Published on March 20th, 2017 | by Steve Hanley
CAFE Review May Destabilize US Auto Industry
Be careful what you wish for, you just might get it, the old expression goes. After dropping their drawers and bending way over in supplication to the new president and his designated EPA wrecker Scott Pruitt, US automakers cheered when the putative president announced last week in Michigan that he is ordering a CAFE review for the standards due to take effect in 2025 — the same standards the Obama administration did its best to set in stone just before leaving office.
Image via PenroseonPolitics Blogtoons
But there may be a problem. Business leaders want nothing more than predictability. Chaos costs money and chaos is what all the whining and puling by Detroit executives has gotten them. The Donald says the review will take a year. So what do the car companies do now? Plan for a revocation of the rules so they can crank up production of the Hummer II and the Ford Excursion? What about all the money they have already spent to cut the weight of their pickup trucks, develop 10 speed transmissions, and create downsized, turbocharged engines? Is the mighty iron block American V-8 about to make a comeback?
There are other questions. Where should they build? Will Trump jam the Border Adjustment Tax down their throats? He already wants to eliminate the Advanced Technology Vehicles Manufacturing loan program that all the companies welcomed. Most of them are still paying back loans arranged during the Obama administration, which pretty much proves conclusively what a bunch of two-faced, double-dealing, whiny losers the heads of America’s auto industry are.
Amory Lovins is the chief scientist at the Rocky Mountain Institute and a prolific author. He has written an excellent op-ed for Forbes in which he details in exquisite detail precisely why the US car companies have shot themselves in both feet with a double barrel shotgun by demanding a CAFE review redo.
Lovins’ first point is that regulators in other countries care not one whit what US regulators do. The European Union and China are pushing forward with tougher standards than anything the EPA has ever proposed. The US companies risk falling far behind their competitors abroad if they abandon their quest for higher average fuel economy. Lovins says foreign automakers will “happily take market share if we weaken ours.”
Second, he argues that the car companies have already invested billions to improve fuel economy and risk squandering that investment. Despite all the weeping and wailing about government regulations strangling the demand for American manufacturing jobs, the buying public still puts a premium on good gas mileage. You would be hard pressed to find a buyer who doesn’t at least glance at the fuel economy numbers listed on the window sticker of that shiny new Belchfire 5000 in the showroom.
How Many Dead Soldiers Does It Take To Justify Corporate Profits?
Lovins third point is his most powerful. His words say it better than anyone else could — how much loss of life and squandering of national treasure are we Americans prepared to accept to stay wedded to our beloved fossil fuels? He writes:
“Auto efficiency rollbacks would threaten our national security and prosperity. As Rocky Mountain Institute’s Pentagon-cosponsored Winning the Oil Endgame showed in 2004, America’s $2-billion-a-day oil purchases incurred hidden costs—paid not at the pump but through our taxes or incomes—totaling at least $4 billion a day or $1.5 trillion a year, in three roughly equal parts: oil price volatility, OPEC’s monopoly pricing (supported by U.S. oil dependence), and the readiness costs of U.S. forces earmarked for Persian Gulf interventions.
“That last half trillion dollar a year chunk was about ten times what America was then paying for oil from the Gulf; it rivaled total U.S. defense spending at the height of the Cold War. The cost in blood was even more important: our sons and daughters have twice gone to the Gulf in 0.56-mile-per-gallon tanks and 17-feet-per-gallon-equivalent aircraft carriers because we didn’t put them in 29-mpg autos.
“The Gulf War’s $7 billion net fiscal cost to the U.S. (after other countries’ $54 billion contributions) was equivalent to just one year of a $1/bbl price increase. Yet spending less than $7 billion to buy oil efficiency instead could have eliminated all Gulf oil imports and saved many lives — assuming, as seems plausible, that the United States wouldn’t have sent a half million troops to liberate Kuwait in 1991 if Kuwait just grew broccoli.
“Mideast oil is also fearfully vulnerable to physical or cyberattack (directly or via its brittle infrastructure) on key facilities and chokepoints. This makes the whole world economy hostage to hostile neighbors or small groups of skilled fanatics.
“A prudent America would not continue to hold itself and its allies at risk of supply interruptions and price shocks by prolonging its dwindling dependence on imported oil. That is exactly what a CAFE rollback would do, undercutting the Pentagon’s mission.
“To reduce and ultimately eliminate oil’s hidden costs, the biggest lever, now as then, is auto efficiency. The auto industry measures its value in the narrowest possible way—dollars saved at the pump. Those depend on oil price, a 158-year random variable, and are also woefully incomplete.
“A more weighty and durable measure of value is national security. The Pentagon is wisely preparing to need no oil, because it is finite, its supply and use harm public health, it is at the root of Mideast instability and the climatic threat multiplier, and it funds not just American oilfield workers but also the foreign enemies with which the Administration is most concerned.”
Gee, that sort of makes US automakers seem like a bunch of clueless clods interested in nothing other than their own selfish interests, doesn’t it?
Efficiency Gains Will Cost Less In The Future, Not More
Finally, Lovins argues that the progress toward making efficient automobiles to date makes future efficiency gains less expensive rather than more so. “In all, the industry’s remarkable engineering skills could make autos 4 to 8 times more efficient, far simpler, more desirable — and also appealing not because they’re efficient but because they’re better.”
Turn The Engineers Loose
He concludes with this bit of insight: “So if I were leading a US automaker, and my competitors — aiming to return to the illusory comfort of weak rules, slow competitors, and undiscriminating customers — told me they’ll throw their lawyers at today’s CAFE standards, I would reply: Good luck with that, but my strategy differs. I’ll throw my engineers at those standards, and my engineers will beat your lawyers.”
The US carmakers have bought themselves a period of chaos during which rational planning for the future will be impossible. That unpredictability can do nothing but damage their bottom line and reduce their competitiveness. But they have done the same thing many times before. Some people never learn from their past mistakes.