Executive Briefings

Automotive Industry Has Mixed Feelings About Trump's Approach to Fuel Standards

One might think that the auto industry favors weaker greenhouse gas emissions and fuel efficiency standards, or at least the penalties set forth for non-compliance. But what it really favors are standards that are economically achievable and a definite set of rules for it to follow.

Auto manufacturers, of course, are dependent on their suppliers, which take orders and which depend on the big car makers to follow through. According to a piece in Crain's Auto News, the suppliers make investments in research and development and then do the same for production. Their financial health is thus dependent on regulatory certainty.

“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, in Crain’s Auto News. “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.”

Fuel efficiency standards are established, of course, to make driving a car cleaner. When it comes greenhouse gas emissions, the transportation sector produces 27 percent of them while the power sector release 29 percent. That is according to the U.S. Environmental Protection Agency, which also said that industry releases 21 percent, commercial and residential buildings produce 12 percent and agriculture creates 9 percent.

To that end, car makers can produce whatever types of vehicles the buying public demands. Fuel efficiency standards are now at 34 miles per gallon for all new cars and trucks. This increases to 54.5 miles per gallon by 2025. And if auto manufacturers can’t hit that, they will pay a penalty of $14 for each tenth of mile they fall short — a price that rose to $8.50 in December 2016. (This civil penalty is something that Trump administration wants to delay, which has started a rash of lawsuits from five attorneys general, including California and New York.)

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Auto manufacturers, of course, are dependent on their suppliers, which take orders and which depend on the big car makers to follow through. According to a piece in Crain's Auto News, the suppliers make investments in research and development and then do the same for production. Their financial health is thus dependent on regulatory certainty.

“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, in Crain’s Auto News. “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.”

Fuel efficiency standards are established, of course, to make driving a car cleaner. When it comes greenhouse gas emissions, the transportation sector produces 27 percent of them while the power sector release 29 percent. That is according to the U.S. Environmental Protection Agency, which also said that industry releases 21 percent, commercial and residential buildings produce 12 percent and agriculture creates 9 percent.

To that end, car makers can produce whatever types of vehicles the buying public demands. Fuel efficiency standards are now at 34 miles per gallon for all new cars and trucks. This increases to 54.5 miles per gallon by 2025. And if auto manufacturers can’t hit that, they will pay a penalty of $14 for each tenth of mile they fall short — a price that rose to $8.50 in December 2016. (This civil penalty is something that Trump administration wants to delay, which has started a rash of lawsuits from five attorneys general, including California and New York.)

Read Full Article