese companies arelarger ,some 85%ofthem having
aworkforce ofover 100 ,ascompared with Less than 60% inthis
category inGermany andapproximately 40% inFrance ;
(iii )Although thestudies arenotunanimous onthis subject ,labour
productivity intheCommunity carcomponents industry appears tobe
lower than inJapan ;oneshould ,however ,-also take into account
thefact that recourse tosubcontractants isgreater inthat country
than intheEEC**.
(iv)thescale ofproduction gives Japanese companies additional
advantages over Community producers andJapanese manufacturers
share equipment more often .
Behind these facts lieprofound differences between theorganization of
theCommunity carcomponents industry andthat ofitscompetitors ,
particularly asregards therelationship between carmakers andcomponent
manufacturers .
(a)IntheUnited States ofAmerica and ,more importantly ,inJapan a
large number ofcomponent manufacturers areunder thefinancial or
commercial control oftheautomobile producers (inJapan 83%of
allcomponents were supplied asoriginal equipment ).
(b)The situation isthereverse intheCommunity where most component
manufacturers arefinancially independent andwhere roughly 50%of
allthecomponents produced areintended forthespare-parts market .
Cf.Comparative Economic Study oftheCarComponents Industries
intheEuropean Community andJapan -E.I.U. -May1980 .
*CfStudy byMrMERMAN ofVAA ,inparticular .

-38-
Clearly itisimpossible toquantify theeffect that these organizational
differences have onthe competitiveness ofthe companies concerned ,since
thedifferences bring both advantages (forinstance ,greater competition )
and drawbacks (limited scope for economies ofscale ).
However ,the Japanese industry seems tomake better use ofitsdistinctive
structure than European companies .
O
This brief analysis leaves nodoubt that the European industry has much
more scope for improving its production system than its Japanese
compeititors ,where operations are more orless optimal .
.CONSIDERABLE ROOM FOR IMPROVEMENT
The American industry has launched alarge-scale conversion programme
entailing sweeping changes initsplant ,and the Japanese production
system issoperfectly organized that there can nolonger beany hope
ofsubstantial gains through further improvement' .This places the
European automobile industry inaunique situation ,since itisin
Europe that the cost/benefit ratio for the measures tobetaken is
probably highest .
There isstill very wide scope for improvement ,not only through the
rationalization cfits production apparatus but also through the
application ofEuropean technical know-how and improvement ofthe
distribution networks .
1.Rationalization ofplant
The only means ofassessing theefficiency ofindustrial plant arethe
productivity figures and theunit production costs ,thebasic indicators
offirms 'competitiveness .

-39-
However ,itisdifficult todraw comparisons between industries ,not
only because ofstructural differences intheapparatus ofproduction
ofeach industry but also because ofthedifferent economic and
social environments inwhich they operate .
Forexample ,inanyanalysis oftheextent andtype ofimprovements
that could bemade intheCommunity 'sindustry itmust beremembered
that theJapanese industry operates inanextremely propitious social
climate .
Thetable below gives ageneral comparison ofproduction andemployment
intheCommunity ,USandJapanese automobile industries *.
'
'000
COMMUNITY *
(1979 )USA*
(1979 )JAPAN *
(1978 )
Vehicles
produced11,487 11,48.0 9,269
Workforce 1,953 2,200 665
Theproduction figures include allpassenger cars and industrial and
commercial vehicles .
Theemployment figures cover alldirect employment with carmakers
andcomponent manufacturers .
*Sources : EEC :Euros tat ;
USA :DOTreport (Bibliography Ref .No.5);
Japan :Daiwa Securities report (Bibliography Ref .No.8).
./•

-40-
Although all these figures were drawn from similar sources ,ameasure
ofcaution isnevertheless called for when interpreting them since :
(i)different ranges ofvehicles are produced inthethree different
geographical regions :the Community and USA each produce
approximately 500 000 heavy goods vehicles per annum whereas
Japan produces only approximately 150 000*;
(ii)thefigures for the Community andthe USA donot take full
account ofcomponents ,since alarge proportion ofthe components
produced are intended for the spare -parts market ;.
(iii )the complexity ofsubcontracting means that itishard tosay
exactly how many people are employed ,particularly inthe case
ofJapan .
Ffcwever ,the Japanese industry 'shigher productivity cannot entirely
beput down tothese differences .Adetailed analysis byamajor
American automobile manufacturer **made adirect comparison of
production units which confirmed this gap and concluded asfollows :
Asregards assembly :
Productivity ateven the most efficient European plants isone-third
that ofJapanese plants .For example ,aToyota assembly plant would
only employ one person per vehicle produced per day ,asagainst three
inGermany andsix inthe United Kingdom ;
Asregards the production ofcomponents :
Here too there isawide gap ,with Toyota producing nine engines per
person per day asagainst only twoinacomparable production unit in
the United Kingdom .
These differences stem from the more extensive automation and higher
rate ofplant utilization inJapan .
See Bibl iography (Ref.No.14).
See Bibliography (Ref .No.16).

-41-
This explains whyproduction costs arestill much lower inJapan
despite thefact that wages there arecatching upwith those inEurope
and the USA*.
Theanalysis must also take account oftwoother factors ,viz :
(i)percapita wage costs forJapanese automobile manufacturers in
thestrict sense oftheword arenowhigher than those for
European producers **;
(ii)nevertheless ,theaverage hourly costs fortheindustry (including
components )arestill much lower inJapan ,asthetable in
Annex 6shows .
Finally ,allthese factors combined with theaforementioned structural
developments asregards plant inthe Community automobile industry
make itclear that theindustry 'sability torationalize itsapparatus
ofproduction will require :
(i)improvements intheindustry 'sinternal organization -this is
probably where thegreatest progress canbemade ;
(ii)more efficient plant use-this depends toalarge extent on
cooperation between both sides ofindustry ;
(iii )putting theemphasis onautomation -this isdirectly influenced
bytheindividual firm 'sfinancial capacity .
Itis,ofcourse ,impossible todivide theJapanese industry 'sadvantages
over theCommunity industry into twocategories -oneforwhich
compensatory action canbetaken andanother where thenature ofthe .
economy precludes such action .
However ,given thewide scope forstructural improvements directly open
totheEuropean automobile industry ,the "non-transferable "aspects
seem tobeofonly secondary importance inthecurrent state ofaffairs ,
allthemore sosince production costs areonly ofthefactors affecting
competitiveness .
Production costs 20%to30%lower than inGermany andFrance and
US#1000 toUS$1500 lower than intheUSA (seeSection I).
Cf.DAFSA report .

-42-
2.Application oftechnical know-how
TheCommunity 'sautomobile technology isunparalleled ,notonly as
regards theproducts themselves but also inrelation totheproduction
methods employed .
Accordingly ,theJapanese industry based itsexpansion onEuropean
technology ,andAmerican manufacturers will also depend heavily on
Europe intheir redeployment programme .
However ,thetechnical expertise which allows European carmakers to
build the best cars :
(a)haslost some ofitslead over foreign -andinparticular
Japanese -industries ,where extensive research anddevelopment
work hasbeen carried out .Arecent report bytheFrench
Commissariat auPlan *revealed that research anddevelopment
costs account forwell over 10%ofallexpenditure bythe
Japanese automobile industry ,whereas ithasslumped below that
level intheCommunity ;
(b)isscattered over alarge number ofcompanies ;
(c)does notappear tohave been puttothebest use ,ascanbeseen
from the twoexamples described below :
(i)Production methods
Some European motor vehicle manufacturers lead thefield in
industrial robot technology ,yetdonotproduce sufficiently
long runs togive production costs which bear comparison
with those oftheir Japanese competitors **;
(ii)Products
Systems allowing substantial improvements inthebehaviour
ofvehicles areavail able _inonly asmall proportion ofthe
vehicles produced inEurope (e.g. antilock braking system ,
ABS ).
Referred tointhereport bytheFrench Senate (Bibliography Ref .No6).
 Theaverage price foranindustrial robot inEurope in1979 was
450000asagainst FF250000inJapan (French Senate report )

Exploitation ofEurope 'sautomobile technology resources cantherefore
beseen asakeyfactor inanybidtoimprove thecompetitiveness of
theindustry ,hbwever ,itwill involve : '
(a)breaking down thedivisions between R+Doperations andextending
R+Dagreements -theJoint Research Committee setupby
~Renault ,British Leyland ,Fiat ,PSA ,Volkswagen andVolvo isone
noteworth effort inthis direction ;
(b)speeding uptheapplication oftechnological advances in
industrial processes andintheendproducts .
3.Making the best use ofdistribution networks
Thepaper presented bytheCommission last October drew attention to
theeconomic andstrategic importance ofthedistribution and
maintenance networks *.
There areroughly 500 000firms engaged mthesale andmaintenance
ofmotor vehicles inEurope ,with anestimated total workforce of
2900000**.Japan andtheUSAhave aworkforce of656000and
2600 000respectively ,though ,ofcourse ,theeconomic and
geographical size ofthemarkets should betaken into consideration .
Thefact that motor vehicle distribution networks intheCommunity
areparticularly dense is -obviously apowerful weapon inthefight
against competition from abroad .
Since European motor vehicle distribution networks aredirectly
affected byanyrestructuring carried outbytheproducers (ascan
beseen from thereorganization oftheTalbot network ,forexample )
*SeeBibliography (Ref .No.1). *
•fcffSource :International Organization forMotor Trade andRepair .

-44-
they would probably benefit from astrengthening oftheir ties with
the manufacturers .The chief benefits would be:
(i)animprovement insupply 'sresponsiveness todemand -Japanese
companies usehighly advanced computerized methods todetect
changes incustomer preference patterns andadapt their
products accordingly asquickly aspossible ;
(ii)provision ,inoptimum conditions ,fortheequipment which hasto
beinstalled inkeeping with thelatest improvements inmethods
ofinspecting andcontrolling motor vehicles .
Finally ,distribution networks abroad also fall tobediscussed ,
since they determine theeffectiveness ofanyexternal development
andexport policy .Thebasic problem isthat itisdifficult for
many European manufacturers tobear thecost ofsetting upnetworks
ofthis sort bythemselves .Themost likely solution isfor
manufacturers tocombine their efforts inthe fashion ofthe recent
Peugeot -Fiat agreement inLatin America .

_45 _
This analysis ofthe changing conditions asregards international
competition andofthestrengths and weaknesses ofthe European
automobile industry gives some idea ofthe extent and nature of
thechanges with which itisconfronted .
Clearly over and above thecyclical problems arising from thegeneral
decline indemand ,thestructural adjustments already undertaken
must bepursued and reinforced .
Naturally ,itisthe companies themselves that are most directly
affected .Nevertheless all economic operators with aninterest in,
orresponsible for ,ensuring that this industry runs smoothly
should doall that they can toencourage its development .
Against this background ,itisimportant toassess theeffects that
these changes inthe automobile industry might have onthe work ofthe
various bodies concerned .
Thebasic information required for any such assessment ,which ,of
course ,includes the Commission 'sprogrammes and the main objectives
thereof ,will beprovided bythe analysis -■inPart Two ofthis
paper -ofthe following topics :
(i)Adaptation ofproduction structures asaprerequisite for any
improvements inthe competitiveness ofthe industry ;
(ii)Liveliness ofthe home market ,which must beexploited inorder
tocreate afavourable climate for companies :
(iii )Development ofinternational equilibria within which the
Community automobile industry must seek tomaintain itsposition .
*
* *

-46-
PART TWD
ALOOK ATTHE FUTURE

-47-
I.REORGANIZING PRODUCTION
Reorganization ofproduction intheCommunity 'sautomobile industry will
have industrial ,financial ,technological ,regional andsocial
implications .Alook atthese various implications shows what complex
changes will have tobemade ,although italso emerges that those
responsible fortaking theeconomic andsocial decisions *broadly agree
onwhat forms they should take .Itis,ofcourse ,uptothefirms totake
theinitiative asregards thedecisions tobemade ,butthey should be
given anenvironment which isfavourable totheimplementation ofthese
decisions .
A.INDUSTRIAL ADJUSTMENTS
Asfar astheindustry isconcerned ,thetwomost important matters for
discussion arethedevelopment ofcooperation andmergers inthe
industry andpublic intervention .
1.Mergers ,cooperation andcompetition
The fact that production intheautomobile industry hasbecome
increasingly fragmented ,inspite ofnumerous attempts toamalgamate
andreorganize over thelast fiteen years ,means that theindustry
will have tocontinue along this same course and 5inmany cases start
tothink inCommunity rather than national terms ,particularly as
far ascomponent manufacture isconcerned .This is,inthe first
instance ,rheindustry 'sresponsibility ,and istheonly wayof
taking advantage ofeconomies ofscale andofsetting upgroupings
which cancompete atinternational level ,which iswhat theindustry
isafter .
Cooperation between European companies would thus seem tobethe
best wayofachieving these aims atpresent **.
SeetheEuropean Parliament resolution andtheposition papers ofthe
industry andthetrade union organizations -Bibliography Ref .Nos 2,
3and 4.
**Thiscooperation isinfactencouraged bytheEuropean Parliament in
point 24ofitsresolution andbytheEMF (European Metalworkers
Federation ).

