Submitted by: Ceres
Posted: Aug 11, 2017 – 12:59 PM EST
WASHINGTON, Aug. 11 /CSRwire/ - As disruption from new technologies, mobility models and global trends threaten financial prospects for legacy automakers, national fuel economy and emissions standards can help increase the viability and international competitiveness of domestic automakers and suppliers, according to a new analysis prepared by an independent automotive industry analyst and commissioned by the sustainability nonprofit organization Ceres.
“Our analysis suggests that investors remain skeptical of automakers as sales decline from peak levels, as well as their ability to adapt to new options in personal mobility,” said Alan Baum, author of the analysis and founder and principal of Baum and Associates. “Innovation, especially in fuel efficiency and electric vehicles, will be key to thriving in this new world.”
The analysis, What’s Driving the U.S Auto Industry’s Financial Performance, finds that legacy automakers are experiencing low stock valuations and cutting jobs and expenses largely due to two factors:
Overall demand for passenger cars and trucks is declining modestly. That’s because the pent-up demand from the 2007-2009 Great Recession, and record 2015 and 2016 sales, has been largely satisfied. Even so, current auto sales and profits remain strong.
More importantly for the future, innovation and market disruption: New technology innovations and business models, namely from Tesla and Uber, as well as deep-pocketed competitors such as Google and Apple, are entering the automotive and emerging mobility markets. Given the importance of operating costs and the synergy between autonomous vehicles and electrification, fuel efficiency and electrification are key to succeeding in this fast-evolving marketplace.
Fuel economy standards can provide automakers and suppliers the regulatory certainty necessary to stimulate investment in advanced technologies, such as electric vehicles and fuel efficient vehicles, that are necessary for automakers’ long-term financial health.
“Fuel economy standards drive innovation in the advanced technologies that will enable the domestic industry to thrive in this era of disruption,” said Carol Lee Rawn, transportation program director at Ceres. “The standards also act as an insurance policy, providing an incentive for the auto industry to produce a more advanced fleet. A more efficient fleet reduces the risk of lost market share and profits in the event that fuel prices spike.”
In 1985, more than two-thirds of Detroit Three unit sales were in North America. By 2025, the analysis projects that only one-third will be sold in North America, while two-thirds of sales will be overseas. And in those markets, governments require — and consumers demand —more fuel-efficient vehicles. For example, China, the largest car market, recently announced a goal of 40 percent of sales in 2030 will be ”New Energy” vehicles.
“Given the major trends affecting the industry going forward, weakening the current fuel economy standards would in fact be detrimental to the future competitiveness of U.S. automakers and their suppliers,” said Baum.
Several dozen global Tier One suppliers (encompassing hundreds of facilities across the country) are reacting to automakers’ decisions to increase fuel economy by pouring resources into R&D, adding production capacity, and issuing purchase orders to hundreds of their suppliers. The analysis points out that increased demand for suppliers will lead to higher volumes and cost savings that will improve the financial performance of both automakers and their suppliers.
“Since automotive suppliers, which employ two and a half times more Americans than auto manufacturers, have made the bulk of investments in research, development and production of fuel-saving technologies, regulatory certainty is extremely important for suppliers and the employees and communities that depend on them,” continued Baum.
Over the 12-year period between 2014 and 2025, with the 2025 fuel economy and emissions standards in place, automakers (not just the Detroit Three) will spend well over $110 billion in fuel-saving technology, about $90 billion of which will be provided by suppliers.
“Nobody likes being told what to do,” added Baum. “But fuel economy standards establish a level playing field and encourage the kind of innovation necessary to survive in a changing world. If the auto industry wants to stay on the leading edge, the standards should be left alone.”
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