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Local auto suppliers could face uncertainty with proposal to ease fuel standards

A federal proposal to ease fuel efficiency standards could be a benefit to automakers, but it’s unlikely to impact their strategies in the short term and could cause uncertainty for local suppliers.

The Trump administration earlier this month released a proposal that would freeze fuel economy standards for cars and light trucks at 2020 levels for at least five years. It would roll back tougher standards set up during the Obama administration and potentially set the stage for a lengthy legal fight with California, which has the legal ability to set its own tailpipe emissions requirements.

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The current standards would require automakers to raise the average fuel economy of cars and light-duty trucks in the U.S. to a projected 50.8 miles per gallon by 2025.

But several auto industry experts told the News-Sun they expect most automakers and their suppliers to push forward with investments to improve fuel efficiency despite the proposed rollback. In part, that’s because auto manufacturers want to ensure their products meet higher standards set in other countries, including emerging markets like China.

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“For now, automakers and suppliers will carry on their march toward improving fuel efficiency, especially to compete in China, the largest auto market in the world by a long shot and the largest (electric vehicle) market with more promised,” said Michelle Krebbs, an analyst for Autotrader. “Global automakers and suppliers must play in China if they expect any growth in the future.”

The administration has argued the change will provide more than $252 billion in regulatory costs to manufacturers through 2029, save up to 1,000 lives annually and make vehicles more affordable for consumers.

Much of the benefit of the proposed change will come from the expected reduction in the cost of new vehicles the administration expects to occur, said Kenny Stein, director of policy for the Institute for Energy Research, a conservative think tank.

He argued the current fuel standards rules make it more expensive for consumers to buy a new car. Lowering the current standards will save money for manufacturers and make newer cars more affordable for consumers, he argued. That hope is that will translate into more new cars on the road with better safety features.

Stein said customers should be able to choose to pay more for more fuel efficient models if they choose, but should also have the option of picking a more inexpensive, less efficient vehicle.

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But environmental and consumer advocacy groups including Public Citizen, a nonprofit based in Washington, D.C., have argued weakening the requirements will only mean more polluted air and higher gas prices for consumers.

“Americans understand and demand the twin benefits of lower gasoline bills and reduced carbon pollution,” said Robert Weissman, president of Public Citizen in a news release. “The only good news is that the administration’s course will fail – in the courts, in the political realm and the marketplace.”

Impact on Honda

The proposed change will face a 60-day public comment period before any action can be taken. Locally, officials at Honda said the company supports some revisions to provide more flexibility, but does not think the current standards should be fully rolled back.

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The company is one of the region’s largest employers. About 1,400 workers from Clark and Champaign counties work for the automaker, and it employs more than 15,000 Ohioans overall. Several area companies, including KTH Parts Industries in St. Paris and Parker Trutec in Springfield and Urbana supply parts for Honda.

“Honda strongly supports an aligned framework of federal and California standards governing fuel economy and vehicle greenhouse gas emissions, known as “One National Program,” said Chris Abbruzzese, a spokesman for the company. “We believe it is important that any revisions to the program yield steady annual increases in stringency, while providing policy support for the development of next-generation technologies. Notwithstanding regulatory requirements, Honda has a history of – and remains committed to – developing products that reduce greenhouse gas emissions and advance fuel efficiency.”

One National Program was developed under the Obama administration as an agreement between the federal government, states and the auto industry. The idea, Krebs said, was to move closer to California’s tougher standards to provide a mostly single standard for the auto industry.

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The Trump administration is trying for a single standard but a lower federal one while also attempting to remove California’s exemption, Krebs said. That will likely set the stage for a lengthy legal fight with the state that could last for years.

In the meantime, Honda and most other automakers will likely continue to invest and develop products under the current rules

“Frankly, the plan to freeze fuel efficiency standards likely will have no significant impact on the auto industry immediately,” Krebbs said. “Automakers will continue toward ever-increasing fuel efficiency because that is what consumers expect and many governments require.”

Uncertainty for suppliers?

It’s also too early to say how, or if the proposed changes will affect manufacturers that supply parts to the auto industry, said Devin Lindsay, an auto industry analyst with IHS Markit. The latest available information from the U.S. Bureau of Labor Statistics shows companies that manufacture parts for the industry employed more than 75,000 workers at the beginning of this year.

In Clark and Champaign counties, companies like Topre and KTH Parts Industries Inc. specialize in manufacturing lightweight, high-strength steel parts as Honda and other auto manufacturers increasingly focus on improving the fuel efficiency of their vehicles without sacrificing durability. Officials from those companies did not return a call seeking comment for this story.

Several other companies in the region also manufacture a wide range of parts for the auto industry. One of the biggest challenges is the fight over fuel standards could cause uncertainty both for automakers makers and their suppliers, Lindsay said.

Automakers often make plans five to seven years in advance, and often longer. Frequent changes in national policy can make it a nightmare to plan both for automakers and their suppliers, Lindsay said. That’s one reason he said most auto companies are likely to push ahead with their plans under the current standards.

“Really, manufacturers are probably going to end up staying the course,” Lindsay said.

Customers in the U.S. are increasingly opting for light trucks and sport utility vehicles. But manufacturers will likely continue to make investments to develop more efficient electric, hybrid and fuel cells vehicles, he said. If the fuel efficiency targets are flattened, one possibility is it may lead some suppliers to adjust and refine some of their current products and dial back some spending on new technologies.

Even if the U.S. backs off from the previous rule, automakers are more frequently taking into account higher standards in other countries when deciding how to invest in their products.

“The U.S. is no longer an island the way it used to be,” Lindsay said.

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