-48-
Inthis respect ,theCommission has aspecial role toplay because of
theresponsibilities inthefield ofcompetition assigned toitby
the Treaties .
Inapplying theCommunity competition rules inthemotor vehicle sector ,
theCommission has sought toensure themaintenance ofeffective
competition within thecommon market ,andindoing so,has taken into
account theactual andpotential effect ofcompetition from outside
thecommon market .Examination ofthecompetitive conditions faced by
Community manufacturers ,particularly thechanges over aperiod in
their Community market shares ,shows that despite itsoligopolistic
structure andthecooperative links already established ,themotor
vehicles market isthescene ofeffective competition .This appreciation
ofthepresent competitive situation isbased onthe fact that the
common market ,closely integrated into theworld market bytheeffective
application oftheprinciple offree trade inmanufactures ,remains
open ,andthat neither imports norpotential imports areexcluded by
protectionist measures .
Structural _consiterations
TheCommission has thepower toforbid anabusive reinforcement ,by
concentration ,ofadominant position held byoneormore undertakings *.
Comparison ofthemarket shares ofthe four largest European
manufacturers ofcars andcommercial vehicles andoftheEuropean
subsidiaries ofthe twoNorth American groups permits theconclusion
that nomanufacturer has asyet achieved such adominant position
within the common market ..
Themaintenance ofabalanced ,competitive oligopoly implies the
necessity ofpreventing abusive reinforcements ofdominant positions ,
which would remove from themarket thebalancing force which is
indispensable tothefree play ofeffective competition ;itis,
however ,impossible tolaydown inadvance andintheabstract the
size which asingle undertaking should notexceed ,orwhat constitutes
asufficient number ofcompetitors .
With regard tocomponents andaccessories ,production anddistribution
structures arevery different .Certainly there remains some scope for
concentration moves which could improve undertakings' competitiveness .
Butthemarkets forcertain parts have already reached alevel of
concentration sohigh that ahorizontal concentration concerning them ,
oravertical concentration with major vehicle manufacturers could be
caught bytheprohibition ofcertain concentrations .Previous analyses
have shown that theadjustments tobemade inthemanufacture of
components chiefly concern those where production onacontinent-wide
scale hasnotyetbeen achieved andthose whose production needs tobe
improved because oftechnical progress .
Article 86oftheTreaty ;theso-called "Continental Candoctrine ",
based onaJudgment oftheGourt ofJustice oftheEuropean Communities

-4da -
Agreements
Inaddition ,theCommission exercises thepower offorbidding agreements
which limit competition inthecommon market andauthorizing cooperation
which brings advantages both fortheproductivity ofundertakings and
for consumers **.
Until now ,cooperation agreements concerning research ,development and
larger -scale production ofcomponents necessary forvehicle manufacture
have always been accepted bytheCommission ,inview inparticular of
therationalisation benefits which result .Cooperation agreements of
this kind should notpose anymajor problem under Article 85,especially
where they donotconcern components whose cost would beasignificant
element intheprice oftheendproduct .
Ctooperation atend-product level ,i.e. intheactual manufacture of
certain vehicles ,has also been approved .TheCommission must ,however ,
examine closely thepossible risks ofmarket-sharing which some examples
ofcooperation inthis field may entail .
The'competitive functioning ofthedistribution trade isanimportant
element ofcompetition inthemotor vehicle sector within thecommon
market .TheCommission recognises themanufacturers' rights tosetup
networks based ontheselection ofdealers ,which hasenabled sales
systems appropriate totheproducts tobeestablished .Inthis way ,
themanufacturers' ability effectively touse their specialised sales
networks asnecessary todefend their market positions isguaranteed
inlaw .Experience makes itpossible tocontemplate theearly adoption
ofaregulation giving ablock exemption todistribution agreements
applied ,incircumstances which areequitable towards thevarious
interests concerned ,inthemotor industry .Because oftheimportance
ofmaintaining effective competition intheoligopolistic motor
vehicles market ,theCommission must ensure that thesales networks
ofthemajor manufacturers remain independent ,andinparticular that
price competition intrade between Member States isnoteliminated . ■
These considerations together show that thewishes expressed bythe
European Parliament asregards thesafeguarding ofcompetition and
theneed forincreased cooperation within theCommunity motor vehicle
industry ,stressed initsopinions asawhole ,arequite compatible .
Itshould ,however ,benoted that efforts towards cooperation should
notbelimited tothevehicle sector inthestrict sense oftheterm ,
Art .85ofthe EEC Treaty .

-1+9-
but should also extend tolinks with the electronics and industrial
plant industries .Inview ofthe strategic nature ofthese two
sectors andofthebreadth oftheir markets intheCommunity ,
the question ofconcentrations andagreements atEuropean level
inthese two fields should indeed beexamined carefully .
2.Intervention bypublic authorities
Nowadays ,public intervention intheauthomobile industry isa
general phenomenon :
(i) InJapan ,where theindustry originally developed ina
closed market spurred onbythe MITI *andwith thehelp
oftax and financial concessions -and isstill the
subject ofanattentive industrial policy
(ii) intheUSAwhere theFederal Government rescued the
Chrysler Group byguaranteeing loans f*andwhere a
"deregulation "programme hasrecently been implemented *
(iii ) inmost European countries ,where governments support
their motor manufacturers indifferent ways andto
different degrees .
Measures taken bythe Japanese authorities inthis respect seem
have been extremely effective although their level ofsupport
was nohigher than insome other countries .IntheUSA ,the
debate about Federal financial aid tocertain manufacturers still
goes on.Inthe Community ,discussions arefocusing ofthe
effect ofpublic intervention policies onthestructural reorga­
nization oftheautomobile industry .(i)
(ii)
(iii )
*Ministry ofInternational Trade and Industry
**Seealso Part Oneofthis document ,points Band C.

-5U-
This concern isexpressed inthe European Parliament resolution which ,in
point 5,insists onthe need for "the coordination ofnational aid schemes ".
The EMF would like aninvestment notification scheme tobeset upatnational
an4 Community level and'public subsides tothe automobile industry tobe
harmonized onaCommunity scale .
These requests seem all the more well-founded asthe growth forecasts made
bythe automobile industry ingeneral clearly show upaslower ,development ,
inwhich replacement could constitute the essential part ofthe future
demand onthetraditional markets .Insuch aperspective the inapposite use
ofpublic resources could lead totherisk ofcreating overcapacity with
regard towhich the temptation toremedy bythe research forprotectionnist
measures orbythe granting ofnew reorientation aids would exist .
Thepossibility ofsuch public incentives should rather becontemplated
with the aim ofimproving the competitivity ofthe automobile industry ,in
particular bythe reorganization and theincrease ofthe content ofthe
value added bythe firms .
Ingeneral ,the heed torestructure and modernize theautomobile industry
and the special competitive situation prevailing onthe market should be
taken into consideration : ' . v .
(i)bythe Member States ,when granting State aidtocertain firms .Inthis
respect ,thefactors tobetaken into account bythe Member ,States should
not bebased exclusively onnational considerations but should take into
account the possible effect ofthis aid onthe situation inthe Community
industry asawhole .Taking the Community context into account inthis
way should make itpossible toachieve consistency and avoid the risk
j. ofone-upmanship and expensive wastage from the point ofview ofthe
common interest ;
(ii)bythe Commission ,which isresponsible for ensuring compliance with
the rules onState aid under Articles 92etseq.ofthe EEC Treaty .In
doing so,the Commission can include inits assessment ,subject to
certain conditions and under the discretionary powers whiqh ithas
pursuant toArticle 92(3),certain aspects ofthe special competitive
situation existing onthe world automobile market .Inthe points of
view that ithas expressed ,the Commission has accordingly already
taken account ofCommunity priorities invarious areas (energy saving ,
pollution control ,regional and employment policy ).Inaddition ,once ,
the objectives have been set and the requisite adjustments have been
recognized ,resources must bedeployed inorder tocarry out the
action involved .This isone ofthe aspects which will have tobe
taken into consideration when assessing State aids ;itmay also have (
,adirect bearing onthe allocation ofCommunity support .
Such arvoverall approach topublic intervention will 'entail careful
consideration ,inconjunction with the Member States ,ofthe need for
specific sectoral measures and possibly thecriteria for using Community
financial instruments . . ,

Inthis connection ,theCommission could setupmachinery for
monitoring theaidgranted totheautomobile industry .Asan
appropriate measure under Article 93(1 )theCommission could ask
theMember States toinform it,after the fact ,ofallaidgranted
totheautomobile industry ,whatever itsorigin and legal basis .
Such anarrangement would extend theinformation available tothe
Commission beyond the types ofaidofwhich itreceives prior
notification toinclude aidgranted directly bytheMember States in
the context ofspecial agreements with the Commission under the
heading ofregional orgeneral aidschemes .This would obviously
notprevent these types ofaidbeing implemented ,butwould make for
greater transparency andenable theCommission toassess theoverall
impact oftheaid .Where appropriate ,theCommission could activate
preventive action ,inparticular ifitwas tofind that this aid
waslikely toaggravate thestructural problems oftheindustry .
Bycontrast ,anaidmanagement system would seem tobeinappropriate
aslong astheindustry isnot inastate ofcrisis ,asalready
emphasized inpoint I.Aofthis paper .

-52-
B. FINANCIAL MATTERS
Considerable amounts ofinvestment will berequired inorder toreorganize
production inEurope 'sautomobile industry ,although not asmuch aswill '
have tobeinvested byNorth American manufacturers .Moreover ,inevitably
the climate will not benearly sofavourable asinthe past .
Some particularly important points have tobeconsidered here ;not only •
the amounts which shouldbe allocated and inwhat fields ,but also the
extent towhich firms can actually raise the money .
1.Investment and financial capacity
The information available does not give avery clear indication
because ofthe complexity offinancial structures and because firms
regard such information asconfidential .
Generally ,theposition can besummarized asfollows :
(a)Investirent projects
(i) American manufacturers expect tospend 75billion dollars
over the next five years ,although this isfor the
retooling ofproduction plants *;
(ii) Japanese manufacturers will beinvesting 12billion
dollars athome over the next three years ,although their
plant isalready extremely efficient *;
(iii )European manufacturers areplanning toinvest some
35billion dollars over the next three tofive years
(estimate ).
 
SeePart Ipoint I(Band C).

-53-
Byway ofcomparison ,the amounts invested between 1970 and
1977 were asfollows :
(i) the four leading American manufacturers spent less than
35billion dollars :
(ii)thethree leading Japanese manufacturers spent some
8.5 billion dollars :
(iii )Thetenleading European manufacturers spent alittle
over 15billion dollars *.
(b)Financing capacity
(i) Only the Japanese will beable torelease surplus
financial resources over the next few years ;this is
already allowing them tobegin todiversify tosome extent .
(ii)Although ,over thelast tenyears ,American manufacturers
have been able tofinance themselves (average self-
financing ratio between 1970 and 1977 was around 170% ),
they will now have toborrow heavily ,not only because
oftheir investment plans ,but because ofthe heavy
losses they have been making ,particularly in1980 .
(iii )European manufacturers were just beginning torestore
their overall financial capacity (with aself-financing
ratio of110% between 1974 and 1977 compared with 85%
between 1970 and 1973 )*,butwill probably have tostart
borrowing again more substantially .Their debt burden is
still high compared with their competitors ;in1978 ,the
long-term indebtedness ofthe main Community groups was
generally 20% higher than their long-term capital compared
with figures of4.8% for General Motors and 0.1% for
Toyota **.
Under these circumstances ,alltheinstitutions which help in
one way oranother tofinance motor industry investment ,
particularly the Commission ,which hascontributed substantial
amounts over thelast few years ,should reflect ontheir
policies .
*Source : DAFSA
Source :Bulletin Financier -Banque Bruxelles-Lambert ,November 1979

-54-
2.Gommumty financing
Todate ,theCommunity 'sfinancial contributions totheautomobile
industry have been granted fornon-industrial reasons ,usually
regional orsocial .
Over thelast fewyears thefollowing amounts have been granted :
(i) some 290 million units ofaccount (u.a .)inaidfrom the
European Regional Development Fund (1975-80 );
(ii)some 435million u.a .inEuropean Cbal andSteel Community
(ECSC )loans (1575-80 );
(iii )some 250million u.a .inEuropean Investment Bank loans
(1975-79 );
(iv)several million u.a .inSocial Fund aid*.
When assessing thepractical effect ofthese contributions ,it
should beremembered that :
(i) ERDF aidisonly apartial refinancing ofnational aidandis
designed tohave a"neutralizing "effect ,i.e. tocompensate
firms forthecost ofsiting -their plants inspecific regions ;
(ii)EIBloans aregranted onthebasis ofnormal market conditions
andcarry noprivileges ;
(iii )ECSC loans ,which maybecombined with interest subsidies ,
areused toencourage firms tosetupplants andtoenter
into various employment commitments inaccordance with
Article 56oftheECSC Treaty .
Their financial impact hasbeen farfrom negligible ,since theERDF
contributions towards financing oftheinvesment inquestion was
nearly 1%between 1975 and1980 and ,inmany cases ,ECSC loans have
financed asmuch as50%oftheoperations inquestion (that being the
maximum rate ).According toanapproximate calculation ,more than 5%
ofinvestment inthecarindustry over thelast fewyears hasbeen
financed out ofCommunity funds .
Seealso thechapter onchanges concerning employment
and Annex 15.

-55-
These figures show that ,asaresult ofitsdynamism ,theautomobile
industry hasmanaged tomake considerable useofthepossibilities
offered bytheCommunity 'sfinancial instruments .
The importance ofthe Commission 'scontribution inthe future will not
betheamount isspends ,butwhere itspends it-e.g. tohelp better
coordinate productivity improvement objectives -andtheway it
raises anddistributes thecapital theindustry requires .
What has tobedecided now isobviously which criteria should beused
asabasis forallocating Community financial support .These criteria
might also serve asareference basis forassessing theaidgiven by
theMember States andthus provide animpetus .Taking into account
ourprevious remarks onthekind ofchanges theindustry will have to
make and thecircumstances governing itsintervention ,these criteria
could bedefined soasto:
(i) encourage theintegration ofCommunity activities bysupporting
attempts atcooperation between several manufacturers ;
(ii)support therationalization ofcomponent manufacturing since ,
fortheeconomic andindustrial reasons already mentioned
(economies ofscale ,increasingly international character of
themarket ),that iswhere efforts should beconcentrated ;
Community support would then begiven tocomponent plants ,
which account foranincreasing proportion ofvalue added ,
rather than tofinal assembly lines ;
(iii )avoid that the conditions for the granting ofCommunity aids ,
amongst other things ,hinder technical progress bylinking
toostrictly the aids tothenumber ofjobs created .Only
byincreasing competitivity andrapidly applying technological
progress canweprotect employment ,notonly intheautomobile
industry but intheindustries which supply itanddepend on
it.

-56-
C. TECHNOLOGICAL ASPECTS
The international competitiveness ofthe motor industry has
traditionally been based onits technological lead .Inview of
the need toproduce -competitively -vehicles which meet
increasingly stringent energy requirements whilst complying with
safety and environmental protection requirements ,the firms must
make better use ofthe technological lead and speed upresearch .
Apart from the actual efforts made bythe various zones of
production ,success will depend ontheability toorganize these
efforts consistently over the long term ,since research and
development has arather long lead time because ofthe time-lag
between the design and marketing ofvehicles .
This time factor specific tothe automobile industry makes for a
certain amount ofinflexibility which toagreat extent determines
thetransitional stages which the decisions tobetaken bythe
firms must take into account .Ithighlights the need for a
long-term view ofthe R+Dpolicy tobepursued and thelegislative
implications sothat the industry can decide inthebest possible
conditions .
1.Research and development
Thefirst point which has tobemade isthat the extent and
nature ofR+Dextends well outside the automobile industry
inthestrictest sense .One only has toconsider the importance
ofelectronics ,research into new materials and experiments
with alternative drive systems torealize that there are many
different industries involved .
This being the case ,itisfirst necessary toconsider the
overall positions ofthe main competitors .The graph inAnnex 11
clearly shows that the general level ofresearch inthe
Community isproportionately lower than inthe United States and
for some years now has been overtaken asaresult ofanincrease
inJapanese research .

