US Auto Industry Facing Major Regulation Changes - Consequences for Japanese Automakers
Regulation Changes
Potential U-Turn Ahead on Emission Rules
On November 10th, US auto stocks surged on news that the new head of the EPA could be Myron Ebell, a climate change sceptic. The expected appointment of Mr Ebell, coming on top of Mr Trump’s criticism of fuel economy regulations, suggests that the new administration will make a U-turn when it comes to emission rules. This was taken as good news for companies struggling to reach fuel economy targets. The share price of Fiat Chrysler jumped 9.7% overnight and GM’s rose 5.7%. However, Tesla shares fell 2.5%, as there is a risk that EV purchase incentives could be scrapped; EVs in general could become less popular in a new ‘Trump era’.
Review of the Regulatory Framework for Fuel Economy Rules
In addition, the Alliance of Automobile Manufacturers (AAM)[1] has contacted Mr Trump, asking for a review of the regulatory framework for fuel economy rules. The AAM promotes a presidential advisory committee to coordinate federal agencies (e.g. EPA, NHTSA, CFPB). The aim is to loosen regulation not only with regard to fuel economy, but also in all other areas affecting the auto industry. Interestingly, the AAM asks for an examination of ‘uncoordinated regulatory oversight’, referring to the State agencies[2], such as California’s CARB (California Air Resources Board), which set up their own set of rules.
Assessing these developments only from a business point of view, we believe that this possible major change to US auto regulations could be advantageous to the industry overall in the short- to medium-term, since automakers could save billions in compliance costs. Regulations vary substantially from country to country, and are usually complex, challenging and costly to abide by. Any relaxation of the rules gives automakers more freedom, allowing for large savings. Regarding emission rules, even the Japanese would have struggled to achieve their targets, and now could get a break.
There are several issues to consider, however, which are discussed in this report.
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