President Donald Trump brought his usual chaos to Detroit this week, promising to review former President Barack Obama’s decision to lock in a timetable for stricter fuel economy and emissions standards through 2025 and gut the Environmental Protection Agency that enforces them.
The President also toured a Detroit-area research and development centre — car company bosses in tow, genuflecting appropriately — and held a campaign-style rally in Ypsilanti, Mich. His promise: make Detroit “the car capital of the world again.”
President Donald Trump in Detroit, holding a roundtable discussion with industry and union leaders and various officials.
All in all, it was a very bad day for the auto industry, for auto workers, for automotive consumers, for taxpayers and for the planet. That’s how I see it and for good reasons that I will share.
Now to be fair, not everyone will agree with me. For some, Trump brought cheery news. But if you truly understand the auto industry, its long timelines and 20-year product lifecycles, and if you appreciate the industry’s need for a stable R&D investment climate, Trump’s visit has the look of something that could prove catastrophic. I’d argue we should start saving for the next taxpayer-funded bailout right now.
Let me explain by starting with a few facts.
Mark Fields, Ford Motor Co. president and CEO: slashing Obama’s plan could save up to 1 million auto industry and related jobs.
Trump is ordering the EPA to reopen a mid-term review of Corporate Average Fuel Economy (CAFÉ) standards that would require the industry to deliver a fleet average of at least 4.3 litres/100 km or 54.5 mpg by 2025 based on a complicated formula which asks car companies to improve fuel economy for cars by five per cent a year, and for light trucks by 3.5 per cent annually.
This is a big ask of the industry, no doubt, and will require R&D investments, creativity and hard work. Some car company bosses have argued – Ford CEO Mark Fields first among them – that it’s all too much for them. They, in fact, say slashing Obama’s plan could save up to 1 million auto industry and related jobs. They say Obama’s tough rules would make consumers less willing to buy the more fuel efficient vehicles. Advanced engineering will make them too expensive.
The facts suggest something else entirely. A new study commissioned by Consumers Union, publisher of Consumer Reports, found that the average price of new cars and light-duty trucks has remained relatively flat since 1997 – a period of ever-stricter regulations during which fuel economy has improved dramatically and emissions have plunged.
President Barack Obama with the Chevrolet Bolt EV. President Obama put his plan for the auto industry this way: it this way: “It is to help America’s automakers prepare for the future.” He challenged Detroit’s automakers to reinvent themselves and it worked.
And car companies have not suffered one bit. Sales have been booming this entire decade and the profits have been rolling in by the billions. For instance, last year, General Motors booked net income at $9.43 billion (US) and Ford’s full-year net income was $4.6 billion (US).
Consumers have done well, too. The study by Synapse Energy Economics of Cambridge, Mass., found that if “fuel economy had not improved from 2005 through 2015…households would have spent 25 per cent more on fuel in 2015 than they actually did.” Better fuel economy saved the average household $523 (US) in 2015, and the prices of entry-level vehicles have “remained approximately the same over the past 10 years.”
The only losers have been Trump and his fellow millionaires and billionaires. The study found serious price inflation among the most expensive vehicles – by 40 per cent for the top 30 priciest vehicles. Ah, but the average consumer has been a net winner thanks to the toughening of fuel efficiency rules.
President Obama gave Detroit’s auto industry tough love and was rewarded. Detroit’s carmakers are immensely profitable and a global force.
So it seems that Trump’s promise in Detroit is not good news for everyday consumers in particular, though already-profitable car companies stand to benefit in the short term from reduced R&S pending on fuel economy and emissions. For a couple of years, that will be good for car companies; a decade or less from now, disaster looms.
You see, the car business is a global game. Trump’s administration may be anxious to roll back vehicle standards, but the rest of the world is not. China, for example, is the world’s No. 1 market for full electric vehicles and the Chinese government is pushing ahead with even more stringent vehicle standards.
In Europe, the German government have just passed a resolution to ban the sale of internal combustion engines in the European Union by 2030. Only zero-emissions vehicles would be allowed on the market after that time, according to the resolution.
The German Bundesrat has no direct authority over the EU, and cannot demand changes to the EU’s transportation regulations. But Germany is the richest, most powerful country in the EU and has enormous influence over EU policy.
