Will Rolling Back Fuel-Economy Standards Backfire on Carmakers?

The EPA’s move to backpedal on Obama-era regulations could hurt the marketability of the U.S. auto fleet.

AP Photo/Jae C. Hong
April 16, 2018, 8 p.m.

A roughly $80 billion bailout of the American auto industry—now in the rearview mirror for three and a half years—is still fresh in the minds of some lawmakers and industry analysts. And it’s not because of industry underperformance.

U.S. automakers are, in fact, creating jobs at the fastest clip in 15 years and scoring real profit.

But the Trump administration is laying the groundwork to potentially roll back regulations that require automakers to sell more fuel-efficient vehicles, and those close to the process, including some free-market conservatives, say such a move could jeopardize U.S. innovation and global marketability.

“At this point, the global auto market has regulations that impact about 80 percent of all vehicles sales, in terms of pushing the fleet towards lower [carbon-dioxide] emissions,” said Nic Lutsey, co-lead for U.S. activities at the International Council on Clean Transportation, a transportation-efficiency research nonprofit. “It would be a pretty big deal if the U.S. even in a small way started to relax these standards because numerically the standards are tougher in many of the other markets already.”

China, Japan, the European Union, India, and Saudi Arabia are all moving ahead with ambitious fuel-economy regimes, including some mandates for zero-emission, electric vehicles.

U.S. auto exports have remained steady over recent years, registering $55-60 billion in sales annually, according to the U.S. International Trade Commission. The Big Three—General Motors, Ford, and Fiat Chrysler—will, however, have to keep pace with global innovation in order to maintain that foothold in the global market.

Those companies have pledged to do so, even as they back a lobbying push to give the Obama-era regulations another look. But critics of a potential rollback say short-term profits, and a lack of vision about the future of fuel-efficiency market demand, contributed to the malaise in the industry that brought two behemoths to their knees and prompted a years-long bailout regime.

That reality could soon be afoot again without proper regulatory coercion, according to Carol Lee Rawn, director of transportation programs at Ceres, a sustainability non-profit that works closely with businesses and investors.

“If you look at the history of the progress on fuel economy, you’ll see that innovation closely tracks the regulation,” Rawn said, adding that skyrocketing fuel prices in the mid-2000s contributed to the bankruptcy of GM and Fiat Chrysler. “When prices spiked, they lost significant market share and were caught flat-footed because they hadn’t made those investments.”

The federal government propped up those manufacturers, as well as Ally Financial, for years from 2008. The auto arm of the Troubled Asset Relief Program shut down after the Treasury Department sold its final Ally shares in late 2014. Taxpayers were ultimately stranded with $9.3 billion of the roughly $80 billion bailout sum.

Onlookers agree that mismanagement didn’t rack the industry alone. The broad economic freefall swept the nation at the same time. But even Republicans on Capitol Hill, who often argue regulations hamper innovation, suggest more ambitious standards could have helped insulate the industry from gas price fluctuations and import penetration.

“I would submit that [the Big Three] were slow to come to the table in terms of innovation,” said Republican Rep. Dave Trott, who has manufacturing plants in his Michigan district. “Maybe the fuel standards and those pressures have caused them to reinvent themselves.”

Still, Trott says he supports the Trump administration’s revisitation of the standards, in part because the Obama administration signed off on the fuel economy thresholds for 2022-25 a year ahead of time—and just days before President Trump took office.

The Obama-era U.S. Corporate Average Fuel Economy standards, which were first put into place in the mid-1970s, would have required automakers to produce cars and light trucks that fetch 54.5 miles per gallon by 2025, more than double the current average.

Meanwhile, the Environmental Protection Agency and Transportation Department, along with auto companies and the Alliance of Automobile Manufacturers, say the Obama-era standards are out of touch with consumer demand. Gas prices are relatively low, averaging about $2.70 a gallon nationwide, and Americans are back to clearing lots of light-duty trucks.

Some of the figures are striking. Total car sales in the U.S. are down 13.1 percent in the first three months of 2018 compared to the same period last year, according to data from Wards Intelligence, an auto-industry-analysis firm, and compiled by the alliance. At the same time, crossover-utility vehicles are up 12.3 percent, SUVs 1.4 percent, and light trucks 6.8 percent, the data show.

“Our concern with estimated fuel-economy standards under review for 2022-25 is that they are out of alignment with what consumers are buying,” said Gloria Bergquist, a spokeswoman for the alliance. “And automakers are evaluated by the government for compliance purposes based on what consumers buy, not what we put in dealer showrooms.”

U.S. automakers are offering nearly 500 models of vehicles that fetch more than 30 miles per gallon—including 19 electric vehicles—which demonstrates that the technology is available, according to Bergquist.

The future of U.S. fuel economy is now unclear. EPA and Transportation officials will solicit comments from stakeholders and move forward with decisions in the coming weeks and months. The administration will surely be hit by legal and state challenges, not to mention fierce opposition from Democrats on Capitol Hill.

And in Washington, environmental groups, which tout billions of metric tons of emissions that the Obama standards could have slashed, are poised to fight a rollback tooth and nail.

“We view it as one of the last climate policies we have left on the books,” said Sara Jordan, legislative expert at the League of Conservation Voters. “And with the transportation sector now the top source of greenhouse-gas emissions in our economy, it really couldn’t be more important to maintain these standards. So, we’re all-hands-on-deck.”

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