Econ 201 Fall 2017 Dr. Chiara Gratton-Lavoie
WRITING ASSIGNMENT The article: “No Traction: Europe’s Car Makers Spin their Wheels” by Vanessa Fuhrmans. The article appeared in The Wall Street Journal on October 1, 2013. Instructions for obtaining the article from the CSUF online library database are provided below.
Your assignment consists of writing a short essay discussing how changes in economic factors are driving the decrease in European demand for automobiles. You may use as references the article, your textbook, and your class notes. Note that any collaboration among students on writing this paper will be considered a violation of the honor code.
Step 1: Print out and read carefully the short article assigned. Print out and read carefully this instruction sheet.
Step 2: Follow the instructions below carefully.
Obtaining the Article
Go to the CSUF library web site using your student portal. Click on the tab Find Databases. Use database Factiva. Log onto Factiva using your CSUF ID and password. Once you are on Factiva, go to the search tab and type the full title of the article in the search box. Do not forget to select the proper date range for the article’s search before in fact hitting Search. Select the article and select to download in pdf format. Please let me know in class if you are having any trouble obtaining the article.
Assignment Details/Rules (not following these requirements will FOR SURE negatively impact your grade)
Your essay must incorporate the points listed below.
1. Please provide two paragraphs summarizing the main points raised by the authors, in YOUR
OWN WORDS. These paragraphs will serve as an introduction to your essay. 2. In your own words, focus now on the economic content of the article. More specifically, refer to
particular sentences or phrases in the article to identify at least three of the key determinants of demand discussed in class as they pertain to the demand for automobiles in Europe. Be sure to explain how each sentence or phrase illustrates the particular determinant of demand.
3. Use a supply/demand diagram to illustrate ONE of the three cases you have selected. Indicate
which case your diagram is illustrating. 4. Conclude your essay with a short paragraph comparing the automobile market in Europe with the
automobile market in the United States. Identify two key differences between these markets.
5. Your submission should be no longer than TWO PAGES, STAPLED. Please DO NOT use folders, cover sheets, or binders. Do not include Reference section either.
6. All work you submit MUST BE done ENTIRELY using the computer, including graphs.
Use Times New Roman Font, 12 point, one-inch margins on all sides, and single space. Leave one blank line between paragraphs in your write-up. Do not indent paragraphs. On both pages, create a header where you will include your name and the class section/time in the top right corner.
Deadlines (not respecting these deadlines will FOR SURE negatively impact your grade)
1) If you would like to get some feedback and a chance to revise your work before final submission, you may choose to turn in a draft, submitting a copy of your paper to me in class by Monday, November 27. I will return the draft to you with a tentative grade and, if needed, recommendations on how you may improve your grade. If you decide to revise, it is expected that you will use the feedback received on the first draft to improve your writing and analysis in the final graft. If you are satisfied with the grade assigned to the draft, then you will simply submit the original paper (the one with my feedback/comments) back to me on the last week of class, but no later than Wednesday, December 6. If you are not satisfied with your grade, you will submit the original paper AND the revised version in class by the same deadline, Wednesday December 6.
2) If you choose not to submit a draft, you must turn in your paper in class no later than
Wednesday, December 6.
No late submissions of either draft paper or final paper will be accepted. Grading
Your grade on this assignment will be determined by:
a) the accuracy of your economic analysis b) the quality of your writing (which includes correct use of language and grammar) c) adherence to all the above specified requirements.
*PLAGIARISM WILL RESULT IN A GRADE OF F IN THE COURSE. WHEN REQUESTED BY THE INSTRUCTOR, YOU HAVE TO SUBMIT AN ELECTRONIC COPY OF THE PAPER. THE ELECTRONIC VERSION OF YOUR PAPER WILL BE SUBMITTED TO TURNITIN.COM*
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No Traction: Europe's Car Makers Spin Their Wheels By Vanessa Fuhrmans 2,085 words 1 October 2013 The Wall Street Journal J A1 English (Copyright (c) 2013, Dow Jones & Company, Inc.) Sergio Felice embodies a woeful present for European auto makers. He may also reflect a dim future.
Growing up in Italy, the 41-year-old bank consultant says, "it was always important to have a nice car." Now living in Barcelona, he had been saving up to buy an Audi TT. Then Europe's economic distress pushed him to reorganize his financial priorities, and owning a car is no longer one of them.
Even when better times return, he says, he probably won't buy a car until he is in his 60s. He uses public transportation, a motorbike and car-sharing services, he says, and "I prefer to put the money I don't spend on a car in a retirement plan."
Behind Mr. Felice's shift in driving habits lie trends that present Europe's car makers with a hard prospect: Whenever the Continent crawls back from its debt-crisis ravages, its auto market likely won't.