-57-
Theamounts spent onR+Dbyindividual European motor
manufacturers also seem lower than those spent bytheir main
competitors .Expenditure onR+Dinmotor manufacturing inthe
Europe ofNine hasbeen estimated atless than 10%ofthe
industry 'stotal expenditure ;thefigure intheUnited States isat
this level andthat forJapan substantially exceeds it*.
Inaddition tothese figures ,weshould compare theamounts
contributed bythevarious public authorities .Although there are
considerable differences between thefigures available ,they do
show that theAmerican andJapanese manufacturers receive much
more public support than European manufacturers :
(i)theUSgovernment finances 11%ofR+Dexpenditure bymotor
manufacturers ,whereas inGermany andFrance thefigure is
putat5%and1%respectively **.
(ii)thetaxarrangements which apply toR+Dexpenditure inJapan
mean that they canbepartially offset against profits tax***.
This isserious because technological progress nowseems tobe
themain growth factor andindustrial competitiveness and
flexibility ofproduction depend inthelong term onability to
innovate .
Itshould beemphasized that theCommunity will only beable to
take advantage oftheopportunities presented bythereorganization
oftheautomobile industry ,e.g. theuseofrobots andtheuseof
electronics ,ifitcancome upwith andimplement thenew
developments required intheindustries concerned bysetting up
production plants which cancater forchanging demand requirements .
Ifitcannot ,this will have extremely serious repercussions ,
notonly inadirect economic waybut also because oftherisk of
European industry becoming technologically subservient .
Because oftheincreasing importance oftheeconomies ofscale
which canbeachieved financially andindustrially ,theonly
solution once again seems tobecooperation andcoordination .
Dispersal ofeffort could beextremely disadvantageous ,both as
regards theuseofalready familiar technologies andindevising
techniques for the future .
*
**Source :Preparatory report fortheEighth French Plan .
Source :R+Doptions with regard tofuture problems oftheEuropean
industry ,G.Koopman ,1980 .
***
Source :OCMC-CLCA position paper already quoted .

-58-
Cooperation concerns not only automobile manufacturers ,who have
already set uptheJoint Research Committee *with aview to
carrying out joint research in,for the moment ,non-competing
areas .Itshould also beextended tothe manufacture ofcomponents
which can only bemodernized bytechnological developments ,to
theelectronics industry ,which will have toprovide anessential
contribution and tothecapital goods industries for the
development ofresearch into the use ofrobots .
Itshould concern not only firms but also public authorities ,
universities ,trade unions and consumers ,which areall affected .
Asstated inpoint 19ofParliament 'sresolution ,itisonly at
European level that therequisite coordination can beconsidered .
For thepresent situation todevelop along those lines ,however ,
anoverall approach will have tobedevised whereby along-term
view istaken ofthe whole ofthe car industry andits prospects
for change .
2.The need for along-term view
Anumber of R+Dprojects have been undertaken inthe various
Member States ,and programmes onthe use ofalternative fuels
and the development ofvehicles ofhigher energy efficiency are
under way .
The Commission isalso giving support ,inthe form ofstudies and
financial encouragement ,forspecific projects into ways of
reducing consumption .
Hitherto ,these projects have been undertaken basically for
defensive reasons buritnow seems necessary tomove into amore
active mode ,anticipating long-term developments inthe motor
industry onthebasis ofreasonable economic andsocial assumptions
for the next 15or20years and working out short -,medium -and
long-term objectives accordingly .
 Renault ,PSA ,HL,Fiat ,VWand V olvo .

-59-
AtGommunity level ,the main points ofthis policy would be:
(i) action toencourage aclimate more favourable toinnovation ;
(ii) supporting theindustry 'sattempts atcooperation ;
(iii ) legislation inline with technological andeconomic
development *;
(iv) working out R+Dguidelines aspart ofanoverall
long-term view ofthe development ofthe motor car.
Firms will obviously play theleading role where goal -setting and
attainment are concerned .Inthis connection ,theprojects on
which work isatpresent being carried out intheJoint Research
Gommittee set upbysix European manufacturers **concerning ,in
particular ,long-term research into combustion ,quality and
composite materials should beencouraged .One oftheinitiatives
taken bythis Committee seems particularly noteworthy -the
setting upofajoint centre inthe framework ofwhich
manufacturers will define the characteristics ofthe electronic
components needed for cars .This venture should make itpossible
for requirements tobeexpressed instandardized fashion ;as
aresult ofthe creation ofhomogeneous demand ,this would be
favourable both forusers (less expensive supplies )andthe
electronics industry which would have aEuropean automobile
components market .
The Commission 'scontribution ,the main aimofwhich would be
tohelp theindustry gain abetter awareness ofrequirements and
possibilities ,would consist of:
(i)one-off operations :
(a)taking stock ofresearch ,development andinnovation
work andprojects under way inthe Community ,soasto
have aclearer idea ofwhat has been achieved andclarify
the options ,
(b)making acontribution tothepursuit ofstudies orpilot
projects recognized asbeing very important (e.g. gas
turbines ,multi-fuel engines ,etc.);
*See point II.Bofthis paper
*See page 58.

-60-
(ii)on-going operations with aview to:
(a)setting upobservation andjoint consultation machinery
thepurpose ofwhich would betoprovide all theparties
concerned with information and aforum forexchanges of
views onthe findings ofresearch anddevelopment programmes ,
developments ahroad ,andthelong-term requirements onthe
various markets throughout theworld etc .,
(b)setting uptechnical centres forresearch andinnovation
concerning automobile components *.
(c)defining coordinated basic research programmes involving
industry ,universities andpublic authorities ,andsetting
upcentres ofexcellence foradvanced technology ,bringing
together carmakers ,accessories manufacturers andstate-run
laboratories (inconnection with high -temperature materials
orcomposite materials forexample ).
Such anapproach canclearly only besuccessful ifalltheparties
concerned areactively andcoherently involved .
*
This proposal isoneofthemeasures mentioned intheFrench
Senate report ontheautomobile industry .

-61-
CHANGES CONCERNING EMPLOYMENT AND REGIONAL PROBLEMS
Thesocial implications oftheeconomic ,industrial andtechnical
developments relating totheautomobile industry will ,ofcourse ,be
considerable .
They will entail significant changes inqualifications andthesectoral
allocation oflabour andwill affect theregional location ofactivities .
1.The type ofchanges
For several years theCommission hasbeen taking steps tohelp adjust
employment toeconomic change andimprove industrial relations .
Inparticular ,Social Fund operations have been directly aimed at
the automobile industry toenable several thousands ofworkers tobe
found jobs orretrained .Various types ofmeasures have been
introduced :
(i) measures concentrated inregions which were slow todevelop
orwhere theprincipal industries were indecline ;
(ii) encouraging theapplication oftechnical progress bymeans of
specific vocational training operations (useofrobots ,CAD ,
computerization ofassembly bays );
(iii )increasing jobmobility andworker retraining ingroups of
companies .
Itcanbeseen from theforegoing remarks that inthefuture there
will bechanges in:
(i) thetypes ofjobs ;thelabour force will have toface major
conversion problems tocope with structural changes affecting
thelevel ofqualifications andthedistribution ofjobs in
the industry ;(xi)
(iii )

-62-
(ii)thenumbers ofjobs ;theproblem will have tobetackled
taking theautomobile industry initsbroadest sense ,
including theindustries which supply it"upstream "anddepend
onit "downstream ".
Faced with this situation ,thetrade unions have come out infavour
ofshorter working hours ,changes inthewaywork isdistributed
and afar-sighted manpower policy *,whereas theindustry emphasizes
that theway theeconomy isdeveloping will make itdifficult to
keep improving social advantages andthat itisnecessary to
increase therate ofutilization oftheproduction equipment .
However ,more automated production ,which everyone agrees tobe
necessary ,will have thefollowing consequences :
(i) itwill cuttheworkforce employed bymotor manufacturers ,asa
result ofthepartial shift toindustries upstream (components
machine tools ,industrial robots andelectronics )and
downstream (servicing andmaintenance );
(ii)theproportion ofdirectly-employed .workers will drop and
thenumber ofindirectly-employed will increase ,thus
limiting theeffect ofdirect labour costs onretail prices
andtending topush upsalary levels ;
(iii )working conditions should improve astedious jobs are
eliminated .
Thewhole problem really boils down toreorganizing work andthe
need touseequipment more fully ,along thelines already followed
fordata-processing equipment .Some kind ofsolution maybe
found in :
(i) greater flexibility inallocating work andtheduration
ofwork ;
(ii)jobenhancement byusing equipment favouring theuseof
skilled andversatile labour ;
(iii )adjusting salaries tochanges inqualifications andworking
conditions .
SeetheEMF'sposition papers of22.10.1980 and 13.4.1981 .

-63-
This kind ofreorganization will only bepossible with the
agreement ofboth sides ofindustry ,andmust notbehampered by
excessively inflexible administrative regulations ,since itis
particularly important -inview ofthe fact that theeconomic and
industrial conditions are insuch astate offlux -that all the
economic operators involved should display thedrive andflexibility
required bythescale oftheadjustments tobemade .
Thefirst stage should ,ofcourse ,betotrytopredict asaccurately
aspossible theeffects ofthechanges under wayonemployment and
working conditions .Theshortage ofdetailed information andresearch
onthis topic isreally disturbing inthepresent circumstances ,
asitrestricts thegenuine scope foradjusting tothechanges and
theability offirms tofind labour inline with their requirements .
TheCommission takes theview that itisnecessary tocollate ,
expand andassess theinformation andforecasts concerning the
implications ofthechanges affecting production ,andinparticular
automation ,with regard toemployment ,qualifications andworking
conditions ,and itwill make acontribution towards theefforts that
will bemade inthis connection .
Last butnot least ,vocational training would seem tobeareally
important matter .
Itisamazing that ,despite thehigh level ofunemployment resulting
from thegeneral economic crisis ,alarge number ofjobs remain
unfilled because personnel with the .right qualifications are just
notavailable ,andthis leads tobottlenecks ,very often at
strategic points intheproduction process .
Forexample ,according toarecent article *-totake only the
industries directly related totheneeds oftheautomobile industry -
thestaff complement available fortraining micro-electronics
engineers isless than half ofwhat isneeded andthemarket for
technicians andengineers specializing inthemaintenance of
sophisticated equipment (e.g. robots )isvery tight .
L'Usine Nouvelle -5March 1981 (article onthesituation inFrance ).

-64-
Although the Gommission can help with specific operations ,the main
responsibility lies with the Member States .Itisessential that
they set uptraining ,education and vocational retraining programmes .
There isavery wide difference between the average training levels
ofJapanese and European workers *and many European companies are
already complaining that they can not find enough engineers and
technicians with theright training toimplement the production changes
they would like .This point really must bestressed :ifindustry is
tochange successfully ,its workforce must adapt tonew forms of
production ;this isaproblem which isfaced byother industries ,too .
2.Location ofactivities
The location ofautomobile manufacturing activities does not depend
solely ontechnical requirements .The choice ofgeographical area for
new investment largely depends ontheexisting equipment ,networks
for trade between industries and the position ofstaff already
employed .
For 50years ,the Community 'sautomobile industry was the main
"industrializing industry ".The move towards units producing parts
and accessories and the use ofvirtually fully-automated production
lines means that other activities will assume this function .
Itdoes not mean the elimination ofhuman involvement but the
concentration ofmanpower onbuilding ,maintaining and organizing
production units ,which means replacing semi-skilled with
highly-skilled jobs .
From ageneral point ofview ,itfollows from the above that the
structural changes required will increasingly shift the proportion
ofthe value added inautomobile manufacture toindustries further
upthe chain ,particularly the component-makers .This will have
major repercussions onthe geographical distribution ofinvestment
since the growth inthe value added ofthe product causes markets
toexpand and these can beserved from one single production unit
See Part I. I.B.

-65-
(thecost ofpurchasing andtransporting therawmaterials andof
distributing thefinished product would beless significant in
relation totheoverall cost price ).
Inaddition ,these plants will have much larger production capacities
than theplant they replace ;they will employ fewer staff butthey
will bemore highly skilled .Such plants will also make much more
extensive useofoutside services than theold plants .This factor
ties inwith theeffects ofthetrend towards the "world car",
leading totheerection ofproduction plants which aredesigned to
serve larger markets *.
All these factors ultimately increase thedegree offlexibility with
regard tooptions forthelocation ofproduction ,andaccentuate
thestimulating effect oftheinstruments nowavailable forthe
implementation ofregional policies .
*
SeePart Cue ,Chapter I.

-66-
II .THE DYNAMICS OFTHE INTERNAL MARKET
The Community automobile market isthesecond largest intheworld after
theAmerican market *.Allowing ^fordifferences incarownership levels ,
itisthis market which will generate -inabsolute terms -themajor
part ofworld demand intheyears ahead .This isanimportant advantage
fortheCbmmunity automobile industry ,since abroad ,homogeneous internal
market isneeded asthebasis for theindustrial changes needed ,andthe
precondition formaking them payoff ,from three points ofview :
(i) possibility ofproducing onalarge scale ,andhence ofbenefiting
from theeconomies ofscale inherent inseries production ;
(ii)diversification ofdemand ,thereby increasing thedevelopment
potential :
(iii )impetus toinnovate ,avital necessity with aview toimproving
competitiveness .
Strengthening theinternal market ,andmaking useofthedynamics of
theinternal market ,i.e. combining all thefavourable effects
attaching tothesize ofthemarket ,aretherefore really important :
(a) foralltheeconomic operators with responsibility forbringing
about this economic entity ,and
(b) above allforthefirms ,onwhich itfalls toexploit the
potential developed inthis way .
The action taken bytheCommission inthelast twodecades hasmade it
possible toachieve agreat deal inthis area ,inparticular asaresult
oftheremoval oftechnical barriers tointra-Gommunity trade byvirtue
ofwhich manufacturers cannowproduce thesame vehicles for allMember
States .
*
SeeAnnex 1where passenger cars areconcerned .

