Do the Obama Administration's new fuel economy standards put international automakers at an advantage? During today's OnPoint, Michael Stanton, president & CEO of the Association of Global Automakers, discusses how the standards will impact the business models of auto companies. He also explains why technological hurdles could impede some of the long-term goals of the program.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Michael Stanton, president and CEO of the Association of Global Automakers. Mike, thanks for coming on the show.
Michael Stanton: Thank you for letting me be there.
Monica Trauzzi: Mike, last week the Obama administration finalized its higher fuel economy standards for light duty vehicles. There was a lot of support behind the rule coming from industry and consumer groups. What does the rule mean for the business models of automakers as they start to implement new technologies to meet these standards?
Michael Stanton: Well, on the plus side we know where we have to go. This is the first time that the standards have ever extended for 13 years out into the future and the standards cover the 2017 to 2025 model years and it's very aggressive. It's about a 4 1/2% increase in fuel efficiency of the entire fleet per year, year over year. So it's very aggressive, but it does give us the opportunity to know where we have to go.
Monica Trauzzi: We're talking about a doubling of fuel efficiency by 2025. Can the technology keep pace with those aggressive standards?
Michael Stanton: The technology can. We think that we'll see a lot of improvements to the internal combustion engine. We'll see aerodynamics, but we'll see also some improvements in the electronics, some of the things that we're not so sure about, like start/stop technology where you come up to a light and your engine actually shuts off and then when you take your foot off the brake it starts again. And how will consumers react to this kind of technology? So there are some unknowns, but we're fairly confident that the technology will be there. The question we have is whether or not the consumer is going to be there.
Monica Trauzzi: Following the announcement, Republican presidential candidate Mitt Romney said, "The standards hurt domestic automakers and provide a benefit to some of the foreign automakers." Is there an unfair advantage here for many of the companies that you represent?
Michael Stanton: The CAFE standards have been in effect since 1974 and they've always been controversial. They've always favored some manufacturers over other manufacturers. It's a fact of life, depending upon what the product line of any given manufacturer's offering is. So, there are things in the rule that favor some manufacturers over other manufacturers. It's not a final rule that is not without controversy, but all in all, we think that it moves the country in the right direction. In most manufacturers will have challenges, but should be able to do it.
Monica Trauzzi: So, could it potentially hurt the U.S. economy to have these standards in place?
Michael Stanton: The big concern is whether or not the increase in price, which is the government estimates just about $3000 per vehicle, if that slows down sales, and then you have -- and you know how big our industry is. We have millions and millions of employees and this is the risk that's associated with this rulemaking, is that if consumers don't value fuel efficiency and they turn their back on new car purchases, then there is a big risk of lost jobs.
Monica Trauzzi: And to that point, we had Andy Koblenz of the National Auto Dealers Association on the show in May, and at the time he said that if we raise prices as much as we're going to have to, we won't get the other side of the transaction where the car is actually being purchased. And he's suggesting that people won't qualify for loans on these higher-priced vehicles. So, how concerned are you about those sales numbers?
Michael Stanton: Well, we're very concerned and it depends on where the consumer is. And I've been in this industry now for a little over 30 some-odd years, a couple of years ago, it wasn't that long ago when people valued cupholders over fuel efficiency. If the price of gasoline somehow goes lower and fuel efficiency is not valued and consumers aren't willing to pay the price for it, and there will be a pricing crease, then we would be very concerned and are very concerned. And that's why we pushed the administration to make sure we had a midterm review to say did we get it right? Is 54 1/2 miles per gallon in 2025 the right number or should it be lower or should it be higher?
Monica Trauzzi: So, you're expressing some concerns here. Overall though, are you pleased with this final rulemaking?
Michael Stanton: Yeah, the history, just very briefly is, is that we were looking at the Department of Transportation setting fuel efficiency standards, EPA is setting standards, California is setting standards and 13 states that had followed California. So we were looking at a patchwork of various requirements that none of which made good sense, because we need to build a car that we can sell in all 50 states. So that's what was our reason to get involved with this to make sure that we ended up with a program that was a national program. We've accomplished that objective. The safeguard is, is that we will have another look at this in the 2017 to 2020 timeframe, which is critically important to know whether or not we've got it right or not.
Monica Trauzzi: Governor Romney has also indicated he'd consider rolling back the standards if he was elected as president. What does that uncertainty mean for the automakers?
Michael Stanton: Well, unfortunately, if that were to happen, California would still be free to set their own standards, which then gives us the patchwork that we don't want. So we need to make sure that everyone fully understands what's on the table and that the policy that we go forward with is a good policy that all people can support.
Monica Trauzzi: What's the interplay between the manufacturers and the dealers at this point? Is there any friction because the dealers are sort of putting the dealers on and expressing so much concern?
Michael Stanton: There's always friction between the manufacturers and the dealers, whether it's fuel efficiency or franchise laws. It's a very healthy relationship. We get along very well. Full disclosure, my son works at NADA and Andy Koblenz and I used to work together. We get along very well together, sometimes we just have different views.
Monica Trauzzi: A question about the technology. Can we expect to see more diesel technology make its way onto the market in order to meet these higher standards?
Michael Stanton: Yeah, I think we're going to see all kinds of technologies and diesel is going to be one of them, but we're also going to see more hybrids. We're going to see plug-in hybrids, we're going to see full electric vehicles and we're even going to see the start of the fuel cells as well. So, across the board, manufacturers are going to have to use new technologies to meet these very aggressive standards.
Monica Trauzzi: All right, we'll end it right there. Thank you for coming on the show.
Michael Stanton: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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