20
SEP
2017

Another Senseless Trump Administration Rollback

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You may be aware that several of the Detroit auto manufacturers have lobbied the Trump Administration to revisit the fuel economy standards that were put in place by the Obama Administration. While these regulations are a bit complicated due to there being a couple of different standards, generally the regs require substantial and continued fleet average increases in fuel economy for autos and light duty trucks to 54.5 MPG by 2025.  There is also a provision for reviewing this standard that was accomplished at the end of the Obama Administration that kept the regs in place.

The Trump Administration has bowed to pressure from a few manufacturers to reopen this issue.  As portrayed in the following article, it seems counter productive for consumers, industry and the stated goals of the Trump Administration’s desire to improve the economy and create jobs.  

I have NEVER understood the Detroit auto companies’ resistance to regulations.  They always cry wolf saying that they can not meet the goals and that it will limit consumer choice, raise prices and destroy sales.  That has NEVER happened.  In fact, last year saw the highest sales in history with fabulous performance and a wide variety of choices. So, “where’s the beef”?

As the article points out, there are those in the auto industry that oppose any changes or reductions.  In fact, it also points out that changing the national standards creates another problem that the industry despises: MULTIPLE regulations.  It is hard to produce vehicles to meet regs for California and other states that follow their standards and other vehicles for sale in different states.  What the car companies want is one set of national standards.  And furthermore, the other thing the industry desires is certainty.  Constantly changing standards is terribly disruptive and very challenging for which to plan.  

So, not everyone in the auto industry favors weakening the standards and therefore, there is considerable pushback against watering them down.  That said, there is still has a high likelihood of happening.  UGH.

 

 

“While auto manufacturers have welcomed the second-chance EPA review under the Trump administration, suppliers of emissions-control and fuel-efficiency technology are pushing back, fearing they could bear a significant financial burden if timetables or targets are loosened. These suppliers have committed to investments in r&d and production capacity based on the standards set out and initially affirmed by the Obama administration, and they want regulators to stand by them.”


“California’s alignment with federal authorities has been one of the hallmarks of the national agreement with automakers because it provides them a uniform set of standards for vehicles they can sell in all 50 states.”

“”Suppliers have made long-term investment decisions based on the 2017-2021 standards set in the previous rule-making,” testified Laurie Holmes, senior director of environmental policy at the Motor & Equipment Manufacturers Association. “In fact, automotive suppliers have seen an overall 23.3 percent increase in employment since 2012. This increase can partly be attributed to advanced technology development spurred by the 2012 rule-making.”

According to a May report by the BlueGreen Alliance, a coalition of labor and environmental groups, there are more than 1,200 facilities in 48 states and 288,000 workers making components and materials that go directly into improving vehicle fuel economy.”


Suppliers Warn EPA Against Regulatory Rollback

 Hefty Investments in R&D are Tied to Current Standards

While auto manufacturers have welcomed the second-chance EPA review under the Trump administration, suppliers of emissions-control and fuel-efficiency technology are pushing back, fearing they could bear a significant financial burden if timetables or targets are loosened. These suppliers have committed to investments in r&d and production capacity based on the standards set out and initially affirmed by the Obama administration, and they want regulators to stand by them.

The dispute isn’t just about the financial health of these suppliers, but also the underlying economic arguments of the national program that the government and auto manufacturers finalized in 2012.

“From a supplier’s standpoint, you are making that investment and expecting certain levels of demand, which allows you to price your product more favorably because the volumes are going to be greater,” said Alan Baum, founder of market research firm Baum & Associates. “If the standards change and demand drops, you will still be able to sell the product, but not at the same volume. So, the piece price is likely to rise. And that’s not good for the automaker or the consumer.”

This year, automakers successfully pushed the Trump administration to reopen the EPA’s midterm review of 2022-25 model year standards, arguing that politically motivated regulators rushed to lock in rules without properly considering whether 5-year-old assumptions about compliance costs and fuel prices still hold. Automakers and retailers have long argued that those costs, if passed on to consumers, would make fuel-efficient vehicles unaffordable and undercut the goals of the program.

Yet the automakers’ efforts could create the same effect, suppliers and analysts say, because delaying implementation of corporate average fuel economy and greenhouse-gas rules would lead to higher prices for fuel-sipping technology as suppliers seek to recoup their early investments.

The EPA and automakers face pressure from other corners as well. California regulators last week threatened to withdraw from the national accord if the EPA backpedals on the greenhouse-gas standards. California’s alignment with federal authorities has been one of the hallmarks of the national agreement with automakers because it provides them a uniform set of standards for vehicles they can sell in all 50 states.

Without that alignment, California could set its own stricter rules, and other states could adopt them. This means automakers could pay a steep price for any relief they receive from the EPA.

The tensions with suppliers came into sharp relief at an EPA hearing last week to gather public input on potential rules changes. The suppliers invoked arguments that appeared designed to resonate with the Trump EPA, which, under Administrator Scott Pruitt, has signaled a resistance to regulatory moves that threaten U.S. jobs and the competitiveness of U.S. businesses.

Trade associations for parts makers told EPA officials that they needed regulatory stability to maintain r&d and capital spending, and they noted that thousands of jobs are tied to the fuel-efficiency program.

“Suppliers have made long-term investment decisions based on the 2017-2021 standards set in the previous rule-making,” testified Laurie Holmes, senior director of environmental policy at the Motor & Equipment Manufacturers Association. “In fact, automotive suppliers have seen an overall 23.3 percent increase in employment since 2012. This increase can partly be attributed to advanced technology development spurred by the 2012 rule-making.”

According to a May report by the BlueGreen Alliance, a coalition of labor and environmental groups, there are more than 1,200 facilities in 48 states and 288,000 workers making components and materials that go directly into improving vehicle fuel economy.

Rasto Brezny, executive director of the Manufacturers of Emission Controls Association, told the EPA panel that tough U.S. standards have provided domestic suppliers and automakers with a competitive advantage over foreign counterparts “through the early adoption and optimization of technologies on vehicles” and estimated that the North American emissions-control market will grow to about $23 billion by 2020.

Under a rollback, “It’s the suppliers that are going to suffer the most because 80 percent of the fuel-saving technology is provided by the suppliers,” Carol Lee Rawn,​ transportation program director at the sustainability nonprofit organization Ceres, said in an interview.

2016 Ceres analysis co-authored by Baum predicts that from 2014 to 2025, automakers in the U.S. will have spent $111 billion on fuel-saving technology, about $89 billion of which will have been paid to suppliers.

Automakers, Baum suggested, could shoot themselves in the foot by undercutting suppliers’ production plans based on existing CAFE standards because they have already committed themselves to specific technologies and suppliers.

“Suppliers who provide increased fuel economy are more important to automakers than those involved with other parts of the vehicle,” he said. “Manufacturers want to integrate the content rather than develop it directly. There are a variety of technical approaches to fuel economy. If a manufacturer wants to focus on a certain technology like turbochargers or variable valve actuators, it goes to a supplier that specializes in that.”

With few competitors in these specialized fields, automakers have less flexibility to shop for lower prices, Baum explained.

Meanwhile, suppliers at risk of losing business because of stricter regulations, such as makers of exhaust systems, may be more keen on stretching out the process, he added.

And some suppliers don’t expect to change their strategic investment plans even if the Trump administration rolls back the 2025 targets.

Tenneco’s chief technology officer, Ben Patel, told Automotive News last spring that the company, which makes catalytic converters and other components, will continue to spend on innovation to keep up with global competition and a proliferation of stringent emissions requirements around the world.

You can reach Eric Kulisch at ekulisch@crain.com
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