{"id":17069,"date":"2015-08-20T11:49:24","date_gmt":"2015-08-20T15:49:24","guid":{"rendered":"http:\/\/henrypayne.com\/?p=17069"},"modified":"2015-08-20T11:49:24","modified_gmt":"2015-08-20T15:49:24","slug":"automakers-desperation-in-detroit","status":"publish","type":"post","link":"https:\/\/henrypayne.com\/index.php\/2015\/08\/automakers-desperation-in-detroit","title":{"rendered":"Automakers: Desperation in Detroit"},"content":{"rendered":"

The Obama administration gave with one hand but took away with the other. <\/strong><\/p>\n

Detroit \u2014 Just six years after the Obama administration bailed out Chrysler with $12.5 billion in federal loans and handed it to the Italian automaker Fiat, the company \u2014 now called Fiat Chrysler Automobiles (FCA) \u2014 is nervous about its future. CEO Sergio Marchionne has been knocking on doors this summer seeking a marriage with General Motors or another major automaker.<\/p>\n

How did this happen? The reasons are many. The Chrysler division\u2019s sales are strong, but mother ship Fiat is bleeding cash in Europe. The auto industry\u2019s return on investment is notoriously poor these days compared with those of other industries.<\/p>\n

But, perversely, perhaps the biggest threat to FCA is the same government that saved the company in 2009.<\/p>\n

While the Obama administration was throwing a life preserver to Chrysler, it was also tying an anchor around its legs in the form of new standards to combat global warming that require automakers to\u00a0more than double their average fuel-economy rating, from 25.5 mpg in 2010 to 54.5 mpg by 2025.<\/p>\n

Yet in the last two decades, fuel economy gained by just 4 percent. According to\u00a0Professor Michael Sivak of the University of Michigan Transportation Research Institute, average vehicle fuel economy is down to 25.4 mpg this year, \u201cconsistent with the increased market share\u201d of sport utility vehicles (SUVs).<\/p>\n

With 2025 less than two product cycles away, the government\u2019s 54.5 number is a pipe dream. But as Marge Oge, the former director of the EPA\u2019s Office of Transportation and Air Quality, discloses in her insider\u2019s account of the 2009 mpg negotiations, Driving the Future: Combating Climate Change with Cleaner, Smarter Cars, the Obama administration wants to use the mandate to force a fundamental change in engine technology, in the same way that federal lighting standards were aimed at eliminating the incandescent bulb.<\/p>\n

If automakers build alternative-fuel vehicles, the EPA will award credits to soften the mpg diktat. As a result, automakers are spending billions on electric-vehicle (EV) technologies to game the government rules \u2014 even though EVs have been met with a collective shrug by consumers.<\/p>\n

Marchionne and his executive team are outspoken about the unsustainability of such spending.<\/p>\n

\u201cThe entire industry is going more towards electrification,\u201d says Reid Bigland, FCA\u2019s North American vice president of sales. \u201cIt\u2019s really the primary way to be compliant with the 2025 standards. That is consuming a significant amount of capital in this industry.\u201d The global-warming rules have created a two-tier market.<\/p>\n

Automakers are churning out money-making sport utility vehicles at a record pace to keep up with popular demand. SUVs (\u201cutes,\u201d as they\u2019re known in the trade) now account for 54 percent of market share \u2014 a 15 percent increase in the last five years. Yet production of money-losing battery-powered vehicles has also soared \u2014 even as their market share has remained flat at 2.2 percent.<\/p>\n

The numbers tell a perverse tale of government incentives. Manufacturers have introduced 31 all-new ute models to meet demand since 2009. Meanwhile, despite stalled sales of EVs, automakers have flooded the market with 50 new hybrid and electric models.<\/p>\n

\u201cThe automakers are beholden to two masters,\u201d says long-time auto investment analyst Joe Phillippi of Auto Trends Consulting. \u201cThe companies are responsible to their customers and shareholders, yet the government wants its own way but with responsibility to no one.\u201d<\/p>\n

