2017/03/27

Why Automakers Don't Need Trump To Ease Fuel Economy Regulations

US President Donald Trump greets Ford President and CEO Mark Fields prior to a meeting with auto industry leaders at the White House in January. (SAUL LOEB/AFP/Getty Images)

Claiming more than one million jobs could be at risk, automakers led by Ford Motor Chief Executive Mark Fields have convinced the new Trump Administration that strict fuel economy targets for 2025 need to be reconsidered. "The assault on the American auto industry  - believe me - is over," Trump vowed after meeting with auto executives March 15 in Michigan, signaling a willingness to relax regulations that were set by the Obama Administration just days before Trump took office.

It's great that Trump wants to help the auto industry -- especially after he spent months lambasting Ford and General Motors for building too many cars in Mexico, and suggested the way to solve their problems was to move jobs out of Michigan to lower-wage states.


The latest proof is contained in a new report from the International Council on Clean Transportation, an independent nonprofit organization that aims to provide unbiased technical research to environmental regulators. It's comprised of a bunch of engineers, not lobbyists, with long resumes in the automotive, energy and regulatory industries. These geeks delight in nothing more than digging into technology research papers and attending conferences like the Society of Automotive Engineers to learn about the latest technological breakthroughs and then predicting how those advances will affect efficiency and emissions. These are the guys, after all, who helped uncover Volkswagen's deception on diesel emissions tests. That's why their detailed analysis carries more weight than most arguments I've heard from both sides of the issue.

In a report published Wednesday, ICCT found that technology is improving so quickly that automakers and regulators have overestimated by as much as 40 percent the cost of complying with the EPA's objective of a fleetwide average 51.4 miles per gallon by 2025.
Their research shows that things like cylinder deactivation, high compression Atkinson cycle engines, lightweight materials, and mild hybridization are improving so much that automakers can comply with the 2025 standards largely with internal combustion engines and without having to produce more electric vehicles that consumers don't seem to want right now.

And the costs for these advanced engine technologies -- and even for electric vehicle batteries -- are falling so fast that ICCT believes the cost to comply with the new 2025 standards will be 34%–40% lower than the EPA projected as recently as January, when it finalized the regulations. Obama's EPA, for instance, pegged the added cost to comply with sharply higher 2021-2015 regulations at $875 per vehicle, far below automakers' own estimates. But ICCT said the incremental cost is only $551, citing technology advancements on the horizon.

"At this stage, what we’re finding is that there’s a lot of new technology coming and it’s lower cost than originally thought," said Nic Lutsey, one of the authors of the ICCT report. Costs for lightweighting, direct injection, and cooled exhaust gas recirculation, for instance, will be reduced by hundreds of dollars, and electric vehicle costs will drop by thousands of dollars per vehicle by 2025, the report says.

To be sure, ICCT's findings aren't definitive. The research doesn't take into account, for instance, the costs of overhauling manufacturing processes to incorporate new lightweight materials. That's not free.

But the findings, along with other research from consumer groups, tends to make the automakers' bargaining position look pretty weak. The industry seems to be leaning on a study by the Center for Automotive Research, a non-profit research organization in Ann Arbor, Mich., whose research is often funded by industry trade groups. Its analysis of fuel economy regulations, it's worth noting, was funded internally to maintain objectivity, CAR says. Its methodology, however, has been sharply criticized by ICCT and other groups like Consumers Union, the advocacy arm of Consumer Reports. CAR counters that its study was designed to show a range of scenarios. Automakers, however, seem to have latched on to the most draconian ones. That's where Fields got the one-million-jobs-at-risk figure that he shared with Trump, for example.

Ford's Chief Financial Officer Robert Shanks, meeting with investors in New York Thursday, insisted that Ford is not looking for a rollback of fuel economy targets, nor is it asking the federal government to yank a waiver that gives California the right to set even tougher standards.  "We do hope there will be one national standard," Shanks said. "We just want to have a conversation about how to get there. We think there is a very different set of assumptions today than back in 2011," when the new rules were set in motion.

But Consumers Union argues that there's already a great deal of flexibility built into the new regulations. Whereas in the past, automakers had to produce small, fuel-efficient cars to offset the sale of larger, thirstier trucks, today's standards are based on the "footprint" of their overall fleet and vary by automaker, depending on the types of vehicles they sell. There is no incentive to sell smaller vehicles, and no penalty for carmakers that sell larger vehicles, noted Shannon Baker-Branstetter, policy counsel on energy and the environment for Consumers Union. "If Ford sold only F-150s, their mpg target would be close to the high 20s," she said.

As consumer tastes have shifted in recent years toward SUVs, crossovers and pickup trucks, in fact, the EPA's fleetwide fuel economy target has dropped from 54.5 miles per gallon (as originally conceived in 2012) to a current 51.4 miles per gallon.

Consumers Union also found that car prices have remained flat, adjusted for inflation, even as fuel economy has improved 25 percent. "The evidence doesn't support the argument," Baker-Branstetter said. "It’s a tribute to innovation in the industry that they are able to roll out these technologies at an affordable price."

There's another issue that I've raised before: other countries are rapidly increasing their own emissions and fuel economy standards. If the U.S. takes its foot off the gas, the industry risks getting lapped on innovation by other global automakers. And it's hard to envision American carmakers exporting more vehicles to other countries, as Trump advocates, if they can't keep up with those markets' escalating standards.

Besides, automakers still have to develop cleaner cars to keep up with the stricter standards in California and 14 other states that have followed its lead.
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