The Fight Over Car Emissions Has Everything to Do With Profits

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Automakers squabbling over emissions regulations, Brexit anxiety, Chinese car sales and more await you in this The Morning Shift for Tuesday, Oct. 30, 2018.

1st Gear: Can Someone Say ‘Disagreement’?

When Trump’s EPA said that it wanted to roll back the Obama era’s fuel economy and emissions rules, California went to war over it. California wants to hold onto its very strict emission rules while the government wants to remove them. Automakers are stuck in the middle.


While they want looser rules (because that makes things easier for them), they also do not want to have to build two cars that adhere to two different sets of standards for one country.

The whole thing has automakers disagreeing with each other over what they want and making it hard for them to have a single, cohesive argument, which could prove difficult in bargaining with California and Washington before the regulations are finalized by next March.


The breakdown in viewpoints between General Motors, Ford, Fiat Chrysler, Honda and Shell, according to Bloomberg, are as follows:

  • GM wants a 50-state, zero-emission vehicle requirement, like California currently has, and a national building code that would include electric car charging in every new single- and multi-family housing unit. But it also says that the new regulations “should not require high-cost investment in marginal internal combustion engine improvements that customers are not willing to pay for and that divert resources from the further development of electrification.”
  • Ford thinks that increasing fuel economy standards at a speedier rate for trucks, which is one of the idea wrapped up in the proposed regulations, shouldn’t be a thing. It also thinks that two-wheel drive SUVs should count as trucks, too. Ford wants to avoid a split U.S. market, which it basically chalks up to concern over losing money: “The long-term impact is difficult to quantify, but could be quite negative to Ford’s financial health and its employees.”
  • FCA is supportive of the debate with California, but if that doesn’t work out, then the EPA should definitely revoke the state’s own regulations and mandate the sale of electric vehicles. This, from a company whose recently reported most profitable brand was Jeep.
  • Honda wants the EPA to negotiate with California and said that the government’s claim that the regulation rollbacks would improve traffic safety “are flawed” and should be done away with.
  • Shell Oil Products wants the administration to back off a bit on California, saying, “The proposed revocation of the California waiver has already resulted in litigation and is likely to result in extended uncertainty that will hinder efforts to reduce emissions.”

Keep in mind that most of this is over profits and not about, say, helping to deal with the steadily worsening climate conditions. Also, automakers arguing about climate change isn’t new, either.

Remember, while we need comprehensive emissions reform in all industries, including shipping and manufacturing, we’re screwed unless we switch to electric vehicles.


2nd Gear: Bentley Doesn’t Know What Exactly Brexit Will Do

One of the industries that Brexit has hit and will hit the hardest is Britain’s auto industry, which is mostly foreign-owned and provides over 850,000 people with jobs. Bentley, owned by Volkswagen, hopes that the UK and Germany strike a deal on something by year’s end.


The company’s boss, Adrian Hallmark, told Reuters,

“Best case, it’s an annoying impact on our annual profitability. Worst case, it’s quite damaging on our annual profitability so a full no deal Brexit would hurt us as a company, it would limit ability to invest.”

“We may work for four days, or we may have a longer Christmas break and a longer Easter break if there is no deal so that we can smooth the period between now and the middle of next year,” he said.


Obviously, Bentley is thinking about the duties and 10 percent tariffs from World Trade Organization rules. The company is already preparing for the worst by “building up some stocks”and switching ports so parts are more easily accessed.

Other automakers like Jaguar Land Rover have said that a bad Brexit deal could cost them $1.5 billion and Aston Martin is thinking about flying in car parts if there are snags in the transport chain.


The overall sense is that these companies are hunkering down and preparing for the worst, because nobody has any idea what’s going to happen when the UK finally leaves the continent next March.

3rd Gear: Bad Emissions News for FCA

In 2017, the U.S. Department of Justice filed a civil lawsuit against FCA, alleging that the company violated the Clean Air Act by installing “defeat devices” on its diesel vehicles. In anticipation of the resulting fines, the company’s third-quarter earnings plummeted.


Earnings fell 38 percent this past quarter, reports the Detroit News. From the story:

The Italian-American automaker said Tuesday that its third quarters earnings fell to $640 million (564 million euros), down from nearly $1.1 billion (910 million euros) in the same period last year. FCA said the posted loss reflected an estimated $794 million (€0.7 billion) charge related to a U.S. Department of Justice investigation that alleges the automaker failed to disclose software on about 104,000 diesel-powered pickups and SUVs that regulators said could be similar to the “defeat devices” Volkswagen AG used to cheat emissions-testing on millions of its diesel-powered vehicles.


This comes after Sergio Marchionne’s death in July. The company also said yesterday that it’s considering moving Ram production to Mexico.

4th Gear: Relief to Investors and Dealers

Yesterday’s report that China was thinking about a 50 percent tax cut to car purchases is making investors and dealers extremely happy. China is the largest car market in the world with A Lot of buying power.


Shares in Volkswagen, Ford, Geely and Great Wall Motors have gone up as a result, reports Bloomberg.

And for dealers, if those taxes fall:

The odds are good if history is any guide, with sales accelerating after a similar move in October 2015.

Car saleswoman Tracy Liu is optimistic.

“Such a tax cut would surely work,” said Liu, who works at a dealership in the eastern Chinese city of Jinan that sells cars made by Volkswagen with its Chinese partner FAW. “The sales impact was almost immediate the last time it was cut.”


It’s almost as if people are extremely easily motivated by money!

5th Gear: Log Off, Please

Tesla’s CEO, the Extremely Online One True Starboy Elon Musk tweeted a very thinly veiled jab at the U.S. Securities and Exchange Commission yesterday.


And then:


This is all, presumably, in response to a change in Tesla’s investors relations page online, according to Reuters:

While Musk is referred to as chief executive officer in Tesla’s investor relations web page, his biography page on the company website has no designation. The biography page had earlier referred to Musk as chairman, product architect and CEO.


Following the spat with the SEC over tweeting about taking Tesla private while not having investors lined up, Musk has to pay a $20-million fine and step aside as Tesla chairman for three years. He messed up, he’s being punished for it and he’s being shitty online.

Nothing new here.

Reverse: That One Daimler Car


Neutral: Do You Support Stronger Emission Regulations?

Who’s right in the emissions fight?