Govt Initiatives and the Automotive Industry
In response to the impact Covid-19 has had on the automotive industry, governments around the world have intervened in different ways. Here we share information collected from our automotive specialists in the UK, USA. France, Germany, Brazil and India on measures ranging from the relaxation of taxes to green vehicle subsidies.
The UK creates government and banking partnerships
Government partnerships with banks are gaining ground in the UK, with the rollout of the Coronavirus Business Interruption Loan and the Coronavirus Corporate Finance Scheme. The UK government has also deferred VAT payment until the end of June 2020; businesses will then have until the end of the 2020-21 tax year to settle liabilities that have accumulated during the deferral period. The deferral applies automatically, and businesses do not need to apply for it.
The USA also introduces Government Funding
There is unlikely to be a bailout for car manufacturing plants. According to IHS Markit, 4,300 vehicles were produced in North America in April – the lowest recorded since 1945 (2) . Instead, the government has introduced the Payroll Protection Act to help smaller companies and has deferred payroll taxes for larger ones. While it’s a step in the right direction, it’s unlikely to be enough to combat the losses that are being incurred. The industry is hopeful for additional incentives that will jumpstart customer demand and we will report on these as legislation is passed.
France Encourages Green Purchases
In France, President Macron committed to making France Europe's top producer of clean vehicles. His goal is to increase the output of electric and hybrid cars to more than one million per year over the next five years.
To meet this goal an €8bn rescue plan for the country’s car industry was announced in late May which included a billion euros for individual grants (of up to €7,000) to encourage the purchase of green vehicles and bonuses of up to €3,000 for those individuals updating to a less polluting car.
China focuses on Cost Exemptions
In China, the green energy vehicle purchase subsidy policy has been extended to the end of 2022, and the preferential policy of new energy vehicle exemption from vehicle purchase tax has been extended to the end of 2022.
China, as we outlined in our article 'Learnings from restarting the auto industry in China', offers us a glimpse of where the rest of the world’s automotive industry could go next. After months of double digit decline, auto production and sales in April were recorded as 2.1 and 2 million units, respectively, up 46.6% and 43.5% month-on-month and up 2.3% and 4.4% year-on-year, according to the China Association of Automobile Manufacturers.(1)
Government-backed cost exemptions have come hand-in-hand with rising levels of customer demand. These exemptions, while not specifically targeted at the automotive sector in China, are helping bring down overheads. Measures include: any imported materials donated for the epidemic prevention and control shall be exempted from import duties, VAT and excise tax; cash and goods donated by enterprises and individuals for the epidemic prevention and control can be deducted in full amount before CIT/ IIT; and the maximum carryover period for the losses incurred will be extended from five to eight years in 2020.
Brazil introduces payment suspensions
The Brazilian government has introduced payment suspensions to help affected businesses. These include an approximately €3.4 billion transfer of funds from the PIS-PASEP Fund to the Workers Fund (FGTS) and the temporary suspension of instalments of payments of direct financing to companies, and the expansion of credit for micro, small and medium-sized companies to the amount €853 million – made available through partner banks.
Germany reduces VAT & supports Green Vehicle purchases
The German government has not implemented any tax support measures dedicated to the auto industry, but has reduced VAT from 19% to 16% for the rest of the year. Purchase grants - a direct reduction in the price of a new car paid for by the state – were previously floated as a possible incentive, but they have been rejected.
Instead, in early June, Germany announced it would promote green vehicle ownership over purchase grants: for vehicles priced up to €40,000, buyers will now receive a bonus of €6,000, compared to the previously available €3,000. The future is clearly green and initial discussions are underway about increasing and decreasing vehicle tax depending on the car’s environmental credentials, starting in 2021.The existing ten-year exemption fully electric cars enjoy from vehicle tax has also been extended until 2030.
Indian Auto Industry Seeks Government help
In India, the automotive industry is currently engaged in dialogue with the government on a policy to temporarily reduce standard goods and service tax rate by 10% across all vehicle categories and auto components, introducing an incentive-based vehicle scrapage scheme to generate demand and a reduction in basic custom duty by 5% for three months for auto components.
The way forward
As the auto industry continues to find ways to restart around the world, government intervention is playing a driving role in how manufacturers and brands recover. Timely measures that protect workers and boost commercial activities will be increasingly called for – if they are not already in place. At the same time, the industry and policymakers could find the opportunity to work together and build a green emphasis into how the sector gets back to business.
This article is part of a series focusing on restarting automotive industry around the world.
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The Restarting Automotive Industry