Predictability is a crucial concern for any manufacturer. It’s hard to make money when the regulatory ground beneath your feet is constantly shifting. US automakers have been facing uncertainty since you know who got elected president and installed first Scott Pruitt and then Andrew Wheeler as heads of the EPA. Both men have kowtowed shamelessly to fossil fuel interests and are committed to rolling back the fuel economy/carbon emissions standards for new cars and light trucks put in place by the Obama administration.
Building automobiles requires years of planning if the objective is to do it profitably. It can take up to 5 years to engineer the vehicles of the future. If the rules change, the R&D process has to begin all over again and tens of millions of dollars wasted.
Up to this point, the current administration has indicated a desire to jam its new policy down the throat of California and the other 13 states that follow is emission rules. Combined, those states represent 40% of the US new car market. It also wants to revoke the authority granted to California to set higher emissions targets than the federal standard. If that happens, there will be chaos as California and the other states sue to block the administration’s plans.
Uncertainty will be rampant upon the land, at least as far as the automakers are concerned, and so Ford, Honda, Volkswagen, and BMW have been conducting secret negotiations with the the California Air Resources Board to arrive at a modus vivendi that all parties can live with. The Washington Post reported on July 23 that the parties have indeed struck a deal.\
Mary D. Nichols, the chairperson of CARB, told the press she sees the agreement as a potential “olive branch” to the Trump administration and hopes it joins the deal. She says the understanding gives automakers the flexibility they need to meet emissions goals without the “massive backsliding” contained in the White House proposal.
“What we have here is a statement of principles intended to reach out to the federal government to move them off the track that they seem to be on and onto a more constructive track,” Nichols said, adding that the companies approached California officials last month about a potential compromise.
In a joint statement, the four automakers said their decision to hash out a deal with California was driven by a need for predictability, as well as desires to reduce compliance costs, keep vehicles affordable for customers, and be good stewards of the environment.
“These terms will provide our companies much-needed regulatory certainty by allowing us to meet both federal and state requirements with a single national fleet, avoiding a patchwork of regulations while continuing to ensure meaningful greenhouse gas emissions reductions,” the statement said. The four automakers have pledged to build more efficient vehicles regardless of what the administration does. The agreement calls for the companies to improve their average fuel efficiency by 3.7 percent a year rather than the 4.7 percent required by the Obama era rules.
Trumpies Reject Deal
Government officials gave the new agreement the cold shoulder. “The federal government, not a single state, should set this standard,” White House spokesman Judd Deere said in an email. Reactionaries are always in favor of state’s rights except when they aren’t because the result is inconvenient for them. EPA spokesperson Michael Abboud sniffed, “This voluntary framework is a PR stunt that does nothing to further the one national standard that will provide certainty and relief for American consumers.”
Officials from the National Highway Traffic Safety Administration, which is co-writing federal tailpipe standards, issued a statement saying the administration’s proposal does not prevent manufacturers from building more-efficient vehicles if they so choose. The four companies represent about a third of the US new car market. They have agreed to produce fleets averaging nearly 50 mpg by model year 2026.
That is one year later than the target set under the Obama administration, which said that requiring vehicles to be more fuel-efficient would improve public health, combat climate change, and save consumers money at the gas pump without compromising safety. Keep in mind that the average fuel economy calculation is not based on the current formula used to rate highway, city, and combined fuel economy for new cars. Instead, it is based on the old standard, the one that was discarded because it was wildly optimistic.
If these calculations were based on the new standard, the actual real world fuel economy the companies would have to achieve would be about 38 miles per gallon. The 50 mpg number is scary but it is a fiction that is the result of bureaucratic shenanigans.
Will Other Companies Join The Deal?
The share of the U.S. auto market affected by the new terms could grow significantly if other automakers join the deal according to the Washington Post. Last month, Canada pledged to align its gas mileage targets with California rather than the Trump administration.
“We look forward to reviewing the details of this agreement, as well as the federal rule later this year,” Fiat Chrysler Automobiles said in statement. General Motors spokesperson Jeannine Ginivan said her company was committed to finding a compromise “that includes the administration. California officials say two unnamed automakers contacted state regulators when the new agreement was announced and another asked for a copy of the agreement.”
Senator Thomas Carper of Delaware, who convened private meetings of between industry leaders, the administration, and California officials over the past year and a half, hailed the agreement. “We cannot begin to credibly address the climate crisis without taking meaningful steps to try to keep our country on a path that would reduce emissions from the transportation sector, which is our nation’s largest source of global-warming pollution,” he said in an email to the Post.
California governor Gavin Newsom says he believes other car companies will embrace the new deal. “There are few issues more pressing than climate change, a global threat that endangers our lives and livelihoods,” he said after the agreement was announced. “I now call on the rest of the auto industry to join us, and for the Trump administration to abandon its regressive proposal and do what is right for our economy, our people, and our planet.”
Brace yourself for a Twitter storm of vile comments by the alleged president, who takes every action that opposes him to be a personal insult, one which must be met with threats of dire punishment. The fight is certainly not over but the four car companies who negotiated this agreement are sending a clear signal that they need regulatory certainty more than they need political grandstanding. Expect to hear more on this topic over the coming days and weeks.