-67-
However ,anexamination ofthepresent situation indicates just howmuch
remains tobeachieved inorder tocreate aninvironment which is
genuinely favourable tothedevelopment ofthemotor carwithin the
Community .Thedimension required forthestructural adjustments tothe
automobile industry isclearly that oftheGommunity ,andgreater efforts
will berequired with aview tothegradual convergence ofthemany
heterogeneous aspects andinorder toachieve greater consistency within
theCommunity framework .Theprospects afforded byframing oflegislation
inline with technical andeconomic developments are ,totheCommission 's
wayofthinking ,animportant aspect inthecreation oftheenvironment
required .
A.THE GENERAL FRAMEWORK
1.Removal ofbarriers tointra-Community trade
(a)Achievements_to date_
Optimum conditions forautomobile manufacture inrelation to
thesize ofthemarket cannot exist intheGommunity unless the
technical characteristics ofthe vehicles manufactured ineach
Member' State aresuch that they canbefreely sold ontheother
markets .Oily ifthis condition isfulfilled caneconomies
ofscale befully exploited .This basic consideration
illustrates theindustrial effect ofharmonizing legislation ,
the practical expression ofwhich istheremoval oftechnical
barriers tointra-Community trade ,
TheCommission hasnaturally given prominence tothis action in
the automobile sector inview oftheeconomic importance
involved :exports ofmotor vehicles between Member States are
almost 50%higher than exports outside theCommunity ,totalling
some 2700 000 units in1980 .
TheCommission has almost reached itsgoal ofachieving EEC
type -approval ,enabling thetechnical sepcifications ofa
vehicle approved inoneMember State toberecognized
throughout theCommunity .

-68-
Such has been the progress with the harmonization ofthe
technical characteristics ofvehicles inthelast ten years ,
thanks totheefforts ofthe Commission inclose conjunction
with the industry ,that there are now fewer differences in
specifications between the Member States than exist between
the various States inthe USA(l ). The areas where harmonization
isstill tobeachieved are not asource ofconcern for the
automobile industry which isnow able toexploit the
advantages ofseries production .
Ithas been estimated that these harmonization measures have
produced cost price savings ofmore than 10%.
(b)Questions outstanding
The Gommunity type-approval system has not yet been put into
practice .All that remains isfor thelatest Directives onthe
removal oftechnical barriers totrade inmotor vehicles to
beadopted ,ascalled for inpoint 14ofthe European ,
Parliament resolution :the three Commission proposals remaining
(windscreens *,tyres *andpermitted towing weight *)have been
before the Council for some time .Asthe resolution ,also
points out ,adoption ofthese proposal 'swill pave the way for
anEEC type-approval certificate for motor vehicles which
would put the Oommunity inastrong negotiating position -
under the new GATT agreements -concerning reciprocity in
respect ofnon-tariff barriers .The present problem isone
ofexternal trade since the industrial benefits ofharmonization
can now befully exploited .
Itisforthis reason that the full implementation ofEEC
type-approval isnowdirectly linked tothe concept of
Community certification for industrial products coming from
non-member countries ;aGommission proposal for aDirective on
this subject isalso pending before the Cbuncil **.
(1)59Directives have been adopted inthis field ,including those
relating toadaptation totechnical progress .
OJC119,16.11.1972 ,p.21.
OJ C15,20.1.1977 ,p. 4.
OJC37,14.2.1977 ,p.1.
**CJC54,4.3.1980 ,p.5.

-69-
The two areas for detailed consideration are :
(i)theaccessibility ofvehicles fron non-member countries
inatruly unified internal Community market inwhich
avehicle approved inone Member State would ,defacto ,
meet the required marketing specifications inthe other
Member States .This matter isobviously directly
connected with the question ofthe balance oftrade
referred toinChapter III ;
(ii).thereciprocity which the Cbmmunity has aright toexpect
from other manufacturing zones regarding the removal of
non-tariff barriers .Inthis connection ,the industry has
called onthe Cbmmunity onvarious occasions *topromote
international trade actively ,inparticular through the
removal ofthebarriers toexports toother parts ofthe
world .Accordingly ,the Commission has already approached
the Japanese authorities with acall for the removal of
technical barriers toautomobile -exports toJapan and ,
inparticular ,for thesimplification oftype-approval
procedures and the delayed implementation ofstandards
relating topollutant emissions inrespect ofvehicles
imported from the EEC.'
Asthings stand itwould appear tobehighly desirable that
any attempt tofind asolution -which would naturally involve
the adoption ofthe Directive onnon-member countries and
Community certification -does not increase protectionist
pressures andlead toafragmentation oftheinternal market .
Consideration should also begiven toafinal point concerning
the removal oftechnical barriers ,namely roadworthiness
tests .The fact that some Member States still donot have the
facilities fortesting private cars isdisruptive tothe trade
insecond-hand cars between Member States .
Furthermore ,there are grounds for thinking that the widespread
introduction onaEuropean scale ofroadworthiness tests for
passenger vehicles -ascalled forintheParliament 's
resolution *and byanumber ofmanufacturers -would have
beneficial effects onsafety ,the environment ,fuel consumption
and maintenance ofvehicles and onthe pattern ofdemand .
Seepoint 15ofthe European Parliament resolution .

-70-
However ,those Member States which donot have such asystem
believe that its introduction would have anadverse effect
incost-benefit terms .
Inthe final analysis ,some preliminary investigation should be
carried out toverify the value ofbroadening the scope ofthe
Community Directive onroadworthiness tests *,which was
restricted bythe Council tocommercial vehicles when itwas
adopted .
2.The automotive environment inthe Oommunity
However ,the technical unity oftheinternal market ,towhich the
removal ofbarriers totrade has contributed ,should not conceal the
many differences still affecting the automotive invironment within
the Community .These persisting differences are preventing firms
from exploiting thefull potential offered bythe dimension
provided bythe Community asaneconomic entity .
Abrief review ofthe conditions affecting the manufacture ,
acquisition and use ofmotor vehicles inthe Oommunity will
highlight thediversities which exist ,and thepolicies which could
bepursued bythe various parties concerned ,inorder toarrive
atasolution .
(a)Manuf acture
Mention has already been made ofthe impact oftaxation onthe
conditions ofproduction **. Inthis respect ,the circumstances
inthe various Member States are highly disparate .The national
taxation systems ,over which the Member States still exercise
almost supreme authority ,are highly divergent and complex
anditisvery difficult todetermine -for agiven Member
State -whether the systems are more orless favourable to
automobile production than inanother Member State orinJapan .
This situation raises two key issues ,i.e. :
(i)thedistortions which may ,forpurely fiscal reasons ,
affect the conditions ofcompetition between Gommunity
manufacturers *** :
See OJL47,18.2.1977 .
*
See Part Two ,point I.C.
See the section onpublic intervention .

-71-
theoverall effectiveness ofanyaidgranted :itis
clear that fiscal measures have played aparticularly
effective part indeveloping thecompetitiveness ofthe
Japanese industry although thefinancial burden hasbeen
nogreater than inother competing countries .
Harmonization measures already carried outorproposed bythe
Commission have concentrated onstructural aspects and
taxable amounts .
Inthecoming years ,theaction will continue along these lines
and awhole series ofproposals have yet tobemade inthis
field ,particularly asregards thedetermination offirms'
taxable profits .
Apart from thestructural disparities existing between the
various taxation systems ,mention should also bemade ofthe
vast spread ofrates oftaxation which areagain laid down
under thesovereign authority oftheMember States andhave
adirect effect onthenumber ofvehicles purchased .
(b)Vehicle acquisition
There areconsiderable discrepancies inthenational laws
concerning vehicle purchase taxes (VATandregistration fees ):
inDenmark andGreece ,forexample ,thelevel ofthese charges
isparticularly high butthey arefairly lowinLuxembourg .
Theeffects maybeassessed from twomain angles :
(i)Thegeneral level oftaxation directly affects thevolume
ofvehicle demand and the relative differences inthis
taxation burden consequently manifest themselves in
divergent trends inthemarkets affected ;
(ii)Themethods bywhich this taxation isapplied (methods of
calculation etc )have animpact ontheactual pattern of
demand and thus have afavourable oradverse effect on
particular stages oftheproduction process .This also
considerably upsets thehomogeneity oftheinternal
market which ,inturn ,may also have significant commercial
repercussions vis-a-visexternal competitors forexample ,
byencouraging imports oflow-priced vehicles ,ashas
happened inDenmark andGreece .TheCommission would draw
the attention ofthe Member States tothe favourable effects
that would flow from greater solidarity within the
Community inthis respect ;this would lead toless
divergent policies .

Finally/,amoregeneralfactorconcerning theacquisition of
vehiclesintheCommunityshouldalsobestressed,namelythe
roleoftheconsumersthemselves whohaveadualresponsibility
bybeingponcernedbothwiththeoperationofthemanufacturing
systemandbytakingdecisionstopurchase..
Sincetheconditions ofproduction on.theCommunitymarketare
differentfromthoseinothermanufacturing areasaclear
distinction shouldbemadeasregardsconsumption between:/
(i)thepurchaseofCommunityproductswhichmaybemore
expensive becausetheircostreflectsastandardofliving
whichdoesnotexistin^certaincompetingcountries,and
(ii)theacquisition ofcheapervehiclesmanufactured under
differentcircumstances wherethereisclearlyanindirect
costtotheCommunitysinceitleadstoamarketlossand
1hencetoanerosionoftheCommunity'sindustrial base.
(c)Use
Therearetwooverriding factorswhichaffecttheuseofmotor
vehicles,namelythecostoffuelandroadtaxes,ontheone
'hand,andthecostofinsurance,ontheother.
Thetaxesonfuelwhichconstitute anessential elementofthe
pricesoftheseproductsandtheroadtaxes,thecalculation
methodsofwhichareveryvariablefromoneMemberStateto•'
another,canalsoaffectthepatternofdemand(forexample,
theratioofpetrol-todiesel-driven vehicles):intheUnited
Kingdom,theexcisedutyondieselfuelishigh,butitis
muchlowerinItaly*.Overall,theproportion ofexciseduty
,inthepriceoffuelhasdroppedsince1973inmanyMemberStates
Bearinginmindtheaimstobepursuedintheenergysector,it
wouldseemdesirablethatthisrelativeproportion shouldremain
thesameinfuture,orevenbelevelledupinfuture.
*SeetablesinAnnex12.

-73-
This disparity may also beobserved inrelation tothecost of
third-party insurance which isinfluenced inparticular bythe
third-party liability systems themselves ,which have notbeen
harmonized ,andbytheamounts forwhich vehicles have tobe
insured .TheCommission made some proposals with aview to
"approximation "inthis respect inAugust 1980 *.
Inaddition ,itmaybeunwise toadvocate anexamination ofthe
"practical scope there isforanagreement between producers
ofcomponents ,insurance companies andorganizations ofvehicle
repairers toexpedite ,standardize andreduce thecost ofthe
procedures followed forrepairing vehicles andsettling
complaints "referred toinpoint 29oftheEuropean Parliament
resolution ,since there isapossibility that thepartitioning
ofmarkets would increase ,asaresult ofsuch anagreement ,
atrend which would run counter totheefforts nowbeing made
bytheCommission toensure freedom intheprovision ofservices
inthe insurance sector .
All thematters raised above provide thebasis forananalysis
ofthemain aspects involved instrengthening thecohesion ofthe
Community 'sinternal market .
Inthelight ofthis ,theCommission takes theview that animportant
aspect ofitsefforts must concern legislation inline with
technological andeconomic development .

-74-
THE OUTLOOK ASREGARDS LEGISLATION
Theeffect oflegislation onthemotor vehicle industry isnotmerely
confined tothedirect impact ofconstraints concerning safety and
environmental conservation andenergy consumption ,itmayalso
significantly affect thecompetitive position ofrival zones ofproduction .
[fence theneed foraEuropean approach embodying allthese aspects .
1.The economic importance oflegislation
Legislation hashad amarked effect ontheautomobile industry in
recent years .Inthenew economic order created inthewake ofthe
energy crisis andcharacterized byincreased international competition ,
legislation will -byvirtue ofitseconomic impact -berequired to
play adecisive part .
The facts oftheproblem
Thescope oflegislation isbecoming ever wider :inaddition tosafety
and theenvironment ,increasing attention isbeing paid bythe
legislative bodies toenergy consumption ,either because ofdependence
onexternal supplies orbecause ofthespecific importance ofthemotor
vehicle sector inthe total consumption ofpetroleum products .
From this point ofview ,thesituation intheUnited States is
markedly different from that inEurope andJapan inthat the US
isless dependent onexternal supplies ;ontheother hand ,the
automobile sector accounts foraparticularly high share ofoil
demand (30%compared with 16-17% inEurope ).
./•

-75-
Thepresent situation inthethree major manufacturing zones
isasfollows :
(i) Japan :Tough legislation already exists regarding safety
andtheenvironment andmanufacturers have adopted voluntary
targets concerning thereduction offuel consumption which
aregenerally much more severe than those currently
envisaged inEurope ;
(ii)United States :Theexisting regulations onsafety andthe
environment have been backed upbyadministrative constraints
toreduce therelatively high levels ofconsumption ,bearing
inmind thepresent efficiency ratings ofAmerican cars .
ThenewAdministration hasrecently embarked onaderegulation
policy consisting ofremoving anumber ofconstraints *,
reducing restrictions concerning theformulation and
implementation timetable forprojects maintained ,andturning
towards active cooperation with theindustry indetermining
future objectives .
(iii )Europe :Theregulations onsafety arefairly stringent but
areless soasregards theenvironment (with theexception of
noise ).Atpresent ,theonly constraints onconsumption
consist ofvoluntary commitments given bymanufacturers to
their respective governments toreduce the fuel consumption of
their vehicles .
Taking into account thechanges under way intherival manufacturing
zones ,and inparticular deregulation intheUnited States ,objectives
must beset andresources must bedeployed inorder tosecure amore
homogeneous body oflegislation intheOommunity .Theproblem tobe
resolved isextremely complicated ,since account must betaken of
legislative constraints inall themeasures forreducing energy
consumption and ,inparticular ,taxprovisions **.Theadvisability
ofmaking useofmotor 'fuel excise taxes inorder tokeep fuel
costs inline with thegeneral price trend ,andthepossible effects
ofamore general reorganization ofpurchase taxes andvehicle use
taxes based onenergy consumption have already been emphasized .
*
34different regulations inthe first stage .
See the section onthe automotive environment .

