Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know.
1st Gear: Here Comes The Rollback
This shouldn’t surprise anyone who has followed the Environmental Protection Agency under President Trump and agency chief Scott Pruitt, but it looks like a rollback of the aggressive Obama-era fuel economy and emissions targets are finally coming next week. The New York Times reports the plan is expected to be unveiled on Tuesday, and we don’t yet know the specifics of what Pruitt’s plan will entail, but it should address the requirement for automakers to basically double the average fuel economy of trucks and cars to 54.5 miles per gallon by 2025.
While automakers initially accepted these rules in the wake of the bailouts, they eventually balked at them, claiming they’d be nearly impossible to meet—especially in the current market that trends heavily toward SUVs and trucks.
The rules also would have put the United States, historically a laggard in fuel economy regulations, at the forefront worldwide in the manufacture of electric and highly fuel efficient vehicles. The United States and Canada are the only major nations that have adopted mandatory emissions standards through 2025. The European Union has only recently proposed standards for 2025 and 2030, while China has only started to work on standards for those years.
Less restrictive regulations in the United States could provide an opening for automakers to push for more lenient standards elsewhere as well, leading to the emission of more pollution by cars around the world. While sales of electric vehicles are starting to take off, they still represent barely 1 percent of global car sales. A shift among car buyers toward larger cars and trucks is already impeding progress in fuel economy.
“The concern is that automakers will go around the world basically trying to lobby regulators, saying, look, because the United States has reduced the pace, everywhere else should too,” said Anup Bandivadekar, a researcher at the International Council on Clean Transportation, a think tank that focuses on clean car technology and policy. Global carmakers “apply developments in one region to lobby for changes in other regions.”
There is almost certainly also going to be a legal war coming with California, which has a mandate to set its own emissions laws also followed by about a dozen other states, the Times reports:
The move — which undercuts one of President Barack Obama’s signature efforts to fight climate change — would also propel the Trump administration toward a courtroom clash with California, which has vowed to stick with the stricter rules even if Washington rolls back federal standards. That fight could end up creating one set of rules for cars sold in California and the 12 states that follow its lead, and weaker rules for the rest of the states, in effect splitting the nation into two markets.
On one hand, a rollback would take a lot of pressure off American automakers to dramatically improve fuel economy and emissions. On the other hand, the story notes, it could leave America playing catch up to the rest of the world’s car companies, including China’s newcomers, which are hyper-focused on EVs:
As a result, the automakers’ victory might come with unexpected headaches for them, said Jody Freeman, a Harvard law professor and former counsel to the Obama administration.
For instance, if the rest of the world moves toward stricter rules anyway, the American market could find itself an industry laggard, ceding leadership in clean vehicle technology to markets like China or the European Union. “I don’t really know if the auto industry wants what this administration might be doing,” she said. “It might be like the dog that caught the car.”
This will be an interesting one to watch.
2nd Gear: Tesla Faces Reality
As we noted yesterday, Tesla is having a very bad month, between the downgrading of its bond credit rating, Model 3 backlogs and quality issues, weaker demand for that model than expected, drops in stock price, a big Model S recall and an NTSB investigation into a Model X crash.
More than ever, it feels like the company that was supposed to represent the future is struggling to confront reality, the New York Times says:
“There is a huge part of Tesla that is simply presentation and not substance, and Elon is a master at messaging,” said Karl Brauer, a senior analyst at Kelley Blue Book. “The problem is the reality is starting to stack up, and that’s a reality of accidents the cars have had, quality issues, and massive misses on Model 3 production numbers. You add all that up and there’s a real question about whether this company can deliver what it promises.”
So what’s Elon Musk’s response? Work harder to “prove the haters wrong,” reports Bloomberg:
In a pair of internal memos last week, the heads of engineering and production spelled out measures to free up workers for the Model 3 line and challenged them to reach production goals. Doug Field, the engineering chief, told staff that if they can exceed 300 Model 3s a day, it would be an “incredible victory” at a time when short-sellers and critics are increasingly doubting the company’s ability to fulfill CEO Elon Musk’s vision of building a mass-production electric-vehicle manufacturer.
“I find that personally insulting, and you should too,” Field wrote in the March 23 email. “Let’s make them regret ever betting against us. You will prove a bunch of haters wrong.”
