Let The Predictions Begin: How Will New CAFE Rules Affect Cars?

May 19, 2009

While the details of President Obama's new CAFE and emissions regulations aren't yet known, TCC has been studying potential outcomes for some time. That search turned up testimony presented to the EPA by Eric Fedewa, VP, Global Powertrain Forecasts, from CMS Worldwide (a privately held company that provides independent market and forecasts to automakers and suppliers). Fedewa's testimony was in direct response to California's waiver request (A.B. 1493), but also applies in general to the President's new dictum.

Highlights (or lowlights depending on your take) from Fedewa's presentation note:
- Overall vehicle sales will be reduced because of added cost for compliance; approximately $2,000-3,000 per vehicle
- Consumer choice will be frustrated because vehicles will be legislated out of existence
- All C02 savings will have a negligible 0.6-percent impact on global C02 emissions

You can read Fedewa's testimony here below.

In the meantime, expect to hear the leaders of the industry say they're on board and smile as the government regulates a larger portion of the auto industry (of which it now owns two major players).

Candidate Obama promised change ... and now we see another facet of what that means?


Testimony of Eric Fedewa
Vice President, Global Powertrain Forecasts
CSM Worldwide

As prepared for delivery on March 5, 2009 before the Environmental Protection Agency’s public
hearing on California’s request for a Clean Air Act waiver to regulate CO2 emissions.

Good morning.  My name is Eric Fedewa, and I am the vice president of global powertrain forecasts at CSM Worldwide.  I’d like to thank the panel for this opportunity to offer testimony today.

CSM is a privately owned, global company.  We are totally independent and an objective provider of forecasting services to 85 percent of the world’s automakers and suppliers.  We know the OEM and supplier cycle plans, what they’re capable of today, what they’re planning for the future and how such they can “stretch” to get there.  That includes gauging the impact of fuel economy and emissions policy, such as California’s waiver request (A.B. 1493).

There is no question for us that improving fuel economy and curbing CO2 is in the national interest. But our analysis suggests that allowing California to regulate CO2 emissions, and thus fuel economy, will further damage companies that are struggling, like GM, Ford, Chrysler and much of their supply base, and potentially destabilize relatively healthy companies like Toyota and Nissan.

We also are concerned that granting the waiver will create, to borrow a phrase from the National
Automobile Dealers Association, a “patchwork” of regulations that will require a unique compliance strategy for each state that follows California’s lead.

The impact of granting the waiver request will be far reaching:
• Overall vehicle sales will be reduced
• The product mix will shift to less profitable and even loss-making vehicle lines
• Consumer choice will be frustrated
• Compliance costs and complexity will increase dramatically.

This will put the billions of taxpayer dollars invested in the auto industry at even greater risk for what the Congressional Research Service concludes is a modest 2.5 to 3 percent impact on CO2
emissions nationally and a negligible 0.6 percent impact on global CO2 emissions.

For all of these reasons, we believe that setting a single national standard for fuel economy and
CO2 emissions, and aligning other policies to create a robust and stable market for fuel-efficient
vehicles, are in the national interest.

As the panel knows, automakers already have committed to a 40-percent increase in fuel economy by 2020, to an average of 35 miles per gallon.

For the initial phase from 2011 to 2015, the Department of Transportation says CAFE will reduce CO2 emissions by 521 million metric tons over the lifetime of the vehicles sold during those model years.

The American Council for an Energy Efficient Economy, for its part, estimates that the standards
will reduce CO2 emissions by 47 million metric tons annually by 2020 and 404 million metric tons annually by 2030.

At CSM, we estimate that by 2020, U.S. vehicles will be equal to today’s European and Japanese
fleets in terms of fuel economy and greenhouse gas emissions, which is a major accomplishment
given the significant differences in driving habits, fuel prices and consumer preferences that exist.

It’s important for the committee and the public to understand that delivering these improvements will be staggeringly expensive to the manufacturers.   Many of those costs will be passed on to consumers.

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