-76-
Moreover ,itisnecessary to :
(i)reconcile the aims ofimproving safety and reducing noise on
the one hand and reducing fuel consumption onthe olher ;
(ii)take into account thedisparity which exists within the
European industry and theeffects oflegislation onits
competitive position .
Economic impact ofregulations
κ
This isclosely bound upwith theeffect ofregulations onthe
competitive capacity offirms .The interrelationship between the
legislative and competitive factors must beviewed from three
complementary viewpoints ,i.e. :
(i) any delay inthelegislative programme would make the
European domestic market increasingly vulnerable tooutside
competition and could encourage latent protectionist trends
which would not only threaten the cohesion ofthe internal
market but Vvould also jeopardize the progress already
achieved inthe field ofcommercial andtariff policy ;
(ii)thepenetration offoreign markets would become even more
difficult because -inorder tocomply with local regulations -
the European products would have toundergo modifications
which would bevery costly since they would not bepart of
the normal production process .For foreign competitors ,the
effect would obviously bethe opposite since they would
have nodifficulty inexporting their more sophisticated
mass-produced products tozones where the constraints
were less strict ;
(iii )the cost ofintroducing regulations isclosely bound upwith
the length ofproduction runs .
From this point ofview ,the European automobile industry -
already handicapped incomparison with the Japanese and the
Americans -could not cope with heterogeneous regulations
within the Community .

-77-
Given the increasingly international nature ofthe motor vehicle
market ,legislation will have totake greater account ofinter­
national trade since those States with thestrictest regulations will
not only beable todictate general market ,trends -iftheir
'manufacturers are powerful enough -but also protect their domestic
markets and promote their exports .Accordingly ,itishighly
desirable that atCommunity level there beformulated alegislative
programme which reflects all these aspects .
2.Definition of anintegrated approach
The attitudes ofthe interested parties tothe trend inlegislation
inthe Community arestill very different .
For example :
(a)thetrade unions support the establishment orstrengthening of
European standards relating tofuel economy ,the campaign
against pollution and nuisances and safety ,emphasizing that
this can only help toincrease the competitivity ofEuropean
manufacturers ;
(b)the automobile industry ,ontheother hand ,calls onthe
Community togive priority toimproved cempetitiveness rather
than tomarginal improvements -fe.g .concerning environmental
protection -which could beachieved bytightening up
Community motor vehicle standards ;
(c)the European Parliament resolution requests the Commission
"toconduct asurvey oftheeffects ofCommunity regulations
onenergy saving ,safety andpollution ."

-78-
These different shades ofopinion are also apparent among the
Member States ,some ofwhich want the pollution legislation tobe
tightened while others stress thedifficulties for industry of
over -stringent environmental legislation .
Atthe same time ,these questions are being discussed atthe highest
level inthe United States *,and have led certain Community partner
States totighten upadministrative constraints (e.g. Sweden and
Switzerland ).
The Cbmmission has already undertaken anumber ofstudies oncertain
aspects oftherelevant legislation and isholding detailed
discussions with the industry onthis topic .Furthermore ,the
Directives already adopted are being regularly adapted tochanges
intechnical progress .
Two topics can beconsidered here and now :
(i)speed limits :thetable inAnnex 14indicates that there are
now very few regions inwhich speed limits have notyet been
introduced .The economic benefits (reduction infuel consumption
andvehicle cost prices )which thegeneralization and
standardization ofspeed limits could promote must beconsidered ;
(ii)thebalance between active andpassive safety :inmany cases ,
with the present state oftechnology ,passive safety tends to
increase fuel consumption .Acareful examination ofthe options
open and policy tobepursued inthis area would undoubtedly
bevery useful ,and over thelast three years the Commission ,
inconjunction with all the relevant bodies inEurope ,has been
carrying out amajor study programme onbiomechanics ,the
findings ofwhich ,which will beavailable in1982 ,will
provide food for thought .
Inthe present circumstances ,bearing inmind the pressure exerted
byrising energy costs and thedirect effects ofthe energy
efficiency ofvehicles onthe conditions ofcompetition ,the
Commission does not think itadvisable tointroduce legislation
onfuel consumption .'
 
See Part One ,point I.C and paragraph 1ofthis section .

-79-
Inthelight ofallthefactors mentioned above ,however ,there is
aneed toadapt therelevant legislation tothechanges inthe
economic ,technological andenergy situation .With this inview ,
aglobal approach must beadopted ,i.e. taking simultaneous account
ofthefactors relating toenergy saving ,theenvironment and
safety andthesalient decisions taken inrespect ofother markets
inorder tocreate astable legislative climate conducive tothe
defence ofthecompetitive positions oftheOommunity industry .

-80-
III .THE CHANGING BALANCE OFINTERNATIONAL TRADE
Itisvital fortheCommunity that itsautomobile industry responds
positively tothechanging balance ofinternational trade .
Anexamination ofthechanges affecting thetrend andstructure oftrade
highlights theeconomic andindustrial opportunity ofachieving
stabilized patterns oftrade .
Therelaxation ofpresent tensions ,andthechanges that aregoing to
occur inthedistribution ofautomobile production throughout theworld ,
will therefore basically result from political consultation between the
various producing countries ,since thegrowing integration ofproduction
structures isconditional ontheconsistency ofthedecisions tobe
taken with regard toexternal investment andindustrial cooperation .
A.THE REDEPLOYMENT OFTRADE
Thepresent situation ischaracterized byamarked imbalance inthe
situations ofthevarious manufacturing zones' with respect totrade
inautomobiles .
Developments conducive toalessening ofthecommercial pressures
created bythis imbalance could ,however ,lead toaredeployment in
thepatterns oftrade made necessary bythestructural changes
taking place within this sector .
1.Imbalance
Thepresent situation regarding trade inmotor vehicles inthe
three major manufacturing zones maybesummarized asfollows *:
(a)TheUnited States isanetimporter ;output iscurrently
some 1.8million vehicles below consumption .
*
SeeAnnex 1:Passenger cars ,

-81-
(b)the EECisanet exporter ,manufacturing onemillion more
passenger cars than itconsumes ;
(c)inJapan ,there isalarge surplus inthebalance oftrade
since over 50%ofthetotal output isexported whereas
imports arecurrently negligible ;the net surplus inthe
trade inpassenger cars isclose tofour million units .
This global review highlights the severe imbalance inthe
patterns oftrade inpassenger car's.Even including the other
items oftrade associated with motor vehicles (commercial
vehicles ,components ,machine tools ,etc.)theoverall
assessment remains the same .
Within the Community ,there are also major disparities between
thelevels ofpenetration ofJapanese vehicles (which alone
account for more than 50%ofCbmmunity imports *)onthevarious
markets **. The reasons for these disparities are asfollows :
(a)historical :Italy has asystem for the formal curbing
ofimports ofJapanese cars which have been limited since
1956 to2200 vehicles per year ;
or
(b)commercial :voluntary restrictions ordefacto stabilization
ofJapanese sales inthe United Kingdom and France .
The commercial pressures caused bythese imbalances have ledto
calls inthe United States and inEurope for acurb onexports
ofJapanese vehicles .Oi$5November 1980 ,the EECCouncil of
Ministers issued the following statement :
*See Annex 1.
See Part Oie ,point U.C.
•/.

-82-
...inthesectorswhereacontinuedincreaseinJapanese
exportstotheEuropeanCommunitywouldLeadtodifficulties /
thereneedstobeeffectivemoderation designedtoproduce
earlyandtangibleresults.ThisshouldapplytotheEuropean
Communityasawholeandnotonlytocertainmarkets".
Itisnevertheless clearthatrelationsinthe/automobile
sectormustbeseeninaglobalcontextandthatanydecisions
takeninthisfieldintheEEC,theUnitedStatesandinJapan
arecloselyinterdependent *.Inaddition,theroleofthe
developing countries-inwhichthemotorcarisamajor
industrial factor-shouldnotbeoverlooked .
Thepotentialdangerfacingthesethreemajormanufacturing
zonesisobviously anincreaseinprotectionist pressures
whichwouldbedamagingtothemallsinceitwouldlead
inevitably toadownturninworldtradeasawhole.-
AsarecentGATT**)Reportpointsout:
"...Ifagovernment increasestradebarrierstodelay
adjustments inthestockofdomestic'plantandequipment,
itwi.1,1aggravatethefinancialimbalanceofthebanking
sectorthroughtheimpactofthatactionontheprofitability ,
Nandthusontheriskofdefaultofexport-oriented firms.Even
intheabsenceofretaliation,protective actionwouldhurtnot
onlyforeignexporters,butalsoexportfirmsintheprotecting
country.Thisisduetothefactthatanyimport-reducing action
willeventually leadtoadeclineinexports.Thedeclineresults
\ " . '
■.\ · *·
*Seealso:PartOne-I.C.
**International tradein1980andthecurrentprospects,
GATT1285,10March1981.

-83-
from (i)thereduction inforeign exchange earnings abroad ,and
(ii)thereduced availability totheexporting firms ofdomestic
resources ,tied upintheprotected sector ."
This reasoning isparticularly apposite totheautomobile sector
where anyblockage intheadjustment mechanism would belikely
toturn therecession into acrisis .Moreover ,thearguments
developed earlier clearly reveal thepossibility ofensuring
continued growth inthis sector through thecoherent adaptation
oftrading structures .Seen inthis light ,industrial change is
not aburden but anactivity generating revenue toprovide the
basis foranewupturn inthis industry andinthevarious
related trades .
.Stabilization oftrade relations .
Theunderlying reason for the increasing commercial pressures m
themotor vehicle industry isthat thepressures areunduly and
disproportionately concentrated attheendproduct stage .
Careful scrutiny ofpossible future trends intheautomobile
sector nevertheless points totheeconomic andindustrial
opportunity ofachieving -through more intense world-wide
integration ofmotor vehicle production -stable andhealthy
trading structures based onincreased trade incomponents and
onabalanced development inthesiting ofproduction units .
Itshould also bepointed outthat future assessments ofthis
sector should increasingly include notonly thesale of
finished vehicles andcomponents butalso trade inindustrial
plant andtechnology .
Without wishing atthis stage toreiterate thedetailed arguments
concerning thechanging patterns oftrade contained inPart One
ofthis report ,itisworthwhile torecall themain factors which
ifexploited positively -could provide astable basis for
international trade inmotor vehicles :

-84-
From atechnical andindustrial point ofview ,two phenomena
merit attention ,namely :
(i)the increasing dissassociation inthe stages ofautomobile
production which ,for reasons todowith economies of
scale ,have different levels ofoptimum operation ;
(ii)ashift invalue added tosectors upstream (components and
industrial plant )and making itmore"brain-intensive ".
These two phenomena affect the balance offactors influencing the
siting ofproduction units bygiving greater flexibility ofchoice
(less dependence onthetraditional criteria concerning the
international division oflabour )and bypromoting anincrease in
world-wide integration ofmotor vehicle production (need to
manufacture components inlarge quantities and thepossibility of
easier siting ofaparticular production orassembly stage in
the various markets ).
The consequence ofthis development where trade isconcerned is
thepossibility ofsubstitution or,atthe very least ,anincrease
inthe proportion oftrade incomponents ,capital equipment and
know-how compared with trade infinished products .The importance
ofthis istwo-fold since itwould not only reduce the level of
tension intrade but would also strengthen trading links by
giving them asound industrial base .
External investment and industrial cooperation would obviously
provide thebasis for such areorientation ,which will ,ofcourse ,
besuccessful only ifthe economic partners concerned have the
same political aims .

B.EXTERNAL INVESTMENT AND INDUSTRIAL COOPERATION
Theimportance oftheissues relating tothese twosubjects isunder­
lined intheresolution passed bytheEuropean Parliament on13January 1S81 ,
points 25,26and 27*ofwhich deal with investments bynon-member countries
intheCommunity ,investments byEuropean manufacturers innon-member
countries andtheestablishment ofjoint undertakings .
Twotrends areevident ,namely :
(a)thegrowing integration ofproduction structures ,
(b)theincreasing number ofcooperation agreements .
1.Integration ofproduction structures
Although welcoming investment made byEuropean motor vehicle
manufacturers innon-member countries ,theEuropean Parliament
resolution draws theCommission 'sattention tothepossible
repercussions ofnon-member country investments intheCommunity .
Onthis second point ,theindustry has also repeatedly stressed that
theestablishment inEurope after theSecond tforld Warofsubsidiaries
ofNorth American companies isthebest example ofsuccessful
integration ,made possible bythehigh degree oflocal acceptance
which placed these companies incompetitive positions directly
comparable tothose enjoyed byEuropean-based firms .
Itfollows logically from theforegoing arguments that theissue
should beconsidered inthe following terms :
SeeP.E .70.304 (PV55).

-86-
(i)the vrorld-wide scale ofmotor vehicle manufacture nullifies
anyassessments based ona"compartmentalized "conception of
thevarious markets ;
(ii)asaresult ,theoptions open totheindustry nolonger come
within theambit ofthe twotraditional andalternative policies
adopted byAmerican andJapanese manufacturers inrecent decades ,
i.e. :
(a)inthecase oftheAmericans ,theinstallation oftheentire
manufacturing operation intherelevant markets ,or
(b)intheJapanese case ,thecentralized production inthe
country oforigin andthedirect export offinished
products .
Infuture ,automobile manufacturers will have togear their production
andmarketing strategies toadistribution ofthemanufacturing and
trading activities between allthemarkets involved .Inother words ,
this means thelarge-scale development ofpolicies akin tothose
already pursued formany years byEuropean manufacturers ,as
practised locally byJapanese firms intheAsiatic markets andwhich
arecurrently being developed bythemajor American companies *.
Such achange would entail asubstantial increase inmotor vehicle
trade generally andrapid diversification initsstructure .Inaddition
tothis basically favourable aspect ,itwould make itpossible to
envisage amore balanced development oftrade since itwould increase
thereciprocal advantages for thevarious manufacturing zones and
theopportunities forintra -andinter-sectoral txade-off .
Since such adevelopment isdirectly dependent onthedecisions of
firms regarding external investments ,italso concerns thepublic
authorities who arelargely responsible fordetermining the
conditions inwhich theforeign investing companies arereceived .
Itvrould bedetrimental toalltheeconomic operators involved if
more serious divergent trends were toappear -notonly between the
major manufacturing zones but also within the zones themselves .
TheMember States oftheCommunity have aspecial responsibility in
this respect since differences inattitude tothemanner inwhich
foreign investors arewelcomed would naturally have serious
repercussions for theCommunity industry asawhole .Inthis connecton ,
itwould beuseful ifthe Member States could take account ofthe
 
SeePart One ,point I.e .

