The fuel economy fight is happening, Toyota is (still) making a lot of money, Buick is in the news, and more. Welcome to The Morning Shift. It’s Friday!
1st Gear: California and a Bunch Of Other States Are Taking on the Trump Administration Over Fuel Efficiency Standards
We knew this was coming, but on Thursday 19 states—led by California—said they would sue to stop the Trump administration from freezing fuel economy standards for new cars after 2020. Those states want to preserve their decades-old right to impose tougher standards. The legal showdown could last for years and, indeed, might outlast the Trump presidency itself, but, whatever happens, automakers will be closely watching, since two sets of standards among states could mean two sets of cars.
“The Trump Administration has launched a brazen attack, no matter how it is cloaked, on our nation’s Clean Car Standards,” said California’s attorney general, Xavier Becerra. California “will use every legal tool at its disposal” to defend strict standards, he said in a statement.
Many U.S. states have adopted California’s emission rules, and together they make up about one third of the U.S. auto market - making the stakes for the autos industry enormous.
The administration said the proposed rollback would mean billions of dollars in regulatory savings for car manufacturers. But the industry is pushing for a negotiated settlement between states and the administration to lift uncertainty over the kinds of cars and trucks it will need to produce for the American market in the coming years.
A long legal battle and regulatory uncertainty would at the very least freeze innovation for American companies looking for ways to make cars more fuel efficient, since there’d be no point in spending money to create a product that may not have a pot of gold at the end of its rainbow.
In any case, no one wants different standards for different states:
General Motors said in a statement that it wants to work “with all parties to achieve one national 50-state program,” adding it was committed to “continually improving fuel economy and our commitment to an all-electric future.”
Bill Wehrum, an assistant EPA administrator, told reporters on Thursday that many things had changed, including a drop in fuel prices, since the efficiency rules were last set six years ago. He said gas prices are “at historically low levels and that changes driving habits, that changes the kind of cars and trucks that people want to buy.”
Federal and California officials would soon meet about the proposal, Wehrum said, adding, “All of us want one national program. We are going to try to work it out.”
2nd Gear: Who Benefits From All of This? Big Oil, of Course
Automakers will see some benefit from the Trump administration’s relaxation of fuel economy standards, but the biggest beneficiary is the oil industry, which stands to profit hugely from the oncoming jump in demand on gas.
Bloomberg takes stock of how it all went down:
Oil industry leaders have been supporting the move behind the scenes, and a handful of companies disclosed lobbying on the issue this year, including Marathon Petroleum Co., Koch Companies Public Sector LLC, and the refiner Andeavor.
The industry’s chief argument, mirrored by administration officials on Thursday, is that the Obama-era standards are a relic of a different time, when the U.S. was deeply reliant on foreign oil and gasoline to fuel its vehicles.
U.S. exports of crude oil and petroleum products have more than doubled since then, and the U.S. is now on track to become the world’s biggest oil producer, surging ahead of both Saudi Arabia and Russia, according to government analysts.
Energy independent or not, the U.S. is still subject to the whims of OPEC, which could always choose to produce more oil, an ongoing wrinkle in the market. Also, one tell, as Bloomberg reports, is who wants attention and who doesn’t.
“I’m not aware of anybody in the oil and gas world who doesn’t think this is the right course of action, and hasn’t either volunteered that when asked or told administration officials that,” said Mike McKenna, a Republican energy strategist.
That doesn’t mean they’re eager to talk about it publicly. On Thursday, as automakers, refiners and environmentalists all rushed out statements on the plan, the oil industry’s top lobbying group, the American Petroleum Institute, kept quiet.
Asked about the organization’s view, an API spokeswoman said only: “We are reviewing it.”
It’s a good time to be in the oil industry, and an even better time to be in the oil industry and have friends in the Trump administration.
