6 Aug 18

Six reasons why Trump’s mpg freeze is bad for America’s car industry

Trump’s proposal to relax fuel efficiency standards goes much further than what the U.S. auto industry asked for in 2017. And, say experts, it has the potential to deal a devastating blow to America’s consumers and carmakers – not to mention the environment. Here are six potential blowbacks.

Under the Obama-era ‘2025 Program’, inaugurated in 2012 and still in effect, fuel efficiency standards will have to double to 54.5 miles per gallon (mpg) and greenhouse gas emissions must halve by Model Year 2025. 

Trump proposes to freeze mpg standards by Model Year 2020 at 35 mpg, and to prevent California (and about a dozen other states) from pursuing separate, stricter greenhouse gas standards. One of the reasons provided was a rather unorthodox safety argument: Lower mpg standards reduces the required cost of fuel-saving tech, allowing consumers to upgrade to safer vehicles instead – which would cut highway fatalities by up to 1,000 a year. 

While carmakers welcomed the relaxation of fuel efficiency standards per se, the industry also exhibited some unease with some potentially negative outcomes of Trump’s proposal:  

  • Competitiveness

With less pressure on mpg efficiency, U.S. carmakers will fall behind their global competitors, who will make greater advances in both developing cleaner, more economic combustion engines; and electric and other alternative powertrains. Why would consumers in other markets want an American car built on ‘old’ technology, one that is both more expensive and more polluting to drive?

  • Jobs

Since 2008, the U.S. car industry has invested $76 billion in technology to reduce fuel consumption. The Clean Car Standards are predicted to create more than 100,000 jobs in the U.S. by 2025, and more than 250,000 by 2035. That estimate will have to be revised downward considerably if Trump’s proposal is approved. 

  • The economy

The combined effect of freezing mpg standards and revoking California’s right to set its own, stricter standards will lead to an accumulated cost to the U.S. economy of $457 billion by 2050, a recent study by Energy Innovation says.

  • Consumers

Under the Obama programme, overall fuel cost savings by 2025 would total $1.7 trillion, which works out to more than $8,000 over the lifetime of a vehicle. A Model Year 2025 vehicle would consume less equivalent to lowering the fuel price by $1/gallon. Trump’s plan virtually wipes out those savings. 

  • The environment

Obama’s plan would have saved a total of 12 billion barrels of oil and reduced oil consumption by more than 2 million barrels a day by 2025. Relaxing emissions standards will lead to an increase in greenhouse gas emissions by the U.S. transport sector of 11% by 2035, to a total of 1,432 million metric tons.

  • Litigation

U.S. automakers asked Trump to relax federal mpg standards, but not to abolish California’s right to set its own. A coalition of 18 states led by California has already sued the Trump administration for its plan to roll back vehicle emissions standards. California has already filed 10 lawsuits against the Trump-era EPA (Environmental Protection Agency) – and won all of them. Litigation of this sort could create a lengthy period of uncertainty on mpg standards, which could turn out to be very expensive for the industry. 

The U.S. automotive industry would do well to treat the new Trump norm as a floor, and work with states to validate the money already invested in clean-vehicle tech, even if demand remains thin at the moment. About 20% of Generation Z is interested in eco-friendly vehicles, but that potential demand may increase dramatically in the near future. 

“The best way to create jobs, remain globally competitive, tackle climate change, and avoid litigation is for car companies to now work with California to agree on a set of 2025 standards that, in turn, becomes the de-facto national program”, writes Margo Oge, former director of EPA’s Office of Transportation and Air Quality, in Forbes Magazine.

GM and Honda have already stated that they remain committed to earlier plans for more eco-friendly models. 

Authored by: Frank Jacobs