-87-
guidelines that the Commission will belaying down regarding criteria
forgranting Community support (1).
This matter isall the more important since the development of
industrial cooperation has become necessary inorder toimprove the
economic effectiveness ofthe industry and toease commercial pressure .
2.Development ofcooperation agreements
Whereas there have been comparatively fewindustrial cooperation
agreements inrecent decades and only then restricted tospecific
requirements *,recent years have seen asharp increase intheir number
and type coupled with agreater diversification intheunderlying reasons .
The following examples illustrate this point :
(a)the American corporations have developed their links with the
Japanese industry through financial participation and trade
agreements which are now widening toembrace industrial and
technological trade **;
(b)anumber ofagreements have been signed recently between Japanese
and European companies (Honda andBritish Leyland ;Nissan and Alfa ;
Motor Iberica and V olkswagen );
(c)theacquisition ofholdings with a.practical impact inindustrial
terms bycompanies intheCommunity and inthe United States
(Renault-AMC .Peugeot-Chrysler );
(d)cooperation agreements between West and East European manufacturers
have taken on new forms ***.
This large-scale movement clearly reflects theunderlying trend
already mentioned towards thegradual integration onaworld scale of
motor vehicle production andalso therecourse tohighly varied and
flexible methods ofmaking the many ,adjustments inthis sector :
{1)See thesection concerning the financial aspects
"ftSeeinparticular :Relations with State-trading countries -Part One ,I.D.
See the section onthe aims ofthe American industry .
***
See Part One .I.D.

-88-
i)recovery offirms indifficulty .
ii)adaptation oftechnologically backward companies ,
iii )harmonization ofthe conditions ofinternational competition ,
iv)rationalization and strengthening oftrade .
Itistherefore important not only toencourage this trend but also
tomaster its repercussions .Hence the need todevelop greater
cooperation between the economic andpolitical entities involved .
This clearly means that everyone should play the free-trade game and
comply with GAIT rules .Onthis point ,the Commission takes the view
that the Community ,the United States and Japan should fully recognize
their responsibilities toensure the continued existence ofthefree
economic order ,inwhich they are the main protagonists .
Asthe Cbmmission pointed out during the European Parliament 'sdebate
onthe European automobile industry on13January 1981 *,all the
beneficiaries ofthis system should share the burden ;inthis respect ,
Japan isinaspecial situation since ,forhistorical andstructural
reasons ,its present contribution isless than that ofitspartners .
Itwould not benormal for this state ofaffairs tocontinue and
forthis country tomaintain itsintransigent position vis-a-vis
trading arrangements ,whereby manufactured products could leave but
not enter the country .Each partner has aright toexpect from the
others afair contribution tothe proper functioning ofasystem
ofbenefit tothem all .
'OJNo C28,9.2.1981
Annex 1-265 .
I

-89-
Inthefinal analysis ,the world motor vehicle industry will not
develop asitshould unless there istruly reciprocal andeffective
integration ofmanufacturing and trading structures .
The Cbinmission has thepolitical will tocontribute tothis objective ,
but positive results will only beachieved ifthe three major
manufacturing areas ,namely the Community ,the United States and
Japan ,strive toachieve the same aims .
â

annexes
CONTENTS
1. Theautomobile industry I97O-I98O (passenger cara )
2. Value ofimport s/exports ofJapan andtheEEC
3, Geographical breakdown ofJapanese exports ofpassenger cars .
/
4/ Estimated U.S. newly-designed fuel-efficient capacity I98O-I985
5. ,Industrial cooperation ,U.S. firms
6. Labour costs intheautomobile industry 1975-1980
7. Qnployment intheEuropean motor vehicle industry 1974-1979
8. Geographical breakdown ofCommunity exports ofpassenger cars
9. Japanese penetration ofthe EECmarket
10. Development ofworld carexports ,
11. Trend ofresearch anddevelopment expenditure
12. (a)Annual carusetaxburden
(b)Fuel taxes andprices intheEEC ' '
13. Motor Vehicles Directives
 
14. Speed limits throughout theworld
15. European Social Fund –Beneficiaries intheautomobile and
components sector

ANNEX .1
THEAUTOMOBILE INDUSTRY1970-I98O(PassengerCars)
ΪΕΜ EECUSA JAPANRESTOP
THEWORLD TOTAL
Passengercarsonthe
road.
(millions)1970
1975
198053.770
70.258
86.53488.209
105.987
120.1048.041
16.683
23.655.38.180
60.672
86.892188.000
253.600
317.185
Ί>change1970-80 +60,9 +36,1+194,1+127,00 +68,7
Carownership (number
ofcarsper1000
inhabitants )1970
1975
1980214
272
332431
496
54077
149
20212
17
2351
63
79
Ίchange1970-80 +55,1 +25,2+162,3'+91,6 +54,9
*
Registrations
(1000)1970
1975
19806.751
6.964
8.5358.388
8.262
8.8012.379
2.738
•2.8864.582
7.745
10.52822.100
25.709
30.750
Ίοchange1970-80 +26,4 +4,9+21,3+129,8 +39,1
;
Production (lOOO)1970
1975
19309.424
8.328
9.5456.550
6.717
7.0003.179
4.568
7.0503.547
5.787
7.15522.700
25.400
30.750
Ίοchange1970-80 +1,3 +6,9+121,7+101,7 +35,4 j
!
Exports
(1000)1970
1975
1980x2.458
2.050
1.898285
640
695726
1.827
3.8201.307
1.808
2.0344.776 j
6.31Ü j8.447 j
j
Ί<>change1970-80 -22,8 ••■148,2 +426,2 +55,6+76,9j
I
Imports
(1000)1970
1975
1980-149
599
1.362*)
2.007
2.077
2.83018
42
472.275
3.414
4.2034.449
6.132
8.442
Ίοchange1970-80 x8,1 +41,0+161,1 +84,7 +89,3
Source:Market^ng^^stems
*)IncludingimportsfromCanada.

ANNEX 2
Value ofImportn /Exportu ofJnpnn ami the EEC
> Units :Millions ofDollars
'• •
1)l'aenongor cars v '
Total Imports of
EEC
1"
Japan1970 1975 1978 1079 1980
54.11,2 /46.5
236.93,621.9
I»12.65,004.8
575.0• \
Total Exporta of
,
Kh'<:
Japan5,668.0
903 .4•6,6¿?8.8
¡*,03010,337.1
10,61711,8*9.5
11,964
'' ·' Λ
COTDC -CINL Vehicles
"Total Imports of
•1970 I.75 197* 1979 19Ό 1
NEEC . _ ·
Japan2Oí».7
7.0546.6
12.8,798.7
24.O
Total Exporto of. -
EEC
I
Japan .t'■980.5
402.53,703.7
2,059.63,43 *.?
5,019.44,091.3
4,563.6
3)Spare Partu
Total Imports of 1970 1975 > 1978 ' '1979 1980
EEC
Japan571.6
45.5 ,1,381.8
89.91,594.3
93.7
Tot.nl Exporto of,sJ
EEC
Japan1,389.8
124.63.806.3
647.65,381.9
1,613.07,284.2
1,757.4
Value ofImports /Exports -Passpnger .Cars +Commercial Vehicles +Spare Parts
■. '\
.'Total Importe of .1970 1975 1978 1079 logo
EEC s
Japan■· . 2,022.8
289.45,350.3
515.37,397.8
697.7• ·'
Total .Exports ^jfj• ■"·■" " ■· – ·–
EEC ■
«Inpon6,υϊ8.1
1.430.514,13«.6
6,70 7.2 .19,157.7
17,249.423,215.0
18,265.0

ANNEX . 5
GDOGRAHIICAL BREAKDOWN' OP JAPANESE EXPORTS OP PASSENGER CARS
Destination19 70 19 79 19 80
V olume V olume % V olume y.
North America
ofwhich :Lfeiited State3404/5
339,555.7
46.81648.4
1587.553.1
51.21986,7
1850,052,0
48,4
KBC
of Germany
which :France
Italy
Netherlands
Belgium /Luxembourg
United Kingdom
Ireland
Denmark44,6
0,4
1,5
0,4
15,2
17,0
5/0
5,16,1
0,1
0,2
0,1
2,1
2,3
0,7
0,7630,2
175,9
47,6
1,6
94,1
81,3
175,7
27,0
27,020,3
5,7
1.5
0,1
3,0 ·
2.6
5.7
0,9
0,9743,4
211,0
54,8
0,3
117.0
105,6
201.1
28,1
25,519,5
5,5
1,4
3,1
2,8
5,3
0,7 :
0,7 j
i
I
'Rest ofWestern Europe
»
ofwhich :Greece
I56,5
3,87,8
0,5179,6 -
15,75,8
0,5217,0
10,7I
5,7
0,3
■
EEC +Greece 48,4 6,7 645,9 20,8 754,1'
19,7
Asia
ofwhich :Middle East
Saoudi Arabia63,9
7,7
1,38,8
1,1
0,2345.1
149.2
100,211,1
4,8
3,2485,1
209,9
130,312,7
5,5 I
3,4 j
Australi a+New Zealand 86,3 11,9 149,5 4,8 165,0!
4,3 i
Afri ca ' 39,6 5,4 72,3 2,3 117,5I
3,1 j
i
Latin America 29,8 4,1 72,4 2,3 104,1 2,7 j
Eastern Europe '0,4 0,1 4,5 0,1 2,0 0,1
World 725,6 100,0 3102,0 100,0 3820,8 100,0
Source _^ Marketing Systems

ANNEX L
ESTIMATED U.S. NEWLY-DESIGNED FUEL-EFFICIENT CAPACITY .1980-85
1980 :
General Motor »:
Chevette ....
X-body400
eoo
Totil
Chrysler :Omm /Wonron ..
V olkswagen :Rabbit .,.,.1,200
300
250
Total ,1980 1.750
H81 :
Generai Motori :
Chevette
X-tody
J-body«00
860
450
Total
Ford :Escort /lynx...
Chrysler :
OmniHonron .,
K-body .......1.710
485
300
525
Total.' :
V olkswagen :Rabbit .,825
250
Total .1981 3,270
M82:
Genera !Motori :
Chevette ....
X'body ......
J-body
A-body .....400
8E0
500
400
Total
ford :Escort /lynx..
Chryiter :
Omnt /Horâoft .
K-body2.160
600
300
700
Total
V olkswagen :Rabbit ..1,000
250
Total ,1982... 4,0)0
1983 :
General Motors :
Chevetle . '00
X-body 860
J-body 500
Intermediate /sUndard .. ■2,500
Total 4.260
Ford :Escort /lynx ,compact /intermediate 1,300Chrysler :
Omnittoriion .
K-body300
900
Total 1,200
V olkswagen :Rabbit 450 .
Total .1983 7.210
1984 :
Geners !Motors : .
Chevette 400
X-body 860
J-body 900
Intermediate /itandard 3,000
Total . 5.160
Fortf :
Escortlyn » 1,200
Comoaet intermediate 1.100
Standard 1,000
Total .
Chrysler
Omnittornon .
K-body
•Total
V olkswagen Rabbit ..3.300
300
900
Û5
450
Total ,1984 10,110
1985 : '
General Motor j:
Chevette 1 400
X-body 860
J-body 9T0
Intermediate 'standard 4,030
Total . 6..60
Ford :
Excort.'tynx 1,200
Compact 'intermediate .1,100
Standard .
Total ..1.000
3.300
Chrysler :
Omnl'Honzon .
K-body
Total
V olkswagen :Rabbit .,300
900
_ 1.200
.. 450
Total ,1985 11,110
Note :Alldata based upon tstimates made byU.S.Otpartment ofTransportation andpublie information avatUbli
through trade miliums .

ANNEX 5
FOREIGN SOURCINP -RECENTLY-ANNOUNCED COMMITMENTS BYU.S. AUTOMOBILE
MANUFACTURERS TO PURCHASE FOREIGN-KADE COMPONENTS
FOR USE INDOMESTIC VEHICLES PRODUCTION
Automobile
ManufacturerDescription of
Component Intended UseManufacturing
SourceApproximate
Nur&er of
Components Period
G.M. 2.8liter V-6 Cars SMdeKsxico <400,000 /year 1982-
2.0liter L-4
with transmissionMini trucks Isuzu (Japan ) lOO.OCO /year
1.8liter diesel L-4 Chevette Isuzu (Japan ) small numbers 1982-
1.8liter L-4 J-car GMdeBrazil 250,000 /year 1979-
.THM 180automatic
transml sslonChevette PMStrasbourg
(France )-250,000 /year 1979-
Ford 2.2liter L-4 Cars Ford-Mexico «400,000 /vear 1983-
Diesel L-4 Cars Toyo Kogyo 150,000 /year 1983-
2.0liter L-4 Mini trucks Toyo Kogyo <100,000 /year 1982-
2.3liter L-4 Cars Ford deBrazil ~50,000 /.vear 1979-
Diesel 6cyl. Cars BMrf/Stegr 100,000 /year 1983-
Turbo-d1esel /4cyl. Cars BWSteoer - 1985-
Manual transaxles Front Disc Cars Toyo Koqyo 100,000 /year 1980-
'■Aluminum Cylinder
heads1.6liter L-4 Eurooe ,Mexico - 1980-
Electronic Engine
control devicesCars Toshiba ΙΟΟ,ΟΟΉ /year 1978 -
Ball Joints Cars Musashf Selrdbu 1,000,000 /year 1960-1984
Chrysler L-6 and V-8 enqlnes cars Chrysler deMexico <100,000/year early 1970'
2.2 Liter L-4 K-body Chrysler deMexico <270,000 /year 1981
2.6 Liter L-4 K-body Mitsubishi 1Million 1981-85
1.7Liter L-4 L-body (Orail ) V olkszeeën 1.2 Million 1978-82
1.6 Liter L-4 L-body Talbot (Peugeot ) 400,000 total 1982-84
2.0Liter Diesel V-6 K-bodv Peuncot 100,000 /year 1982-
- 1.4 Liter L-4 A-body (0r*n1
renlaceinent )Mitsubishi 300,000 /year 1984-
Aluni nunCylinder
Heads2.2liter L-4
/
AHC-RenaultFiat
AMC Car components end
power trainRenault inFrance
and Mexico300,000/year 1982-
VWofAnerlea Radiator«· Staro Inça Rabbit VWdeMexico 250,000 /year 1979-
L-4diesel and pes Cars VWdeMexico 300,000 Vyear 1982-
SOURCES :Compiled from Automotive News ,Ward 1
American Metal Market ,Detroit Free
viii'sEnqine Uûdate ,Ward's Automotive Reoort ,
Press ,and Japan Economic Journal .

annex .6
$
EsfimafodHourlyComponsatson ofProductionWorkers
intthoPulcforVoSiseSoand.EqySpmentIndustries
16"η>W.GermanyV^U.S.
/ Canada
France
*BfaZil
.–S.Korea
o-f 1 1:1– 1;T
.1975 1976 ,1977 1978 1979 1980
Ν. '
.Source:BureauofLaborStatistics ,OfficeofProductivity andTechnology ,November1980.
1980valuesaremid-year,provisionalestimates .
Note:Majorautomobile-producing corporations payhigherwagesandhenceshowhigher
•corporateaveragelaborcoststhantheabove,whichincludesmanysmallfirms.

