Automakers have some more breathing room to weigh in on federal fuel economy regulations.
Late last week at an event in Ypsilanti, President Donald Trump said his administration would reopen the midterm review period on Corporate Average Fuel Economy (CAFE) standards through April 2018. The review process gives more time for automakers to assess their progress in meeting the 2025 CAFE targets.
The move comes as a win for automakers, many of whom have argued that the basic assumptions lawmakers used to craft the fuel economy regulations have failed to materialize.
Depressed fuel prices have led consumers away from smaller and more fuel-efficient vehicles toward larger SUVs and trucks, which are more profitable platforms for automakers. Moreover, electric vehicles, once heralded as key platforms to help automakers reach fuel economy targets, have struggled to catch on among consumers.
“All of a sudden, the automakers are saying, ‘Wait a second,’” said Mike Wall, director of automotive analysis at IHS Markit in Grand Rapids. “The whole assumption set that the government had in terms of car versus truck mix is completely different. … Consumers aren’t buying full electric vehicles like folks had previously expected or hoped. All of that matters.
“That’s the challenge: We’re trying to hit these increasing targets with technology that may be there in some ways, yet with a consumer body that may not be ready, willing and able to buy.”
Many in the automotive industry believe President Trump will follow through on his campaign promises of deregulation by significantly altering or abandoning the upcoming CAFE standards. Currently, the regulations mandate that automakers reach a fleet-wide average fuel economy of 54.5 miles per gallon by 2025 to avoid penalties.
It remains unclear how rolling back CAFE regulations would affect the industry given that the pressure to meet the upcoming fuel economy standards has pushed significant technological developments in alternative fuels, lightweighting and other advancements for nearly a decade.
“Weakening the standards would harm auto parts suppliers, who employ two and a half times more Americans than auto companies, and who, relying on current standards, have invested heavily in fuel savings technologies,” Carol Lee Rawn, transportation director at nonprofit sustainability advocate Ceres in Boston, said in a statement.
For his part, Wall predicts the Trump administration will allow automakers more time past 2025 to meet the standards, rather than abandon them entirely.
“I wouldn’t expect us to revert back to carbureted engines and big block V-8s anytime soon,” Wall said. “That’s not in our expectation. What you might see is a shallower glide path rather than a steep ramp in some of the more costly technologies. I think this would afford a lot of these automakers and suppliers time to get into more hybrid activity.”
Wall notes automakers likely will continue to advance technology such as turbochargers, superchargers and the development of lightweight materials.
DIFFERING REGULATIONS
In addition to reopening the midterm CAFE review, automotive industry insiders also believe the Trump administration may issue an executive order removing the ability of the California Air Resources Board (CARB) to break from federal fuel emissions guidelines.
Currently, CARB is able to “decouple” from CAFE standards and maintain its own fuel economy regulations, Wall said. California requires its own emission standards be met for vehicles to be sold in the state. Other states — including Arizona, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington and the District of Columbia — have adopted California’s emission standards.
The Trump administration currently does not have plans to alter CARB’s ability to set its own emissions standards, according to an unnamed White House spokesperson quoted in a recent Automotive News report.
However, if CARB retains its autonomy, California — and the other states adopting its regulations — could force automakers to meet stricter fuel economy standards, regardless of any rollback in federal mandates.
Together, the states adopting California emissions regulations account for roughly 30 percent of U.S. light vehicle sales, meaning that automakers likely would need to comply with more strict fuel economy regulations for a large number of their vehicles. Moreover, Europe and Asia also are developing their own fuel economy targets, further complicating automakers’ global production footprints.
All told, meeting a variety of different fuel economy targets across the U.S. and global markets could add cost and complicate production for automakers, Wall said.
However, it remains anyone’s guess as to when the Trump administration could announce its intentions for additional CAFE rollbacks, according to one beltway insider.
“That level of predictability is not a part of this administration,” the source told MiBiz in an email.
