Spain automotive rescue package ‘very positive’ for chems, certain optimism returns

Author: Jonathan Lopez

2020/06/17

LONDON (ICIS)--Spain’s rescue package for the automotive industry surpassing €1.0bn was higher than expected and has “created a lot of confidence” that the downturn this year, set to hit chemicals hard, may not be as severe as initially expected, the CEO of the country’s chemicals trade group FEIQUE told ICIS.

- Plan still includes grants for combustion engine models 

- April chemicals output lower-than-expected fall fuels optimism

The Spanish cabinet unveiled this week a €1.05bn package in direct grants or loans for the purchase of vehicles.

As part of the package, €250m will be grants for consumers and businesses for the purchase of new vehicles, in amounts of €800-5,000 depending on the vehicle.

Another part of the package, at €300m, will be also grants to public bodies to renew their vehicle fleet.

The remaining €500m will come from credit lines at favourable interest rates from the country’s Instituto de Credito Oficial (ICO) for the purchase of industrial or commercial vehicles.

The €250m in grants for consumers and businesses is higher than FEIQUE was demanding in May, when its CEO Juan Labat told ICIS urgent grants of up to €100m were needed to save an industry which accounts for 10% of Spain’s GDP. Spain's automotive output is the second highest in the Europe with nearly 3m units produced in 2019.

The automobile industry is a key end market for chemicals, where it sells around 20% of its output, and it was one of the first industrial sectors to suffer the effects of Spain’s strict lockdown to control the pandemic, with plants operating at low rates and car dealerships closed during April and part of May.

Spanish chemicals sales surpassed €67bn in 2019, the fourth highest in Europe.

FEIQUE's reaction to the automobile rescue package was enthusiastic this week.

“The plan for automobile, which will be followed by measures to prop up infrastructure spending, has generated a lot of confidence among chemicals firms: Spain cannot risk losing the top position it has in automobile production, and this plan sends a very clear signal that is also the aim of the government,” said Labat.

“Two months ago we were in the darkest hour of the pandemic, we were wondering when the virus could be controlled and how the country would cope; things look very different now, and with the government taking the right measures the downturn could not be as bad as initially expected.”

KINDER RECESSION FOR CHEMICALS
Spain’s GDP will still take a major hit this year as the tourism sector – another key industry accounting for around 10% of GDP – is set to suffer greatly, but even Labat mentioned anecdotal evidence of hotels being fully booked for July and August in some coastal areas.

While the recovery could be threatened by a second wave of the pandemic, the lifting of the lockdown in Spain has not brought yet large outbreaks and where cases are being detected, they are being contained.

In February and March, coronavirus expanded without control around the country; testing is now commonplace, and tracing and isolation seems to be working.

Out of a national workforce of around 20m, approximately 3.5m workers remain in furlough schemes where the government pays most of workers’ wages, preventing them joining the unemployed.

Labat said the €250m in direct grants were key to keep automotive on its feet, and in turn the petrochemicals plants serving it, and celebrated that Spain “has decided to take the initiative, and not live off grants or loans from the EU” in coming years that would only aggravate public debt and do little to save a key industry such as automotive.

“There are still 16m people working in normal conditions: there is a market for new cars, and plans like this one generate the necessary confidence for them to purchase. In turn, that helps petrochemicals plants producing for the automobile industry, which are set to ramp up output in a matter of days,” said Labat.

German chemicals major BASF, with important operations in Spain, already conceded in April that automobile-focused petrochemicals production had suffered greatly due to the lockdown.

COMBUSTION ENGINES STILL IMPORTANT
The Spanish government’s plan has faced criticism, however, because it still includes grants for the purchasing of combustion engine vehicles, but Labat said with the current output of hybrids and electric vehicles at only 0.6% of the total, not having done so would have been a self-inflicted wound.

Moreover, he argued that with the vehicle fleet being one of the oldest in Europe at 12 years on average – as Spain also suffered a big hit following the financial crisis of 2008-2009, many consumers shied away from purchasing new vehicles – the combustion engine vehicles currently being produced pollute much less than those on the roads at the moment.

According to Labat, current combustion engine models emit on average 40% less carbon dioxide (CO2) and, most importantly, emit 80% less nitrogen oxide (NOx), the most polluting gases in vehicles.

“Spain had to do this. Germany, France, they have announced plans for the automobile industry. Had the government opted for not giving grants for combustion engine vehicles, that would have only helped other production countries by increasing their imports into Spain: car dealerships may do well with that, but the auto value chain would not,” said Labat.

“We have to make the transition to EVs [electric vehicles], but we have to do it intelligently. Not helping combustion engines models now, when the EV infrastructure is not yet there, would have been suicidal.”

APRIL: NOT AS BAD AS EXPECTED
Labat also said output in chemicals plants across Spain had fallen 8% in April, year on year, including the pharmaceutical industry; excluding pharma, output was 12% down.

However, he said falls of up to 15% were widely expected, so even April seemed to be better than initially thought, despite the whole country’s economy being practically idle as the pandemic was at its peak.

“In general, there is certain optimism in the country. The government is adopting the right measures to prop up strategic industries, and the wider EU is also adopting the right measures to soften the blow in those countries most hit by the pandemic,” concluded Labat.

Front page picture: Cars at Barcelona's port; archive image
Source: Andreu Dalmeu/EPA/Shutterstock

Focus article by Jonathan Lopez and Miguel Rodriguez-Fernandez

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