Europe's largely unprofitable auto sector already is among the biggest industrial casualties of the crisis. New-car registrations in Europe have fallen to nearly a two-decade low. Most mass-market car makers are losing money on the Continent. Moody's Investors Service Inc. estimates that PSA Peugeot Citroen, General Motors Co.'s Opel, Fiat SpA and Ford Motor Co. will lose a combined 4.9 billion euros ($6.6 billion) in the region this year.
Some industry executives and consultants warn that Europe's economic crisis isn't just sparking a temporary downturn in car sales, but is also accelerating a more fundamental decline in consumer appetite for cars -- a decline that may presage more plant closings, job cuts and economic pain well into a broader recovery.
A combination of factors -- rising fuel prices, more-durable vehicles, the car's decline as a status symbol and fewer youth getting licenses, among them -- has made buying new cars less of a habit for Europeans.
While some of those factors are playing out in the U.S., where auto sales have roared back to pre-slump levels, there is one difference: America's driving-age population is still growing, while the number of driving-age Europeans is projected to shrink.
"Europe is going to be tough for a long time," says Carlos Ghosn, chief executive of Nissan Motor Co. and Renault SA. Renault has said it plans to cut 7,500 jobs by 2016, or 17% of its French workforce, after an 18% drop in its European sales last year.
Even when consumer confidence rebounds, he says, Europe isn't likely to see the growth of years past. As in other developed markets, he says, autos have become less relevant among younger Europeans because of smartphones and other products that connect people.
IHS Automotive, an auto-industry forecaster, predicts European passenger-car sales will climb to 14.7 million vehicles in 2020, 8% short of their 2007 peak, from an estimated 12.2 million this year.
Some car makers see a glimmer of hope, arguing that sales have fallen so far in six years that Europeans will fuel a modest recovery when they replace aging cars. The average car age in Europe's top five markets climbed to 8.7 years in 2012 from 7.9 years in 2009, according to the Roland Berger Strategy Consultants.
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"It is likely some pent-up demand is building," says Ellen Hughes-Cromwick, Ford's chief economist, and "that will be an important feature going forward."
Executives at car makers such as Peugeot and Daimler AG have said they see signs the market is stabilizing and could improve next year.
And it is too early to tell exactly what Europe's auto market will look like in better times, given that the overall economy still remains weak. The euro zone, on the whole, saw its first growth since 2011 in the second quarter of this year, as the currency bloc's economy expanded 1.1% on an annualized basis.
European manufacturers with big sales abroad say fast-growing emerging markets will more than offset Europe's stagnation. Volkswagen AG, in particular, aims to dethrone Toyota Motor Corp. as the world's biggest car maker within five years on the back of growing sales in China and other developing countries. While VW's European sales also have declined, the company has managed to gain market share in the region.
Any European forecast counting on a broad rebound is too rosy, says Jean-Marc Gales, a former Peugeot executive and head of a Brussels-based umbrella group for European automotive suppliers.
"At best," he says, Europe "is stabilizing. But moving up? I don't see it because of structural trends, and they're not going away overnight."
More than any other of those structural trends, demographics is working against Europe. In the U.S., the population aged 15 to 65 is set to expand well past 2020, according to United Nations data.
The same population in Europe, in contrast, appears to have peaked in 2011, because of decades of declining birthrates, and the U.N. projects that it will contract 1.4% over the next decade.
A 2012 Morgan Stanley report projected that Europe's aging population alone could depress sales by 400,000 cars a year over that period.
"People may become optimistic as soon as some indicators improve and they start thinking, 'My job is safe, and I can invest in a car,' " says Mr. Gales, the former Peugeot executive. "But demographics don't change, and they are not positive for most European countries."
European youth who are coming of driving age also are less inclined to operate and own cars.
Across much of the developed world -- including in the U.S. -- fewer young adults have been getting their drivers' licenses than in previous decades, according to a study by the University of Michigan Transportation Research Institute.
But many young adults in Europe appeared to be turning away from cars faster than youth in the U.S. even before the crisis. In Europe's biggest markets -- Germany, France and the U.K. -- the under-30 crowd used cars for a smaller proportion of their total travel as of the mid-2000s than they did in the previous decade, according to research byBMW AG's Institute for Mobility Research; Americans under 30 used cars for about the same proportion of their travel over roughly the same time period, it found.
"Owning a car just isn't so important for my generation," says Angus Ross, a 28-year-old restaurant interior designer from the U.K. now living in Paris.
Though Mr. Ross considered himself a "real car nut" in his youth and initially studied automotive technology, he says he probably won't consider owning one until his 40s. "For my dad, a car was always a kind of status thing, but they really just bore me."