~ ΑΝΝΕΧ 7
»
EMPLOYMENT INTHEEUROPEAN MOTOR VEHICLE INDUSTRY (*)
(1974 -1979 )
X1000 ' I97U 1975 1976 1977 1978 1979
WEST GERMMY 6314,1
·*591,5 589,7 619,5 6)46,9 672,8
FRANCE U1U.8 Μδ,Τ *»63,7 Ue6 ,1 U87 fc89,'J
UNITED KINGDOM 1»97,8 1*78,3 UUU.l 'U7M ¿86,7 »»71,6
ITALY253,7 2*»2,5 2U0,u 230,6 228,3
BELGIUM 50,7 U6,U 50,5 52,5 •5¡4,6 56
LUXEMBOURG 0,6 0,7 0,8 0,8 0,8
IRELAND 7,6 7,2 7,0 7,0 6,2 6,1
DENMARK M i»,0 3,9 M M
iffiTHERUWDS 22,8 21,8 21,U 22,U 22,7 2U,1
EEC 1.886,9 1.839,1 1.821,5 1.897,3 1.936,2 1.953 ,Kc !
(*)Vehicle andspare part manufacture#
Source JEUR05TAT -Workers inIndustry
NACE 35

ANNEX 8
GEOGRAPHICAL BREAKDOWN OP COMMUNITY EXPORTS OPPASSENGER CARS
Units:1000vehicles
Destination1 9 7 0 19 7 9 19 8 0
V olume .% V olume X V olume %
Western Europe .
ofwhich sGreece659,0
21,426,8
0,9803,1
45,0.38,4
2,2733,4
'37,238,6
2,0
.Eastern Europe . 80,9 3,3 80,1 3,8*
63,4 .3,3
North America
ofwhich :lliited .
States993,9
867,540,4
35,3534,3
428,925,5
20,5 .501,0
441,626,4
23,2
Latin America . 162,5 .6,6 131,4 6,3 108,5 5/7
Asia
ofwhich Middle
Eaat
•Japan154,6
69,2
12,26,3
2,8
0,5'217,7
82,2
39,110,4
.3,9
1,9226,8
139,0 .
31,511,9
•7/3»
1,7
Africa258,9 10,5 253,5 12,1 221,0 •11,6
Oceania 123,3 5,0 57,2 A7 29,7 1,6
Other 24,8 1,0 14,8 0,7 15,0 0,8
World Total 2457,9 100,0 2092,1 100,0 1898,8 100,0
"Intra-CEE "Exports 2272,6- 2999,5- 2692,8

JAPAÜESE FENETRA3T0.it OPTHE EEC MARKET
% OPTHE MOTOR VEHICLE MARKET •
Country 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 :1980
0 0,1 0,1 0,4 1,1 1,3 1,7 1,9 2,4 3,7 5,6 10,3
F 0,2 0,2 0,4 0,7 0,8 1,5 2,7 2,6 1,8 2,2 3,1
I 0,02 0,1 0,1 0,1 0,04 0,1 0,2 0,1 0,1 0,1 0,1
UK 0,4 1,0 2,9 5,5 6,7 9,0 9,4 .10,6 10,9 10,8 11,9
B/LUX 5/0 7,0 10,0 12,0 13,0 16,5 18,0 19,3 17,8 17,7 24,6
NL 3,2 V6,7 9,5 11,4 11,6 15,6 16,8 19,8 18,8 19,5 26,2
DK 0,4 4,3 9,6 6,6 10,7 16,1 19,0 17,4 18,0 14,4 29,5
IRE 0 0 0,9 5,3 4,9 11,6 12,7 19,7 23,9 26,7 30,5 I
I
GR. 14,6 13,5 13,3 8,7 8,9 10,8 15,1 19,1 13,8 34,2 (*}¿2<*>
TOTAL :EEC 0,6 1,0
I2,0 3,0 3,4 4,8 5,4 7,0 6,3 6,9 8,9 I
»
<*)Estimate :passenger cars +commercial vehicles .
Source :Marketing Systems

ANNEX 10
SYNOPSIS TAB'j :
DEVELOPMENT OP WORLD CAR EXPORTS
Pestin&tioa YearEXPORTS 1Έ0.Μ
1 E£C JAPAN Γ USA IIOTHERS c
"T)TA rV olure
*1000Í V olume
•X1000*vÆo%x?¿<50iaclOCO
EEC 197C
1975
1930- emUi*,6
367,1
7**3,1 »30,1
69,0
5M6,1.
13,0
•*0,5
»b.3
2,1
3,09^,9
231,9
577,065,5
37.9
U2,UH8.0
!611.9
11.360,3
i
WESTERS EUROPE >
OUTSIDE EEC
«1970
1975
I9606^7,5
687,1
729,190,6
80,0
71,956.1
118,2
.210,67.9
13.7
20.8M
6,8
13,50,7
0,8
1.35,7
«•7,3
60,90.8
5.5
6,07IU,5
859,1·
1.0ii»,6
AFRICA
INCLUDING HIGERIA
AND SOUTH AFRICA1970
1975
I96010U,3
9U.U
82,385.8
77,7
1*8,216.5
15.6
71,313.6
12,8
bl,700
0,2
2,50,1
0,2
1,50,6
3,5iM0,5
3,1
8,7121,5
IH..O
170,9
KIDDLE EAST .
Í
I
i '1970
1975
19507M
19M
lUl,877.2
62.3
31,*8.8
59,7
215,19.1
19,2
1*7,6>»,5
38.5
50,91*,7 '
12,li
11.38,7
19.0
1»3,89.0
6.1
9,796,6 '
311,7
1.51.5
FAR EAST
EXCLUDING SOUTH
KOREA AND TAI WAS1970
1975
19Ö070,7
60,3
59.058.U
37,0
19,5H.5
70.9
212,53U.3
Ό.9
70,25,7
15,1
1U,0t»7
9.3
"».63.1
15,2
17,22.6
9.1*
5.7121,0
161.5 ι
302.6 i
I
OCEANIA
AUSTRALIA AJfD
NEV ZEALAND1970
1975
i960119.9
8o,i
25,657,U
28,2
12,,1»67,7
185.1
155.232.1 »
66,3
75,01.0
0,1
o.U0,5
0,220,3
13.6
25.79.7
5.5
12,1 »208,y
2θ3.6
206,9
»ORTH AMERICA
USA AND CANADA1970
1975
I960993.9
627,9
501,067,8
•*1,9
21,1 »kol »,5
801,8
1.986,727.6
5hl75.8m ' m67.5
63,9
73,1 »>».6
M
2,81.1<66,9
1.197,8
2.561,1
SOUTH AMERICA
EXLUDING BRAZIL , ·
ARGENTINA ,MEXICO ,
VENEZUELA1970
1975
198039,8
26,6
J»0,56U.9
1*2,8
30.Í »10,3
2U,2
60,7
•16.8
38.9
1*3,65,0
»».3
12,98,2
6,9
9,76,2
7,1
19,010,1
11,Il
iM61,3
62,2
133,2
,Source :Marketing Systems " t

ANNEX 11
TRI£iD OF THE RATIO BETlfEEN RESEARCH AMD DEVELOPMENT EXPENDITURE
AND GROSS DOMESTIC PRODUCT (percentage )
'United .Kingdom
* -""ko-
Nether 1^ids I States
Germany/ r-v^v 1
2,0~J \ I '".S0-**Japan
r * Europe 9
Prances'f NK^
Belgi un
Denmark
l0- L./'x--' Italy
.t'* •J""?»**** Irelani^
1964 1965 1967 1969 1971 1973 1975 1977
Source :Analysis oftheResearch andDevelopment Potentials
ofthe Member States ofthe European Communities
-Commission ofthe European Communities ,

ANNEX 12a)
AHNUAL CAR USB TAX BUHBSN
- ν
(Petrol taxes ,vehicles taxes +10%ofpurchase taxes foreight
European cars running 15»000 kmayear )
Inreal terms (ratio oftaxes toaverage wages ,notincluding
social contributions )
PERCENT
50
45
.40 J
35
30
25
20
15
10" DK
/•IRL
Vehicles * E H

ANNEX 12b)
Summary oftaxes andprices (inEUA and .as%)
Premium petrol ,diesel fuel and LPG (End February I980 )
mEUA par 100litres and as
DK NL .ÎRL .
A.Excise
Premium
petrol i
Diesel fuel'
LPG20,99
•6,94
6,82 t23,56
3,88
3,8817,72 ;25,05
16,00 î13,1313,13 :
12,8929,91 ;17,26 ;19,13
2,16 ;4,96|6,76
«7,14 :
: :17,51 :2,23
:NilG3
20.77
12.78
9,8312,54
14,23
6,26
B.V AT
Premium
petrol
Diesel fuel
LPG'7,51
4,98
4,749,53
5,44
4,535,32
5,32
3,83;
8,78 |6,o4 .2,04I a
5,68 '2,67 ;1,24
5,09 «2,67
4,651,24
1,127,89
5,15
3,144,52
3.6S -
2,835,76
5,59
3,73
C.Total tax
•
Premium !
petrol ]
Diesel fue]J
LPG !28,50
11,92
11,5633,14
9,32
0,41
D,Seiling
price
Premium
petrol
Diesel fuel
LPG54,57
36,18
34,3756,96
32,493t14j23,04
9,3*1 22,12
8,41 :16,7233,83
18,81
12,23
46,33
46,33
27,05 :33,44
E.Selling
price?(relative )
Premium
petrol
Diesel fuel
LPG100
66
63100
57
F«Excise
(relative )
Pro:niumpetrol
Diesel fuol
LPG100
33
3?100
16
16100
100
72
:100
;95
*7358,00
38,20
34,0735,95
4,83
22,1619,34
6,20
3,3527,02
11,91
3,1425,29
16,4718,30
19,82
12,71 »9,99
t
56,50
25,01
38,12
100
66
100
52
t29
t43,41 ;51,52
25,79 !33,62
23,28 l20,38
100 :100
44
67
100
7
5959
5449,80
40,66
31,78
:
:43,71
43,04
28Jo
:100
î29
•
*13
f100
65
A9-:100
182
64
s100
î35
«0
ts100
s62
t
147
1100
98
66
JL100
113
50

AJ5I -isEX 13
X MOTOR VEHICLES DIRECTIVES
N° Reference -Council /
CommissionTitleDate of
AdoptionNeand page
ofO.J.Date of
O.J.
1 70/156*1
Council Type-approval 'ofmotor vehicles andtheir
trailers 6.02.1970 L42/1 23.02.1970
. Council Resolution regarding EEC whole vehicle type-
approval for passenger cars 29.06.1977 C177/1 26.07.1977
2 70/157* Council Permissible sound level andexhaust system of
motor vehicles s 6.02.1970 L42/16 23.02.1970
3 70/220* Council Measures tobetaken against airpollution by
gases from positive-ignition engines ofmotor
vehicles
-Corrigendum20.03.1970 L76/1
L81/15'6.04.1970
11.04.1970
4 70/221* Council Liquid fuel tanks andrear protective devices
for motor vehicles and their trailers
-Corrigendum (FR-EN-IT-NL-DA)20.03.1970 L76/23
L65/426.04.1970
15.03.1979
5 70/222* Council Space for mounting and fixing ofrear registra­
tion plates onmotor vehicles and -their trailers 20.03.1970 L76/25 6.04.1970
6 , 70/311* Council Steering equipment for motor vehicles andtheir
trailers s*
-Corrigendum8.06.1970 L133/10
L196/1418.06.1970 *
3.09.1970
7 70/387* Council Doors ofmotor vehicles and their trailers 27.07.1970
'L176/5
*
'10.08.1970 '
*Treaty ofAccession (Denmark ,Ireland ,United Kingdom ) 22.01.1972 L73 27.03.1972

X MOTOR VEHICLES DIRECTIVES
N° ReferenceCouncil /
CommissionTitleDate of
AdoptionN°andpage
ofO.J.Date of
O.J.
8. 70/383* Council Audible warning devices formotor vehicles
-Corrigendum27.07 .1970 L176/12
L176/7210.08.1970
21.06.1974
9. 71/127* Council Rear-view mirrors ofmotor vehicles 1.03.1971 L68/1 22.03.1971
10. 71/320* Council Braking devices ofcertain categories ofmotor
vehicles and oftheir trailers 26.07.1971 L202/37 6.09.1971
11. 72/245 Council Suppression ofradio interference produced
byspark -ignition engines fitted tomotor
vehicles 20.06.1972 L152/15 6.07.1972
12. 72/306 Council Measures tobetaken against theemission of
pollutants from diesel engines forusein
vehicles
-Corrigendum (PR-EN-IT-NL-DA)
-Corrigendum (FR-EN)2.08.1972 L190/1
L215/20
L297/2720.08.1972
6.08.1974
23.11.1977
13. 73/350 Commission Adaptation totechnical progress oftheCouncil
Directive 70/157/EECof6.02.1970 relating to
thepermissible sound level and theexhaust
system ofmotor vehicles 7.11.1973 L321/33 22.11.1973
*Treaty ofAccession (Denmark ,Ireland ,United Kingdom ) 22.01.1972 L73 23.03.1972