The all-new 2017 F-150 Raptor. Ford is meeting its fuel economy goals in part thanks to the aluminum F-Series.
The point is, while Trump is vowing to roll back an Obama plan marked by consistent, predictable and achievable targets, the world is moving ahead with tougher rules on a timeline that is consistent with the former president’s initiative. And it was an initiative borne of crisis and created with great foresight.
Go back to January of 2009. In the midst of a global financial meltdown, General Motors and the then-Chrysler Corp. clung to a government financial lifeline that would eventually turn into bankruptcy and a full-scale taxpayer-funded bailout.
The new Obama administration saw that decades of mismanagement, general incompetence and narrow thinking had left Detroit’s automakers hopelessly behind by every metric imaginable. Detroit’s products were poorly built, technologically deficient, generally unappealing and unattractive and inefficiently produced. Obama could see a necessary bailout coming, but he didn’t offer a free ride.
2017 Chrysler Pacifica Hybrid cutaway. Advanced technology in a production vehicle.
Instead, on Day 6 of his administration, he instructed the Department of Transportation to finalize new fuel-economy rules for the 2011 model year, and asked the EPA to review whether California and other states should be able to write their own greenhouse gas rules.
At the time, this all seemed counter-intuitive. Why was the new president further burdening an already struggling industry with new demands and hard regulations?
President Obama put it this way: “It is to help America’s automakers prepare for the future.” He challenged Detroit’s automakers to reinvent themselves and it worked. GM, the company that has since become Fiat Chrysler and Ford reinvented themselves and are now producing world-class vehicles capable of competing around the globe.
In 2009, Obama said his administration’s fuel economy and emissions rules would prove to be “the single most important step we’ve ever taken as a nation to reduce our dependence on foreign oil,” with the added benefit of saving U.S. consumers $1.7 trillion(US) at the pump by 2025, or $8,000 (US) per vehicle.
GM resorted to mind-boggling drivetrain complexity in order to maximize electric-only driving for the Chevy Volt.
By 2015, the U.S. Energy Information Administration reported that U.S. net imports of foreign oil were at the lowest level since 1970. New and sometimes controversial oil extraction techniques like fracking have played a large role, but so have dramatic fuel economy improvements – with the added benefit of seeing established U.S. automakers become modern and profitable.
Furthermore, it’s fair to argue that the automotive business environment has changed for the better, too. Without Obama’s initiatives and the accompanying rhetoric, it’s fair to argue that start-ups like Tesla the battery-car company would never have emerged to influence the entire auto industry.
And on the broader issue of the overall climate itself, Obama’s take on the auto industry has been extraordinarily beneficial. A study by the University of Michigan Transportation Research Institute found that the cumulative amount of fuel saved from 2007-2014 came to about 15.1 billion gallons or the equivalent of all the fuel used by U.S. vehicles for about a month.
This reduction has come with a cut in emissions. From 2007-to 2014, says the U of M, 297 billion pounds of carbon dioxide have NOT been pumped into the atmosphere thanks to CAFE.
GM’s electrification chief Pam Fletcher is charged up about plans to being battery cars, plug-ins and hybrids to showrooms at affordable prices.
Trump’s announcement this week is horrifying. |It points to plans that will undo the progress of the last eight years. Obama’s initiative forced Detroit’s automakers to reinvent themselves and the vehicles they build. It worked.
The genius of Obama’s plan was that it fostered numerous realistic innovations but did not push any one particular technology. Thus, Ford now sells a lighter aluminum F-Series pickup with an advanced turbocharged engine that is notably fuel efficient. GM has adopted stop-start engine technology and cylinder deactivation that saves fuel in its hot-selling pickups, and has just launched the first affordable, mass-production electric vehicle in the world, the Bolt.
Car companies have refined their designs to make them more aerodynamic, moved to lightweight materials in everything from seat design to chassis components. They now work closely with tire makers to reduce rolling friction and have adopted more efficient transmissions. And more. All the while booking fantastic profits on record sales to customers who are benefitting from savings at the pump while driving cars that are no more expensive now than a decade ago.
President Trump, it appears, wants to change all that – to take Detroit back to when it was great – to a way of business that lead to bankruptcies and bailouts in 2009.
Trump’s vision for Detroit means we should start saving for the next bailout right now.