Such shifts have been especially pronounced in crisis-stricken parts of Europe, where unemployment has stolen legions of entry-level car buyers. But even in car-adoring Germany, Europe's strongest economy and largest car market, the share of new cars bought by those under 30 fell to 2.7% of total auto sales in the first half of 2013 from nearly 6% in 1999, government data show; the population size of that age group remained roughly the same over that time.
Even before the crisis, young Germans' attachment to cars appeared to be waning. Among households of people aged 18 to 34, 72% owned one or more cars in 2008, down from 80% in 1998, according to German-government data analyzed by the BMW research group.
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Europeans, like Americans, also have been driving fewer miles per year since the mid-2000s, reducing wear and the need to replace cars as often.
Such factors will suppress car sales "until there is a big change in European demographics or a significant shift in technology," such as electric cars, says Stefano Aversa, co-president of AlixPartners LLP, a global consulting firm.
Europe's dense public-transportation system has made it easy for Europeans to forgo owning cars. So has a surge in car-sharing services, from companies such as Avis Budget Group Inc.'s Boston-based Zipcar Inc. and ride-sharing networks such as Paris-based Blablacar that offer an option to drivers who don't want to own cars.
One such driver is Mr. Felice of Barcelona, who sometimes turns to Zipcar for business trips in and around the city. Before he moved to Barcelona from Manchester, England, in 2003, he had owned a car for much of his adulthood, including a Fiat Tipo hatchback. He saved money in recent years to buy a sportier car, an Audi TT.
Once the crisis hit, he changed his mind. Though his bank-consulting work hasn't suffered, he says, he realized "in bad times, you need to be prepared."
Now, between his motorbike and the car sharing, he realizes he does fine without owning a car. A couple of weekends a month, he escapes town in a Mercedes A-Class he rents from a local woman he located through a startup that links car owners with people who want to rent. "I still get to have a car whenever I want," he says.
Some auto executives suggest that Europe's aging population and economic woes mean its car market may come to look like that in Japan.
There, decadeslong economic stagnation and a declining driving-age population have suppressed annual car sales to 30% below their 1990 peak. Hakan Samuelsson, Volvo Car Corp.'s CEO, in an interview early this year, said Europe's aging population means not only little growth for its car market long-term but will make it harder to tackle public deficits and reignite growth.
In many ways, "Europe resembles Japan in the early '90s," he said.
As in Japan, most European auto makers have been slow to restructure. GM, Ford and Chrysler Group LLC closed multiple U.S. plants during the financial crisis, partly under pressure from the federal government. By contrast, European governments and unions have tried to prevent plant closings to save jobs.
But with a factory-capacity glut already -- and Europe's demographic and other long-term challenges -- AlixPartners's Mr. Aversa predicts the industry will likely have to cut capacity equal to another five to seven plants in Europe over the next five years. Even that, he says, would fall short of the roughly dozen factories it would need to shut to be profitable.
Some union leaders agree that the combination of trends may mean their workers' pain will continue past any modest recovery. One of them is Guido Nelissen, an economic adviser to Belgium's ACV-CSC Metea, one of three unions that represent auto workers in Belgium, which has already lost two of its four auto factories since the euro crisis.
In 2010, Ford agreed to produce its next-generation Mondeo and two other models at the 49-year-old plant in Genk, Belgium. But as Ford's European sales plummeted, in October 2012 it announced two plant closings in the U.K. and said it would shut the Genk plant next year. Some Genk workers reacted by torching cars, smashing windows and storming a building.
"It is just a huge blow -- this is my second family," says Ugur Alkis, a worker at the plant since he was 19. Now aged 46 and with three children, he says he is at "a dangerous age," too young for an early retirement package but "at a point when the job market doesn't want you anymore."
"For a long time we were able to stop plant closures with proposals to share the pain across European plants," says Mr. Nelissen. "But when there is too much pain, someone has to die."
Mr. Nelissen says the probability of anemic economic growth for years -- as well as younger Europeans' waning appetite, or ability, to buy cars -- is likely to push auto makers to pursue more consolidation and possibly further cuts.
"Some industry forecasts are pretty optimistic because they are based on demand from all of these postponed purchases, but I'm not so sure," he says. "Even if there is a little boom, it will be only a temporary pickup."
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Ilan Brat, David Pearson and Benjamin Schenkel contributed to this article.
License this article from Dow Jones Reprint Service
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Text “No Traction: Europe’s Car Makers Spin their Wheels” by Vanessa Fuhrmans Date All Dates Source All Sources Author All Authors Company All Companies Subject All Subjects Industry All Industries Region All Regions Language English Results Found 1 Timestamp 25 November 2017 21:18
