Jobs Bounce Debated As Trump Promises CAFE Review

President Trump’s plan to conduct a second midterm review of federal fuel-economy and carbon-dioxide emissions standards arguably sets right a wrong because the previous examination was rushed through with limited industry input, but whether easing those goals will create jobs is considered debatable.

“EPA pulled a fast one,” Rebecca Lindland, analyst with Kelley Blue Book, says of the late-2016 CAFE review. “It was incredibly disingenuous.”

President Obama brokered a deal with automakers selling light vehicles in the U.S. for a lofty CAFE standard of 54.5 mpg (4.3 L/100 km) by 2025. The stair-stepped rules, which began with the ’17 model year, importantly are footprint-based to keep the playing field level between makers of predominantly larger or smaller vehicles. It also contains credits and other loopholes to make the bogey easier to meet.

However, another carrot Obama presented to the industry with the rules was a midterm review in 2016 to determine how the industry was progressing against the tougher standards ahead of the final 2022-2025 set of regulations. A first step in the review was a technical assessment paper released in July by the EPA, NHTSA and California Air Resources Board. It concluded automakers were making the necessary innovations to improve efficiency at a faster pace and lower cost than anticipated. They said 54.5 mpg by 2025 might be unrealistic, although a number just slightly lower could be doable.

The review was to continue with commentary from stakeholders until April, but the EPA moved the deadline up to January and decided to maintain the standards as originally written before Obama left office.

“We all agreed that 2017-2018 will be used to carry out a thorough midterm review with the full participation of the auto industry,” FCA CEO Sergio Marchionne said last week after a Trump rally outside Detroit to announce reopening the review. “I know for a fact that we were not called in (to the late-2016 review). To me it was like somebody reneged on a deal. I don’t like it.”

Mitch Bainwol, president and CEO of the Alliance of Automobile Manufacturers, a lobbyist for the industry and early critic of the EPA’s accelerated review, calls Trump’s decision a win for analysis over politics.

Others claim a second review puts at risk billions of dollars in potential fuel savings for consumers and possibly dramatic reduction in tailpipe emissions.

“Automakers pushed the administration toward (Trump’s) announcement, but they are doing their own industry a disservice,” says Therese Langer, director-transportation program at the American Council for Energy Efficient Economy, an advocate for energy efficiency.

“Any delay in settling efficiency standards introduces uncertainty that will disrupt manufacturers' product planning,” she adds. “What is certain is that technological stagnation is not a recipe for continuing the remarkable success our domestic manufacturers have achieved in recent years.”

U.S. Sen. Ed Markey (D-MA) called any easing of the rules “the wrong way to go for our security, economy and environment.”

However, Trump’s rhetoric has presented his administration’s second look at the standards as fulfilling a campaign promise of relaxing burdensome industry regulations to stimulate job growth. The president also plans to target tax reform, among other business-friendly policy steps. Whether jobs will come from looser efficiency standards is debatable.

“Trump could revitalize the auto industry,” says Gary Chaison, an industrial relations labor historian at Clark University in Worcester, MA. “It’s payback time.”

It is unclear, though, where in the auto industry chain new jobs would sprout from looser efficiency regulations, or how many could be created. In fact, the promise of new jobs from a rules rollback runs contrary to arguments underpinning their enactment in 2011.

As supporters pushed for tough 2017-2025 standards, they touted job creation as a major benefit of the rules, alongside cleaner air and reduced annual fuel costs for Americans. The UAW, National Resources Defense Council and National Wildlife Foundation stated in a report to the EPA and NHTSA during drafting of the standards that if 75% of the additional content needed for fleets to reach 40 mpg (5.9 L/100 km) by 2020 were put into production, an estimated 150,000 new jobs would be created.

GM CEO Barra at automaker-friendly Trump rally near Detroit.

“The final rule will likely have a positive effect on employment in R&D and at suppliers and auto assemblers for additional parts such as turbochargers,” NHTSA concluded.

The Defour Group, a Michigan business consultancy, was one voice arguing the potential negative implications of the rule by forecasting 205,000 jobs would be lost as fuel-efficiency technologies raised car prices and deflated sales. The Center for Automotive Research, an Ann Arbor, MI-based think tank, speculated that under the strictest rules the new technologies would increase costs upwards of $6,000 per vehicle.

NHTSA determined otherwise, saying, “It is highly unlikely the rule would lead to significant job losses in the near-term in the automotive industry.”

According to the Obama Admin., U.S. auto industry employment doubled between 2010 and 2015 by adding 500,000 jobs. Suppliers have enjoyed particular success recently, because they have the fuel-saving technologies automakers need.

But the industry also witnessed an historic rebound from record-low sales at the end of the previous decade to all-time annual highs of 17.5 million vehicles in 2015 and 2016. Low interest rates, flexible borrowing terms, consumer confidence and cheap gas have been cited as the primary drivers, not the development of fuel-saving technologies.

Last week, Trump effectively promised the same outcome from going in the opposite direction. Lindland says it is difficult to speculate on what effect looser fuel rules would create.

“It is not a black-and-white question,” she says. “If OEMs were allowed to invest in the technologies consumers want and there is a tangible environmental benefit, everyone wins. But the big challenge is on fuel economy. There is not a national demand for hybrid (cars) and electric vehicles.”

America’s currently insatiable appetite for bigger, less-fuel-efficient vehicles could be the wild card in Trump’s strategy. If fuel prices remain low, as many feared when the 2017-2025 rules were drafted, consumers may continue to eschew mandated fuel-efficient technologies and automakers will have to cut jobs to make up for unsold products.

“Whether it spurs or inhibits job growth is something that can be debated endlessly,” Lindland offers.

The question also exists of where Trump’s jobs would go. Some have argued the recently emerging promise of autonomous driving could replace R&D jobs lost to cutbacks in fuel-efficiency research. But at the same time, automakers are reluctant to add vehicle-production capacity in the U.S. for fear another sales downturn only would lead to a new round of painful plant closings.

According to WardsAuto data, capacity utilization of U.S. auto assembly plants last year was 103.1% based on a 2-crew, 5-day work week over 52 weeks. WardsAuto forecasts slightly lower capacity utilization in 2017 of 98.2%, which is still awfully tight and a difficult environment to add products and the jobs to make them without new brick-and-mortar.

Donald Grimes, a professor of labor, employment and economics at the University of Michigan in Ann Arbor, says Trump is correct in his view of fuel-economy and emissions rules as possibly being poor legislation. Not for the jobs element, he says, but because it does not address the dictator of consumer buying habits: gas prices.

“Policymaking has not been very smart,” he says. “(Obama) went for a politically easier answer than a higher gas tax. And no one will see these jobs. It is a very small amount either way.

“Trump is correct in his assessment of this specific policy, but not the broader context. There is no free lunch,” he says.

But a fresh look at the rules signals automakers may have a new supporter in their corner, Chaison adds.

“The auto industry has an ally in Donald Trump, because they are a high-profile industry,” he says.

[email protected]