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CAFE rollback will impact OEM strategy

The progress Obama achieved in terms of fuel efficiency by enforcing stricter CAFE standards, could be annihilated by Trump. His administration wants to step off the regulatory gas in a bid to convince OEMs to build more cars in the US and create jobs. Likely flipside of the coin: the industry losing its focus on low-to-zero emission vehicles.

Expressed in miles per US gallon (mpg), the Corporate Average Fuel Economy (CAFE) of a manufacturer’s fleet of current model year cars and light trucks is the production-weighted harmonic mean fuel economy. CAFE does not directly offer incentives for customers to choose fuel efficient vehicles. Instead, it tries to accomplish the goals indirectly by applying penalties, making it more expensive for OEMs to build inefficient vehicles.

According to the industry, the current CAFE standards put too much pressure on OEMs margins as they require them to build smaller, lighter and more technologically advanced vehicles – which are less profitable. OEMs therefore applaud a rollback of the situation.

The question remains whether less strict standards would automatically translate into cheaper but thirstier cars, and whether the savings at purchase will be greater than the extra fuel costs over the vehicle’s lifecycle.

Sustainability and employment
The CAFE standards would cost the auto industry an estimated $200 billion over 13 years, as they have to increase their mpg from 35.5 mpg today to 54.5 mpg by 2025. On the other hand, they would save consumers some $1.7 trillion in fuel over the life of the vehicles – not to mention millions of tonnes of carbon and toxic emissions. If Trump cuts the industry some slack by avoiding investments to comply with the standards, it is to create jobs in the US and prevent factories from moving to Mexico.

Interestingly, the BlueGreen Alliance, which represents unions and environmentalist organisations, stated that the U.S. has more than 1,200 facilities in 48 states that manufacture “key technologies that go into meeting fuel-efficiency standards” (source: USA Today). “Effective, long-term standards are critical to maintaining robust advanced technology investment, innovation, and job growth, as well as to continuing to position the domestic industry as a global leader”, the organisation’s report reads.

California state of mind
Experts fear that Trump’s leniency would take the pressure off OEMs to develop low-to-zero emission vehicles. There are however reasons to believe that carmakers cannot afford to do so. First of all, most of them build vehicles that are sold globally. As emission standards outside the US are unlikely to lessen, OEMs will continue to develop ever more fuel efficient and even emission-free vehicles. Apart from that, there is the competitive factor, obviously.

And then there is California – with its own emission regulations, which are stricter than those imposed by Environmental Protection Agency (EPA). As the huge Californian vehicle market cannot be ignored, carmakers are stimulated to develop highly fuel-efficient vehicles for the environmentally conscious inhabitants of the Golden State. However, Trump would not be Trump if he did not try and erode California’s regulatory sovereignty, as it undermines his strategy.      22/03/2017  |  Dieter Quartier

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