The rules are particularly punishing for U.S. brands like FCA\u2019s Jeep, GM\u2019s Chevrolet, and Ford, which dominate the truck market and depend heavily on utes for their profits.<\/p>\n

\u201cFCA\u2019s problem is compounded by the fact that their gas-guzzling Wranglers and Grand Cherokees are hugely successful,\u201d says Bob Lutz, former product-development chief for both Chrysler and General Motors. \u201cNormally a situation you like, but problematic in a market distorted by [mpg] regs.\u201d<\/p>\n

Since Chrysler sells few small cars, it makes little sense for it to invest billions in battery technology, which is most useful in those cars. \u201cChrysler did not have the funds\u201d to invest in EVs before bankruptcy, continues Lutz. \u201cAnd even now they can\u2019t divert\u200e scarce capital and engineering money for these money-losing \u2018compliance vehicles.\u2019\u201d<\/p>\n

\u201cWhat\u2019s really driving the portfolio of American automakers is carbon-dioxide regulation,\u201d Marchionne told the Detroit News earlier this year. \u201cIt\u2019s the CO2 stuff that\u2019s wagging the dog.\u201d<\/p>\n

The Detroit bailouts were a key part of President Obama\u2019s 2012 election strategy, because they kept United Auto Worker funds flowing into Democratic-party coffers.<\/p>\n

Yet the president\u2019s global-warming rules are hurting UAW workers. Ford, for example, would be better off investing in profitable truck plants. Yet it must build \u201ccompliance\u201d EVs like the C-Max Energi and Focus Electric, which aren\u2019t selling. Last month Ford announced it is moving production of those vehicles to Mexico in order to save on costs \u2014 even though it received a $5.9 billion Energy Department loan in 2009 to build them in Michigan.<\/p>\n

Democrats decry the outsourcing of manufacturing south of the border, yet their green policies only accelerate the trend. Worse, as automakers divert resources to unprofitable EVs, they will be ever more dependent on trucks for profits. But trucks too \u2014 which account for an estimated 80 percent of Ford\u2019s profits \u2014 are under pressure from the EPA. Ford is light-weighting its trucks with aluminum skin to meet mpg standards \u2014 a move that has added $1,000 in variable costs to its popular F-150 pickup.<\/p>\n

President Obama touts his love for America\u2019s automakers, yet his lead mpg negotiator, Oge, lays bare her agency\u2019s contempt for Detroit carmakers in Driving the Future.<\/p>\n

\u201cThe weakened bargaining position of the now crippled automakers\u201d in 2009, Oge writes, gave the administration the opportunity to impose the mpg mandates. Oblivious to consumer tastes, much less manufacturer profitability, the agency went for the jugular in demanding 5 percent a year increases in fuel economy to force, as Oge puts it, \u201cgame-changing full electric vehicles or fuel cells.\u201d She mocks automaker complaints that the regulations are unworkable. \u201cThey will always estimate that any regulation will cost far more than it actually does,\u201d she writes.<\/p>\n

Six years later, we can all see that the costs are real. Marchionne\u2019s desperate search for a partner foreshadows the long-term threat that EPA mandates pose to the industry.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Obama administration gave with one hand but took away with the other. Detroit \u2014 Just six years after the Obama administration bailed out Chrysler with $12.5 billion in federal loans and handed it to the Italian automaker Fiat, the company \u2014 now called Fiat Chrysler Automobiles (FCA) \u2014 is nervous about its future. CEO […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,87],"tags":[],"_links":{"self":[{"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/posts\/17069"}],"collection":[{"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/comments?post=17069"}],"version-history":[{"count":1,"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/posts\/17069\/revisions"}],"predecessor-version":[{"id":17070,"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/posts\/17069\/revisions\/17070"}],"wp:attachment":[{"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/media?parent=17069"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/categories?post=17069"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/henrypayne.com\/index.php\/wp-json\/wp\/v2\/tags?post=17069"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}