European automotive crisis is self-induced, study finds

Austerity policies are putting Europe’s automotive industry on a dangerous path, according to a study by Allianz released on Friday.

Economists at the Munich-based insurer found that car companies had cut their investments by 20% this year, even as their technological gap with Chinese rivals in the areas of digitalization and battery technology threatens to widen.

By contrast, European companies with a large market capitalization in other sectors had increased their investments by 10% this year, according to the analysis.

The study is highly critical of the management of the domestic car industry, arguing that the main cause of the decline is self-inflicted. Europe’s automotive sector has spent its money on the wrong priorities over the past two decades, it finds.

The study was published by Allianz Trade, the group’s credit insurance subsidiary. Its release was timed for the Paris Motor Show, which opens next Monday. The share of European exhibitors – dominant just a few years ago – has fallen to just 40%, according to Allianz.

According to the Allianz economists, Europe’s carmakers invested for too long in conventional combustion-engine technology, spending their capital on short-term returns and dividends instead of investing early and boldly in electrification and digitalization.

Technological lag, the shock triggered by Chinese industrial advances and brand erosion are not separate phenomena, the economists say, but all stem from a misallocation of capital.

“When carmakers finally reallocated capital to address future topics, it was spread with a watering-can approach across too many projects,” said Guillaume Dejean, automotive expert at Allianz Trade. “The capital allocation of the past two decades is a boomerang that is now coming back.”

Further losses loom

The Allianz economists take a very grave view of the situation facing Europe’s automotive industry. Value added per car sold in Europe has fallen by 30% to 45% since 2021-22, they say. The study’s authors put market share losses in Europe at 10%, and slightly lower in China at 7%.

“Even small further market share losses could have significant financial consequences,” said Milo Bogaerts of Allianz Trade. “If German manufacturers lose a further three percentage points each in Europe and China by 2030, around €3 billion ($3.37 billion) in added value would be at risk.”

The Allianz economists warn European policymakers that diluting the combustion-engine ban – originally planned for new vehicles from 2035 – without a binding roadmap carries the risk of domestic carmakers falling even further behind their Asian rivals.