Are U.S. Auto Companies Driving Backward?

The automotive sector has a key role to play in helping to prevent climate change. Transportation accounts for more than 27 percent of U.S. greenhouse emissions. Given the accelerating pace of climate change and its devastating impacts, greenhouse gas emission reductions by the auto sector -- a key contributor of these gases -- must accelerate and must do so in the short term.

Unfortunately, the U.S. auto industry is driving in the wrong direction. Shareholders are highly concerned about the automotive industry’s recent attempts to weaken U.S. Corporate Average Fuel Economy (CAFE) standards for the critical years of 2021 to 2025 – years in which forward progress in greenhouse gas reductions is absolutely crucial.

This concern is underscored by a recent University of Michigan study finding that the window for climate action by automakers could close as early as 2025, after which it may be too late to stave off a global climate tipping point.1 The study further finds that abatement costs for emissions reduction action by automakers are likely to increase sharply with every year of delay beyond 2020.

While the current Administration and certain lawmakers are willing to give U.S. automakers a break in their greenhouse gas reduction obligations, this does not serve shareholders or consumers well. A warming globe is costly for people, the environment, and the economy and U.S. auto companies risk becoming globally uncompetitive by slowing their focus on achieving consistent fuel economy increases. Even now, as fuel prices skyrocket, Ford and GM, with their large truck and car line ups are likely to start feeling a crunch as consumers seek to avoid exorbitant payouts at the pump.

Lost competitiveness is a crucial issue for company success. Developing nations such as China and India offer large markets, but are tightening fuel efficiency standards and supporting low carbon vehicle technologies like EVs. Many international automakers – competitors to Ford and GM -- are announcing plans in line with this changing vehicle market. In contrast, both GM and Ford appear to be slowing their progress on fleetwide greenhouse gas emissions reductions. Ford announced a significant reallocation of capital from cars to trucks and sport utility vehicles, a move that will likely increase fleetwide greenhouse gas emissions, while GM has also been growing its large vehicle lines. Both companies have announced plans to expand future electric vehicle development, but have failed to specify specific targets and timelines2 Currently electric vehicles make up a small portion of both company’s fleet sales.

Coupled with lobbying to weaken CAFE standards, Ford and GM’s actions raise serious questions about whether these companies will start moving backward in fuel economy and GHG reductions, especially through 2025, a critical window of opportunity for the industry to meet climate goals. This uncertainty exposes the companies to growing public controversy and the potential to quickly lose global competitiveness.

Consumers and shareholders seek clarity on the companies’ game plan under the coming weakening of CAFE standards – the company’s plans can make a great difference to the world’s climate, to consumers’ pocketbooks, and to the value of shareholders’ portfolios.