Profit-Rich Pickups, SUVs May Catch Break in Trump Auto Review

Source: By Ryan Beene, Bloomberg • Posted: Wednesday, August 16, 2017

A move under consideration by the Trump administration could ease tough fuel-efficiency standards set to take effect in 2021 on pickups, SUVs and other light trucks, the bulwark of U.S. auto industry sales and profits.

For the 2021 model year, light trucks must average roughly 33 miles per gallon to comply with the current standards, a gain of more than 6 percent from model year 2020, according to estimates from the National Highway Traffic Safety Administration. That’s triple the pace of any annual gain for trucks starting in model year 2017, the first year of the current standards, which were finalized in 2012.

President Donald Trump hasn’t proposed any changes to the standards yet. But in recent weeks, both NHTSA and the U.S. Environmental Protection Agency signaled a new willingness to alter the rules earlier than originally planned. The EPA formally asked for public comment on whether its 2021 standards are appropriate and NHTSA said it may review the year in an upcoming rulemaking.

“The domestic Big Three are the big winners, and Fiat Chrysler is arguably the most advantaged” if Trump freezes the standards, said Gopal Duleep, president of H-D Systems, a Washington, D.C.-based research company.

General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV derive more than three-quarters of their U.S. sales from light trucks. Even Toyota Motor Corp., which has car and truck sales more closely balanced, would catch a break. For the 2016 model year, Toyota forecasts that its light truck fleet may fall nearly 9 percent below the government’s fuel economy target, according to figures released by the National Highway Traffic Safety Administration.

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Any short-term regulatory relief could handcuff automakers if it allows them to fall behind in a global race to cut emissions with electric motors that either supplement or replace gasoline engines, said Duleep. But in the short run, automakers are likely to welcome any easing of the regulations, he said.

Automakers have been preparing for the rules since they were announced in 2011, and analysts say they’re unlikely to make significant changes even if Trump moved to weaken the rules. Instead, carmakers would see a huge increase in efficiency credits they could use to help them meet stiffer targets in later years, said Dave Cooke, senior vehicles analyst with the Union of Concerned Scientists, an environmental group.

“If their plans are in place and they receive additional credits, it just makes the later years’ standards that much easier to meet,” Cooke said.

Fiat Chrysler Chief Executive Officer Sergio Marchionne may be bringing out new Ram Pickup and Jeep SUV models, but he’s not ignoring electrification. He told investors in July that after 2022, half of his Maserati models will be battery powered.

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According to the agreement the Obama administration reached with automakers and announced in 2011, much of the efficiency increase — particularly for trucks — was to come after 2020 to give automakers time to comply. The delay was seen as a crucial factor in the decision by most automakers to endorse the plan. Ford’s F-Series pickup trucks alone account for the majority of the company’s North American profits.

NHTSA also has said it will study freezing the standards after model year 2020 as a baseline scenario in an environmental review of pending fuel economy requirements for 2022-2025. The deliberations come as part of a so-called mid-term review included in the Obama administration’s plan to boost fuel economy to a fleet average of more than 50 miles per gallon by 2025.

A freeze or cut after 2020 would make good on Trump’s pledge to the chief executives of Detroit’s automakers to slash environmental regulations that he made during his first days in office. It would come as GM is cutting shifts at its passenger-car assembly plants to avoid excessive inventories, Ford is reviving dormant truck nameplates like the Bronco and the Ranger and as Fiat Chrysler has already killed its slow-selling Chrysler 200 sedan.

But for now, automakers say they’re simply welcoming Trump’s reopening of the review after Obama sought to end parts of it during his last days in office, and are not backing a specific set of revisions.

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“Global Automakers has only asked that the mid-term review be conducted in a transparent and deliberate process, based on the facts,” said Lauren Boland, communications manager for the trade group, which includes Toyota and Honda Motor Co.

The trade group has not asked to put the already-final 2021 rules under review. Nor has the Alliance of Automobile Manufacturers, which represents GM, Ford, Fiat Chrysler and others, according to spokeswoman Gloria Bergquist.

“Let the facts come in and let the evidence dictate a decision next spring that optimizes our nation’s environmental and economic objectives, consistent with affordability,” she said in an email.

The EPA plans to determine whether the tailpipe standards for 2021 need to change by next April. That ruling could carry another risk for automakers: driving a wedge between California and Washington regulators, who’ve been coordinating their rules since 2011 to allow the companies to sell the same vehicles in all 50 states.

The state of California has already said it has no plans to change its 2025 emissions targets, which are followed by several other states that combined account for around 30 percent of U.S. auto sales.

“It was very difficult to get a national standard in the first place,” said Stephanie Brinley, senior automotive analyst at IHS Markit. “It’s best for the country to have a common standard.”