3rd Gear: GM Wants the Buick Envision Excluded From the Trade War
Buick is a brand you haven’t thought about since your grandpa died, but it’s a brand that’s still very much alive, all thanks to strong sales in China. That’s where Buick Envisions are made, and where the vast majority of them are sold. Over 40,000 Envisions made in China were sold in the U.S. last year, which is a decent-sized number, but not enough to support a U.S.-based plant, GM said on Thursday, meaning the company is now seeking an exemption to tariffs on cars imported from China.
The midsize SUV, priced starting at about $35,000, has become a target for critics of Chinese-made goods, including leaders of the United Auto Workers union and members in key political swing states such as Michigan and Ohio. The Envision, assembled only in China, last year accounted for about 19 percent of Buick brand sales in the United States.
GM, the largest U.S. automaker, argued in its request that Envision sales in China and the United States would generate funds “to invest in our U.S. manufacturing facilities and to develop the next generation of automotive technology in the United States.”
It’s also, coincidentally, a good time to snag an Envision, if you’re in the market.
Envision sales from April through June plunged to just 7,000 vehicles, while inventories climbed to more than 13,000 vehicles at the end of June. At the current sales rate, the Envision supply should be enough to keep many dealers stocked through the end of the year.
GM had lowered prices by as much as $2,500 on the 2019 models, which it started shipping in late April. That means Buick’s 2,000 U.S. dealers should have lower-priced Envisions to sell well into the fall.
“The previous price point was too high” on the 2018 Envision, said Casey Clark, sales manager at Serra Buick GMC Cadillac in Washington, Michigan, in an interview. “That put off some customers.”
With help from GM, Casey said, the mid-Michigan dealership has been able to offer hefty discounts on Envision of $5,000 and more.
4th Gear: Toyota’s Doing Fine for Now, Though Car Tariffs Could Throw a Wrench in That
Toyota said Friday that they made $5.89 billion in the second quarter of 2018, a number which didn’t suffer much because of new U.S. tariffs on metals. Those tariffs did have some impact on profits, but much less because Toyota imports so many of its cars to the U.S., as opposed to building them here with imported metals. What could really hurt Toyota? Car tariffs, which the Trump administration has threatened and which seem increasingly likely and an idea that everyone hates.
From The Wall Street Journal:
Toyota Motor Corp. delivered a record profit for the April-June quarter and said it saw limited impact from steel and aluminum tariffs on its bottom line.
However, Toyota said the proposed tariff of up to 25% on imported cars being considered by the Trump administration would add as much as $6,000 to the price of each vehicle. Toyota sent 700,000 vehicles from Japan to the U.S. last year.
Toyota said the impact of U.S. steel and aluminum tariffs would reduce operating profit by a little under $100 million in the year ending March, less than the impact Ford Motor Co. has cited.
5th Gear: Nissan Finally Sells Its Battery Unit
Nissan has been trying to sell its battery manufacturing unit for some time now, since in that space the real money is not in battery manufacturing but in battery innovation. But a $903 million sale of Nissan’s Automotive Energy Supply Corp. to a Chinese firm fell through last month because that firm didn’t have the cash. No matter. Now, Reuters reports, Nissan has agreed to a sale of the unit to a different Chinese firm, Envision Group, at an undisclosed sum.
Under the agreement, Nissan will retain a 25 percent share or equity interest in the entity newly formed by Envision. The deal, which covers battery plants in Tennessee and in England, is expected to close in March next year.
The workforce at all facilities covered by the deal will continue to be employed, Nissan said in a statement.
“The transaction will enable Nissan to concentrate on developing and producing market-leading electric vehicles – in line with the goals set in our midterm plan,” Nissan’s Chief Competitive Officer Yasuhiro Yamauchi said in the statement.
Reverse: I Can Never Get Enough Esprit
Neutral: What Is Your Highest Priority When Buying a Car?
Is it price? Safety? Reliability? Fuel economy? How cool it looks? I tend to think that for most people price and fuel economy trump everything, though the older I get the more I give a shit about things like safety.