3.
MOTOR VEHICLES DIRECTIVES
N ReferenceCouncil /
CommissionTitleDate of
AdoptionNandpage
ofO.J.Date of
O.J.
14.
15.
16.
17.
18.
19.74/60
74/61
74/132
74/290
74/297
74/408Council
Council
Commission
Council
Council
CouncilInterior fittings ofmotor vehicles (interior
parts ofthepassenger compartment other than
theinterior rear-view mirrors ,layout ofthe
controls ,theroof orsliding roof ,thebackrest
andrear part oftheseats )
-Corrigendum (French ,English ,Dutch ,Italian
andDanish texts )
Devices toprevent theunauthorized useofmotor
vehicles
-Corrigendum (French ,English ,Dutch ,Italian
andDanish Texts )
Adaptation totechnical progress oftheCouncil
Directive 71/320/EECof26.07.1971 relating
tothebraking devices ofcertain categories
ofmotor vehicles and oftheir trailers
Adapting totechnical progress Council Directive
70/220/EECof20.03.1970' relating tomeasures
tobetaken against airpollution bygases from
positive-ignition engines ofmotor vehicles
Interior fittings ofmotor ,vehicles (thebehaviour
ofthesteering mechanism intheevent ofan
impact )
Interior fittings ofmotor vehicles (strength -
ofseats andoftheir anchorages )17.12.1973
17.12.1973
11.02.1974
28.05.1974
4.06.1974
22.07.1974L38/2
L215/20
\
L38/22
L215/20
L74/7
L159/61
L165/16
L221/111.02.1974
6.08.1974
11.02.1974
6.08.1974
19.03.1974
15.06.1974
20.06.1974
12.08.1974

4.
X I
ιMOTOR VEHICLES DIRECTIVES
N° ReferenceCouncil /
CommissionTitleDate of
AdoptionN°and page
ofO.J.Date of
O.J.
20. 74/483 Council External projections ofmotor vehicles 17.09.1S74 L266/4 2.10.1974
21. 75/443 Council Reverse and speedometer equipment ofmotor
vehicles
-Corrigendum26.06.1975 L196/1
L296/1926.07.1975
15.11.2975
22. 75/524 Commission 2ndAdaptation totechnical progress ofthe
Council Directive 71/320/EEC of26.07.1971
relating tothebraking devices ofcertain
categories ofmotor vehicles and oftheir
trailers 25.07.1975 L236/3 8.09.1975
23. 76/114 Council Statutory plates andinscriptions for motor
vehicles andtheir trailers ,andtheir location
and nethod ofattachment 18.12.1975 L24/1 30.01.1976
24. 76/115 Council Anchorages formotor vehicles safety belts 18.12.1975 L24/6 30.01.1976
25. 76/756 Council Installation oflighting andlight-signalling
devices onmotor vehicles andtheir trailers 27.07.1976 L262/1 27.09.1976
26. 76/757 Council Reflex reflectors for motor vehicles andtheir
trailers 27.07.1976 L262/32 27.09.1976

5
Χ MOTOR VEHICLES DIRECTIVE ?,
Νβ ReferenceCouncil /
CommissionTitleDate of
AdoptionN°andpage
OfO.JrDate of
O.J.
27. 76/758 Council End-outline marker lamps ,front position (side )
lamps ,rear position (side )lamps andstop lamps
for motor vehicles and their trailers 27.07.1976 L262/54 27.09.1976
28. 76/759 Council\
Direction indicator lamps formotor vehicles
and their trailers 27.07.1976 L262/71 27.09.1976
29. 76/760 Council Rear registration plate lamps formotor vehicles
and their trailers 27.07.1976 L262/85 27.09.1976
30. 76/761 Council Motor vehicle headlamps which function asmain-
beam and/ordipped-beam ·headlamps and
incandescent electric filament lamps forsuch
headlamps 27.07.1976 L262/96 27.09.1976
31. 76/762 Council Front foglamps formotor vehicles andfilament
lamps forsuch lamps 27.07.1976 L262/122 27.09.1976
32. 77/102Τ
Commission Adaptation totechnical progress oftheCouncil
Directive 70/220/EECof20.03.1970 relating
tomeasures tobetaken against airpollution
bygases from positive-ignition engines ofmotor
vehicles 30.11.1976 L32/32 3.02.1977I
CdX
|W
I
Ό

0.
χ MOTOR VEHICLES DIRECTIVES
Ν° ReferenceCouncil /
CommissionTitleDate of
AdoptionN°and page
ofO.J.Date of
O.J.
33. 77/212 Council Amendment toDirective 70/157/EEC of6.02.1970
onthepermissible sound level and exhaust
system ofmotor vehicles 8.03.1977 L66/33 12.03.1977
34. 77/389 Council Motor vehicle towing -devices 17.05.1977 L145/41 13.06.1977
35. 77/538 Council Rear fog lamps for motor vehicles andtheir
trailers
-Corrigendum (French ,German ,English ,Dutch ,
Italian and Danish texts )28.06.1977 L220/60
L284/1129.08.1977
10.10.1978
36. 77/539 Council Reversing lamps for motor vehicles andtheir
trailers
-Corrigendum (French ,German ,English ,Dutch ,
Italian and Danish texts )28.06.1977 L220/72
L284/1129.08.1977
10.10.1978
37. 77/540 Council Parking lamps for motor vehicles
-Corrigendum (French ,German ,English ,Dutch ,
Italian and Danish texts )28.06.1977 L220/83
L284/1229.08.1977
10.10.1978
38. 77/541 Council Safety belts andrestraint systems ofmotor
vehicles 28.06.1977 L220/95 29.08.1977o->
I
Ό
Φ
σ\

7.
Χ ν
f MOTOR VEHICLES DIRECTIVES ,
Ν" ReferenceCouncil
CommissionTitle VDate of
AdoptionN°andpage
ofO.J.Date of
O.J.
39. 77/649 Council Field ofvision ofmotor vehicle drivers
-Corrigendum (FR-DE-EN-IT-ML-DA)
-Corrigendum (FR,DE,DA,IT,NL)27.09.1977 L267/1
L150/6
L284/1119.10.1977
6.06.1978
10.10.1978
40. 78/315 · Council Amendment toDirective 70/156/EECof6.02.1970
ontype -approval ofmotor vehicles andtheir
trailers 21.12.1977 L81/1 28.03.1978
41. 78/316 Council Interior fittings ofmotor vehicles (identifi­
cation ofcontrols ,tell-tales andindicators )\
21.12.1977 L81/3 28.03.1978
42. -78/317 · Council Defrosting anddemisting systems ofglazed
surfaces ofmotor vehicles 21.12.1977 L81/27 28.03.1978
43. 78/318 Council Windscreen-wiper andwindscreen washer systems
ofmotor vehicles 21.12.1977 L81/49 28.03.1978
44.o78/507 Commission Adaptation totechnical progress oftheCouncil
Directive 76/114/EECof18.12.1975 relating
tostatutory plates andinscriptions formotor
vehicles andtheir trailers ,andtheir location
and method ofattachmentV
19.05.1978 L155/31 13.06.1978!
MU*
I
Ό
!
–J

8.
Χ MOTOR VEHICLES DIRECTIVES
Ν° ReferenceCouncil
CommissionTitleDate of
AdoptionN°and page
ofO.J.Date of
O.J.
45. 78/547 Council Amendment toDirective 7Q/156/EEC of6.02.1970
ontype -approval ofmotor vehicles andtheir
trailers 12.06.1978 L168/39 26.06.1978
46. 78/548 Council Heating systems for the passenger compartment
ofmotor vehicles 12.06.1978 L168/40 26.06.1978
47. 78/549 Council Wheel guards ofmotor vehicles 12.06.1978 L168/45 26.06.1978
48: 78/632 Commission Adaptation totechnical progress ofthe
Council Directive 74/60/EEC of17.12.1973 re-
lating tointerior fittings ofmotor vehicles
(interior parts ofthe passenger compartment
other than theinterior rear -view mirrors ,
'layout ofthecontrols ,theroof orsliding
roof ,thebackrest andrear part oftheseats ) 19.05.1978 L206/26 29.07.1978
49. 78/665 Commission Adaptation totechnical progress ofthe
Council Directive 70/220/EEC of20.03.1970
relating tomeasures tobetaken against air
pollution bygases from positive-ignition
engines ofmotor vehicles 14.07.1978 L223/48 14.08.1978
50. 78/932 Council Head restraints ofseats ofmotor vehicles 16.10.1978 L325/1 20.11.1978

χ MOTOR VEHICLES DIRECTIVES ,
Νβ ReferenceCouncil /
CommissionTitle .Date of
AdoptionN°and page
ofO.J.Date of
O.J.
51. 79/488 Commission Adaptation totechnical progress oftheCouncil
Directive 74/483/EEC of17.09.1974 relating
toexternal projections ofmotor vehicles 18.04.1979 L128/1 26.05.1979
52. 79/489 Commission 3rdMaptation totechnical progress ofthe
Council Directive 71/320/EEC of26.07.1971
relating tothebraking devices ofcertain
categories ofmotor vehicles andtheir trailers
-Corrigendum18.04.1979 L128/12
L146/3526.05.1979
14.06.1979
53. 79/490 Commission Adaptation totechnical progress oftheCouncil
Directive 70/221/EECof20.03.1970 relating to
theliquid fuel tanks andrear underrun pro­
tection ofmotor vehicles andtheir trailers 18.04.1979 L128/22 26.05.1979
54. 79/795 Commission .Adaptation totechnical progress oftheCouncil
Directive 71/127/EECof1.03.1971 relating to
the rear-view mirrors ofmotor vehicles 20.07.1979 L239/1 22.09.1979
55 80/233 Commission Adaptation totechnical progress oftheCouncil
Directive 76/756/ÉECof27.07.1976 relating
totheinstallation ofthelighting andlight -
signalling devices onmotor vehicles and
their trailers ...
-Corrigendum (FR-DE-EN-IT-NL-DA)21.11.1979 L51/8
L111/2225.02.1980
30.04.1980

10.
χ MOTOR VEHICLES DIRECTIVES
Ν" ReferenceCouncil /
CommissionTitleDate of
AdoptionN°andpage
ofO.J.Date of
O.J.
56 80/780 Council Rear -view mirrors for two-wheeled motor vehicles
with orwithout aside-car andtotheir fitting
onsuch vehicles 22.07.1980 L229/49 30.08.1980
57 80/1268 Council Fuel consumption ofmotor vehicles l6.i2.i98O L375/36 3i.i2.i98O
58 80/1269 Council Engine power ofmotor vehicles l6.i2.i98O L375/46 3Ι.Ι2.Ι98Ο
59 80/1267 Council Amendment toDirective 70/156EECrelating to
thetype-approval ofmotor vehicles andtheir
trailers 16.12.1980 L375/34 3i.i2.i98O

SPEED LIMITS THROUGHOUT THE WORLD
**
Country without trailerwith trailer
light ,heavy
(cat.E)braked , Iunbrakedwith studded
.tyres
Roads -J» 1 1
Albania •–
Germany ,
Fanerai Republic
Austri a
Belgiuia
Bulgaria
Cypius .
Denmark
Spain
United States oftoeri <
Finland
Prance
Greece
Hungary
Ireland
Iceland
Italy 14/
Luxembourg
Malta
Norway
Netherlands
Poland
Portugal
Democrat io
Republic ofGermany
Romania
United Kingdom
Sweden130^130^ÎOO^
130 100 100
120 120 ■90
120 80 80
110 ,90 90
100 ...100 90
a88 88 8890
80
97
90
90
aoo 00 00*/120 120 /bO"
130 110^90
80 80
120 100
'97 97
140 110
130
120 90
64 64
90 80
100 100
100 100110^90
80 80
100 100
97 97
110^110
130
90
64
80
10090 90
64 64
80 80
100 80
100 100
80 80
112 112-"97
no 110 7080 80
130100
120 120
120 80
707080
100
90
80
97
70
8B88 88 .
80 80 /80
130110^90
80 80 80
8070 70
140110^/no"
130
120 90 90
eoî/BC& 80^
7070 70
7070 70
Oo&tcW .60^
8080^ .80
7070 7080 60 60
70 60 60
120 120 90
ηο/ϋηςβ/η(β/
88 88 88
80 80ς/80130110^90
80 80 80
80 70 70
140110^110
130
120 90 90
80^80^60^/
70 70 70
50 50 50
70 70 70-12 3 2I L_1
100 100 100
7070706060609090 90
120 90 90
9090 90
80^80^OO^/
505050
707070505050
404040 110110 70

Gøuntry without trailerwith trailer with studded
tyres ;light heavy
(cat."3)braked unbraked
jRoads 1!5111 i 2 ¿ 111 ill I2I i 2 5
Switzerland
Czechoslovakia
Turkey
Union ofSoviet
Socialist Republics
Yugoslavia 12/130 lOOr-flCO^
90 /90 50
120 -l/100 8080 30 80 80806CMj' SO'
1/1;motorways ;2:roads signposted "bythe E17 sign "roads for motor vehioles "ofthe Convention onRoad Signs
andSignals (1968);inthecountries inwhich this sign isnotused ,roads indicated inanote ,unless the
same speed limit asonthe "other roads "isinforce :3:other roads .
2/Maximum reccmmenàed speed .
37Signs mayauthorize higher speeds . j6*
4/Over 1.5t. |ei
5/Roads with carriageways which arephysically separated . x
0/Inthecase ofdrivers whohave hadtheir driving licence forless than twoyears :100 "JO70,
2JTrailers with oneaxle.
8/Trailers with more than oneaxle . H5*
2/Theuseofstudded tyres isauthorized only inexceptional cases .
lo/Maximum weight :2.5t.
ll/Over onetonne .
12/Speed limits forcars used tocarry passengers .
13/90km/hinthecase ofmotor vehicles between 1500 and 2000 00,
80km/hforthose below 1500 cc,and
70km/hforspecial four-wheel -drive vehicles
1ijThespeed limits indicated vary according towhether thevehicles inquestion are :
motor vehicles below 599 cct 90 90 90
motor vehicles between 600 and 900 cc,or 110 110 90
motor vehicles between 901 and 1300 cc 130 130 100
15/Onroads with twoseparate carriage ways ,without intersections ,which arenotclassified asmotorways ,the %
competend local authorities may impose aspeed limit ofbetween 110and 130 km/h. M
16/50km/hforspecial foux-vheel -drive vehicles .
17/Temporary measure introduced on30May 1979 inorder tosave energy .

EUROPEAN SOCIALFUND
BENEFICIARIES INTHEAUTOMOBILE ANOCOMPONENTS
SECTOR
Technicalprogress
beneficiaries ECUbeneficiaries ECU beneficiaries
1973- -■- -
1979- - -
\–
1980 5.000 6.203.000,–1.000 1.200.000,–-
1981*)2.000 1.482.000,–240 149.000,– 1.000Groupsoffirms
ECU
1.900.000,
*)Thefiguresfor1981areincompleteastheCommissionhasnotyetdecidedgrantsofthe
secondinstalmentfor1981. ..,■