VAN BUREN TWP., MI – Ricardo Inc. President Dean Harlow has some advice for President Obama – think globally, not nationally, when considering a single emissions standard for the U.S.
“There’s billions of dollars wasted in the industry globally because of trying to meet individual emissions regulations that vary by country,” says Harlow, whose group provides engineering services to the global auto industry and has placed a big bet on its demand for fuel-efficient technologies. “A global standard would be great.”
Obama signed an executive order this week directing the Environmental Protection Agency to revisit a request by California to regulate tailpipe emissions. The previous administration denied the request, which would clear the way for more than a dozen states to regulate carbon-dioxide emissions.
The auto industry historically has opposed state-by-state standards as costly, but generally issued support for Obama’s EPA directive.
California’s proposed emissions standard would require vehicles to achieve a fleet average of about 36 mpg (6.1 L/100 km) by 2016 and 43 mpg (5.4 L/100 km) by 2020. By comparison, last year’s federal corporate average fuel economy hike sets a new national fuel-economy target of 35 mpg (6.7 L/100 km) by 2020, based on a fleet average for all light vehicles.
But Obama’s remarks suggest he might seek a single national standard, perhaps using California’s model, to trim emissions. At minimum, Harlow wants a single national target.
“If emissions standards vary by state, that is going in the absolute opposite direction of what people have been trying to make happen for 50 years in this industry,” he says. “It’s just going to cost more investment and drive more costs to the end consumer. You would think the government (wants) fuel-efficient, environmentally friendly vehicles available to the end customer, not new ways to draw divisiveness and one-upmanship between states.”
Harlow also expresses concern over the health of the industry’s supplier network, saying many of his customers are reeling from slumping new-vehicle sales, OEM production cuts and product-program cancellations.
“Horrific,” is how Harlow characterizes the business environment, saying he expects the problems plaguing Tier 1 suppliers to result in Tier 2 failures.
“Tier 1 suppliers are not in a financial position to support the Tier 2 suppliers,” he tells Ward’s. “People were just getting by at prior volumes and we now have fourth-quarter volumes down another 30%, so you’re going to see a lot of Tier 2s failing.”
Harlow blames a tight lending environment, where companies are unable to gain the capital they need to see them through the downturn.
“Banks are not in a position where they even want (suppliers) to go to Chapter 11. They want to go straight to liquidation,” he says after a tour of the company’s gleaming new battery-systems development center here. “It’s getting real ugly.”
Ricardo’s orders from automotive customers fell from half its business last year to single digits in the first two quarters of the company’s fiscal year beginning July 1. Fortunately, Harlow says, business from other industries remains strong, particularly the military sector.
“Our business right now is pretty darn good. We’ve taken our fair share of a hit in terms of the automotive side, but we’ve been quite successful in military and government and the heavy-duty side,” says Harlow, who heads the North American unit of U.K.-based Ricardo plc. “We’re quite busy. There aren’t many spare places to park outside, so that’s good.”
Last year, the company won a contract for an undisclosed amount to apply the Total Vehicle Fuel Economy systems engineering program it developed for the auto industry to the military’s future ground vehicles.
By improving the fuel economy of ground vehicles – the military spends between $600 and $750 a gallon to get fuel to the front lines – fewer caravans would run in Iraq, leaving fewer troops exposed to risk and saving the Army money.
“That is a weak link – caravans being attacked,” Harlow says.
The demonstration project does not specify a single technology, but asks Ricardo’s 300 employees to try all angles to improve occupant safety and fuel efficiency.
Launched a little more than a year ago, the Total Vehicle Fuel Economy program already is paying dividends in an era of heightened scrutiny around emissions and fuel efficiency, Harlow says.
“Good product, good differentiator,” he says of the system-wide approach to improving fuel economy.
But Ricardo also insulates itself from the sales downturn by the very nature of its business, which does not rely too heavily on new-vehicle sales. At the same time, Ricardo’s customers do rely on a 17 million-unit U.S. market. So with some forecasts calling for sales of 10.5 million vehicles in 2009, Harlow says some suppliers almost certainly will need government assistance.
“The engineering analysis and work we do doesn’t matter if you sell one (car) or a million, so it’s given us a little bit of protection in this market where volume has come down so quickly,” he says. “But we need our customers to be financially healthy so they can invest in the technologies that we develop, so they can meet the fuel economy and emissions regulations of the future.”
Survival for a number of suppliers might rest in the $25 billion in loans for advanced propulsion technologies set aside as part of last year’s new CAFE rules, Harlow says. But no OEM or supplier has received any of that money, despite a flood of applications last year, and that worries the Ricardo executive.
“No one has been awarded anything, and that’s critical, especially to our business,” he says. “While we won’t be direct recipients of that money, we will be an indirect beneficiary.”