Can Tesla rally its way out of these problems?
3rd Gear: VW Will Buy Back Diesels If Bans Happen
Speaking of troubled companies, Volkswagen is still dealing with diesel buybacks. But this one is forward-facing, not current. As Germany mulls the idea of instituting diesel bans in cities, VW says it may buy back more diesel cars from owners who can no longer use them—but only newer ones. Via the BBC:
A German court recently ruled that cities should be allowed to ban some diesel cars to reduce pollution. The scheme will only apply in Germany but, if diesel bans spread, VW may expand it outside the country.
Only vehicles bought after April will be eligible and customers will be tied into buying a replacement vehicle from the same dealership.
The guarantee will last for three years. VW has also extended its diesel scrappage scheme, its “diesel environmental incentive”, until the summer.
The scheme, similar to those run by other German car manufacturers, offers bonuses to customers trading in their older diesel cars.
VW says that the scheme has taken some 120,000 old diesel vehicles off the road since August last year.
Diesel car sales fell 19 percent in Germany last month with the court ruling looming.
4th Gear: Hackett Making Bank
How much do you get paid to be the CEO of Ford Motor Company? If you’re Jim Hackett, $16.7 million as you work to meet insatiable truck and SUV demand and get ready for an electric and autonomous (maybe) future, all while making the board and investors happy, unlike your predecessor. Via Automotive News:
Hackett, who took the top job in a management shakeup last May, received $1.3 million in salary, $1 million in bonus and $14.4 million in stock and other compensation, Ford said Thursday in a regulatory filing. His total for 2016, when he was running Ford’s nascent mobility business, was not revealed because he was not among the company’s top paid executives at that time.
Hackett, 62, is working to overhaul Ford’s lagging lineup while also spending billions to develop self-driving cars and electric vehicles to prepare for the profound changes expected to upend the auto business in the coming decade. The former Steelcase Inc. CEO is shifting spending away from slow-selling cars to develop new crossovers and SUVs so Ford can reverse market share losses in that hot segment. To pay for those new models and bets on future technology, Hackett has warned that Ford’s profit will fall this year. Investors have traded shares down about 11 percent this year.
5th Gear: UAW Membership Rising
Despite scandals and waxing and waning U.S. auto production, the United Auto Workers union had a good year in 2017. Mainly this is due to expansion to other industries, like academia, the Detroit Free Press reports:
The UAW grew by more than 10,000 members nationally in 2017, the ninth straight year of growth for the Detroit-based union, the Free Press has learned.
The official audited data that will be reported to the U.S. Department of Labor may be among the three biggest growth years since the Great Recession, despite a high-profile corruption probe and federal indictments throughout the year involving Fiat Chrysler Automobiles and its UAW contract negotiators.
UAW spokesman Brian Rothenberg declined to comment Wednesday on the growth, saying the organization planned to make an announcement after providing annual data to the federal government, as is required by law.
UAW President Dennis Williams has consistently predicted 2017 would be strong. Organizers have aggressively expanded beyond factory workers to engage full- and part-time graduate workers, adjunct faculty and postdoctoral researchers on college campuses.
Solidarity, and occasionally a little graft. It’s the UAW way.
Reverse: Meet The New Boss
On this day in 2009, U.S. President Barack Obama issues an ultimatum to struggling American automakers General Motors (GM) and Chrysler: In order to receive additional bailout loans from the government, he says, the companies need to make dramatic changes in the way they run their businesses. The president also announced a set of initiatives intended to assist the struggling U.S. auto industry and boost consumer confidence, including government backing of GM and Chrysler warranties, even if both automakers went out of business. In December 2008, GM (the world’s largest automaker from the early 1930s to 2008) and Chrysler (then America’s third-biggest car company) accepted $17.4 billion in federal aid in order to stay afloat. At that time, the two companies had been hit hard by the global economic crisis and slumping auto sales; however, critics charged that their problems had begun several decades earlier and included failures to innovate in the face of foreign competition and issues with labor unions, among other factors.
Neutral: Will A Fuel Economy Rollback Be A Good Thing?
Something tells me that in today’s globalized, slow-moving market, this will not mean an overnight return to naturally aspirated V8s in every family car.