Ceres: national fuel economy and emissions standards can increase viability of domestic automakers and suppliers

Ceres: national fuel economy and emissions standards can increase viability of domestic automakers and suppliers

10 August 2017

New analysis commissioned by Ceres, a sustainability nonprofit organization working with investors and companies, suggests that national fuel economy and emissions standards can help increase the viability and international competitiveness of domestic automakers and suppliers.

The analysis prepared by Alan Baum, founder and principal of Baum and Associates, proposes that legacy automakers are experiencing low stock valuations and cutting jobs and expenses largely due to two factors:

  • Overall demand for passenger cars and trucks is declining modestly. The pent-up demand from the 2007-2009 Great Recession, and record 2015 and 2016 sales, has been largely satisfied. Even so, current auto sales and profits remain strong.

  • Innovation and market disruption. New technology innovations and business models, namely from Tesla and Uber, as well as deep-pocketed competitors such as Google and Apple, are entering the automotive and emerging mobility markets. Given the importance of operating costs and the synergy between autonomous vehicles and electrification, fuel efficiency and electrification are key to succeeding in this fast-evolving marketplace.

The analysis, “What’s Driving the U.S Auto Industry’s Financial Performance,” says that fuel economy standards can provide automakers and suppliers the regulatory certainty necessary to stimulate investment in advanced technologies, such as electric vehicles and fuel efficient vehicles, that are necessary for automakers’ long-term financial health.

In 1985, more than two-thirds of Detroit Three unit sales were in North America. By 2025, the analysis projects that only one-third will be sold in North America, while two-thirds of sales will be overseas. And in those markets, governments require—and consumers demand—more fuel-efficient vehicles. For example, China, the largest car market, recently announced a goal of 40% of sales in 2030 will be “New Energy” vehicles.

Given the major trends affecting the industry going forward, weakening the current fuel economy standards would in fact be detrimental to the future competitiveness of U.S. automakers and their suppliers.

—Alan Baum

Several dozen global Tier One suppliers (encompassing hundreds of facilities across the country) are reacting to automakers’ decisions to increase fuel economy by pouring resources into R&D, adding production capacity, and issuing purchase orders to hundreds of their suppliers. The analysis points out that increased demand for suppliers will lead to higher volumes and cost savings that will improve the financial performance of both automakers and their suppliers.

Over the 12-year period between 2014 and 2025, with the 2025 fuel economy and emissions standards in place, automakers (not just the Detroit Three) will spend well over $110 billion in fuel-saving technology, about $90 billion of which will be provided by suppliers.

Fuel economy standards drive innovation in the advanced technologies that will enable the domestic industry to thrive in this era of disruption. The standards also act as an insurance policy, providing an incentive for the auto industry to produce a more advanced fleet. A more efficient fleet reduces the risk of lost market share and profits in the event that fuel prices spike.

—Carol Lee Rawn, transportation program director at Ceres

Nobody likes being told what to do. But fuel economy standards establish a level playing field and encourage the kind of innovation necessary to survive in a changing world. If the auto industry wants to stay on the leading edge, the standards should be left alone.

—Alan Baum

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