Howes: Auto emissions end run by Ford seeks certainty
The emissions deal that Ford Motor Co. and three foreign rivals struck with California implicitly defies the Trump Environmental Protection Agency's plan to cut fuel-economy targets.
Yet the political rebuff is mostly beside a far more salient point: Automakers whipsawed by shifting standards in the United States are desperate to achieve regulatory certainty at home as such major markets as China, India and the European Union use their rule-making power to stiffen emissions rules and speed adoption of electric vehicles.
Credit rising environmental awareness and Volkswagen AG's global diesel scandal for quickening the pace of change. Two dozen European cities accounting for 62 million people are banning diesel-powered vehicles over the next decade, Bloomberg reports. And 13 of those cities plan to bar all internal-combustion cars altogether to reduce emissions, effectively favoring EVs.
The Trump plan to ease Obama-era standards and strip California of its exemption under the Clean Air Act to set its own emissions targets threatens to create at least two standards in one market — precisely when the trend toward electric and self-driving vehicles exacts increasing capital demands.
The automakers "are drawing a line and saying, ‘We need some certainty,’” Anna-Marie Baisden, head of auto macro research for London-based Fitch Solutions Group Ltd., said in an interview Wednesday. “They don’t want this patchwork situation. The last thing they need is more strain on costs and not to achieve economies of scale.”
Ford, Volkswagen AG, BMW AG and Honda Motor Co. aren’t so much reckoning with the present — namely, a U.S. market hungry for pickups and SUVs of all sizes — as they are preparing for a future that promises to be increasingly electrified.
The transition is shaping up to be costly, challenging and complicated. Technology and government policy-making are outpacing the willingness of consumers to abandon a century of familiar automotive tradition. That's because the driver is not market demand — not yet, anyway — so much as bureaucratic fiat.
The upshot: automakers are making investment decisions and risking political reprisals from the president of the United States because they believe the status quo is not likely to stay that way. And because they cannot ignore the macro trends reshaping the industry that built Detroit.
"For carmakers, a lack of alignment across global markets reduces economies of scale in what is still a relatively expensive technology" whose cost must be balanced with softening sales in weakening markets, Baisden wrote in a note. "Given the broader shift towards stricter standards and adoption of EVs, we expect carmakers to continue with their electrification plans."
Persuasive evidence is mounting, starting with the Ford-led agreement with California that could include other automakers beyond the founding four. In March, VW CEO Herbert Diess used a press conference to say the German automaker's passenger car brands alone generate 1% of global carbon dioxide emissions.
"We aim to reduce this to zero," Diess said, even as he pledged that the longtime diesel engine maker just emerging from a global emissions scandal would up its production of electric vehicles.
"We see increasing evidence that the so-called 'legacy' auto industry isn't exactly digging in its heels to defend internal combustion powertrains," Morgan Stanley wrote in a note. Instead, they're "publicly challenging the conventional wisdom around their posture towards sustainability and climate change."
Case in point: Ford, perennial leader in the full-size truck market, recently released a video showing an electric F-Series pickup towing 10 freight cars and 42 F-150 pickups weighing more than 1 million pounds — "towing far beyond a production truck’s capacity," the automaker points out in a footnote.
Not much nuance there. The granddaddy of pickups, for decades the best-selling vehicle in the United States, soon will be available with an all-electric powertrain. It's an unmistakable statement from the Blue Oval that the electrification trend is for real.
Skeptics are likely to remain unconvinced — even as Ford and rival General Motors Co. move ahead with plans to field electric full-size pickups, even as Ford prepares to unveil an electric crossover with design cues borrowed from its iconic Mustang, even as GM launches a second electric crossover at its Orion Assembly Plant north of Detroit, and even as Ford and VW collaborate on electric self-driving cars.
Watch what the industry is doing and how it is breaking from its retrograde past because it has to. That tells you what you need to know.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.