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Trump's auto review may only slow march to better fuel efficiency
March 23, 2017 / 9:45 PM / in 4 months

Trump's auto review may only slow march to better fuel efficiency

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A smog testing station for vehicles to stay in compliance with California air quality laws is shown in Oceanside, California, U.S., March 22, 2017. Picture taken March 22.Mike Blake

DETROIT (Reuters) - When U.S. President Donald Trump announced a review last week of tough Obama-era vehicle emissions and fuel-efficiency standards, he proclaimed that the "assault on the American auto industry is over."

But rules set by the Environmental Protection Agency may take a backseat to consumers demanding vehicles that guzzle less gas and automakers having to meet tougher standards if they want to export cars overseas, according to auto industry analysts.

In the end, U.S. carmakers may just gain a few more years to meet the more stringent targets that former President Barack Obama's administration negotiated with the companies in 2012, analysts said.

If Europe and China continue to toughen their emissions standards, "the U.S. might become an outlier," American Axle (AXL.N) President Mike Simonte told Reuters on Thursday.

Trump's move was widely seen leading to a rollback or loosening of more stringent targets, which would slash vehicle exhaust emissions while effectively doubling average fuel economy to 54.5 miles per gallon by 2025.

Automakers have argued the rules for 2022-2025 are too expensive and could cost American jobs, so the Trump administration’s review was seen as a win for them.

On a conference call Thursday with investors, Bob Shanks, Ford Motor Co's (F.N) chief financial officer, said, “We are not seeking a rollback in any way. We just want to have a conversation around the levels we want to achieve.”

Despite what the EPA may want, California and nine other states in the Zero Emission Vehicle programme — eight in the northeast, plus Oregon — are expected to move ahead on Friday with the previously established targets.

Those states account for nearly 30 percent of U.S. auto sales.

The potential divide with the rest of the country could create a “two-tiered environment with two sets of regulations,” said Mark Wakefield, managing director of AlixPartners’ automotive practice. This “could drive costs higher if automakers have to build two versions of the same vehicle to meet the two different standards.”

A smog testing station tests a vehicles tail pipe for compliance with California air quality laws in Oceanside, California, U.S., March 22, 2017. Picture taken March 22.Mike Blake

The Alliance of Automobile Manufacturers, a trade group that sued to overturn the Obama-era rules on behalf of several big automakers, wrote the White House on Thursday urging talks to begin quickly with California to ensure that national standards remain in place.

“Automakers seek certainty, predictability and rationality – over time – from the regulatory process,” the group's CEO Mitch Bainwol wrote. “EPA A DISTANT THIRD”

Kristin Dziczek, director of the Center for Automotive Research’s labour and industry group, said U.S. automakers could find it hard to export cars to markets such as China and Europe with tougher regulatory regimes if the U.S. targets were rescinded.

“I don't think we’re going to see a rollback,” she said. “At most, I think we may see a slowing of the timetable” for implementing the tougher standards.

Slideshow (3 Images)

AlixPartners’ Wakefield said if China, the world’s largest market, continues pushing electric vehicles while America backpedals, it could lead to “some movement of investment from the U.S. to China, especially as the latter market continues to grow.”

General Motors Co (GM.N) and Fiat Chrysler Automobiles NV (FCHA.MI) referred Reuters to public comments made by the industry’s lobbying group, the Alliance of Automobile Manufacturers.

EPA Administrator Scott Pruitt, a climate change sceptic, said the Obama administration estimated it would cost $200 billion over 13 years to comply with stricter standards, which he believes will lead to higher prices for consumers and jobs leaving the country.

Morgan Stanley analyst Adam Jonas said the auto industry expected to miss the 2022-2025 targets regardless of who occupied the White House, but he believes the EPA’s recent move may carry relatively little weight.

“Of all the things that are likely to drive fuel economy, I would rank the EPA a distant third on the list, behind consumer preferences and the direction of technology,” he said.

United Auto Workers union President Dennis Williams said while around 60 percent of U.S. auto sales are currently trucks and SUVs, consumers value fuel-economy improvements for those vehicles.

“The automakers shouldn’t make the mistake of sliding backward,” Williams said. “We’re here to protect our (union) members, but we understand that in doing so we also have to look at the future.”

Reporting by Nick Carey and Paul Lienert in Detroit; Additional reporting by David Shepardson in Washington; Editing by Lisa Shumaker

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