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Big win for automakers as Trump orders fuel economy standards review

U.S. President Donald Trump delivers remarks at the American Center for Mobility, a test facility for driverless car technology for American Manufactured Vehicles in Ypsilanti Township, Michigan, U.S. March 15, 2017. REUTERS/Jonathan Ernst

By Nick Carey and David Shepardson

DETROIT/WASHINGTON (Reuters) - President Donald Trump on Wednesday ordered a review of tough U.S. vehicle fuel-efficiency standards put in place by the Obama administration, handing a victory to auto industry executives and provoking criticism from Democrats and environmental groups.

In a move widely seen as a preamble to loosening fuel standards, Trump told an audience of cheering union workers, he would "ensure that any regulations we have protect and defend your jobs, your factories," and promised he would encourage growth in the U.S. auto sector.

"The assault on the American auto industry is over," Trump said, standing in front of a banner that read "Buy American-Hire American."

Trump added that the White House is "setting up a task force in every federal agency to identify and remove any regulation that undermines American auto production."

The backdrop and message underscored Trump's efforts to lock down support in industrial states such as Michigan that put him in the White House. Trump spoke at the site of the former Willow Run bomber factory in Ypsilanti, Michigan, which won fame for building an operational B-24 heavy bomber every 59 minutes during World War Two. Now, the site is being redeveloped as a testing ground for autonomous vehicles.

At a roundtable with industry leaders Trump made clear he expected automakers to hire more Americans in return, a theme that dominated his election campaign.

"We're going to do some wonderful work with you, but you're going to have to help us with jobs," he said.

Trump's event was attended by around 1,000 people, including automotive executives, United Auto Workers union President Dennis Williams - who sat next to Trump - and workers from Detroit's "Big Three" automakers: General Motors Co (GM.N), Ford Motor Co (F.N) and Fiat Chrysler Automobiles NV (FCA) (FCHA.MI) (FCAU.N). Automakers lined up examples of vehicles they build in the United States for the president to see.

Auto industry executives have said they are hopeful the Trump administration will pursue tax and regulatory policies that would benefit U.S. manufacturers.

Reopening the fuel efficiency rules put in place by Democratic President Barack Obama days before he left office is one of the top items on the industry's agenda. Automakers, through their lobbying groups, have said the Obama rules were too expensive and could cost American jobs.

"These standards are costly for automakers and the American people," said Environmental Protection Agency Administrator Scott Pruitt.

After one participant in Wednesday's meetings mentioned environmental concerns, Trump said he agreed but did not want an "extra thimbleful of fuel" to get in the way of growth.

In a meeting with top auto executives from U.S. and foreign automakers, Trump said the government needs to get out of the way of the auto industry building vehicles, a person who attended the meeting said.

Automakers are wary of being seen as out of touch with environmental concerns, or unwilling to invest in new technology. Ford, for example, used its Twitter account on Wednesday to highlight previously announced commitments to develop electric vehicles.

It could take a year for the review process to play out, and Wednesday's event was effectively a starting gun for intense lobbying efforts over how government policy will drive technology investment decisions in the auto sector.

Critics like Democratic U.S. Senator Edward Markey of Massachusetts said Trump's move could hurt consumers.

"Filling up their cars and trucks is the energy bill Americans pay most often, but President Trump's roll-back of fuel economy emissions standards means families will end up paying more at the pump," Markey added.

The president is not seeking to revoke California's authority to set vehicle efficiency rules even stricter than federal rules, including mandated sales of electric vehicles, as part of this move, a White House official said. The official did not rule out seeking to withdraw California's authority in the future. Pruitt, an ally of the fossil fuel industry, would not commit during his Senate confirmation hearing to allowing California to continue its own clean vehicle rules.

A group of 10 state attorneys general led by California and New York said on Wednesday they would fight attempts to weaken the rules.

California’s attorney general late Tuesday filed legal papers in a federal court defending the Obama administration’s decision to finalize the determination in January.

Barclays auto analyst Brian Johnson said in a research note that he expects the Trump administration review will lead to reductions in planned hikes in fuel efficiency standards after 2021.

The Obama administration's rules, negotiated with automakers in 2012, were aimed at doubling average fleetwide fuel efficiency to 54.5 miles per gallon by 2025, although the real-world mileage figures would be lower.


'THOUGHTFUL AND COORDINATED'

Automotive industry executives and lobbying groups were quick to praise the administration's announcement.

"The Trump administration has created an opportunity for decision-makers to reach a thoughtful and coordinated outcome predicated on the best and most current data," said Mitch Bainwol, chief executive of the Alliance of Automobile Manufacturers, an industry lobbying group.

Automakers have signaled they want the government to give manufacturers more credit toward achieving fuel efficiency targets for technologies such as "stop-start" systems that shut down a car’s engine at a traffic light.

Regulators should also look at whether ride hailing and vehicle-to-vehicle communications systems designed to prevent accidents and alleviate road congestion could be counted toward the industry’s greenhouse gas emissions goals, the automaker group proposed in comments to the EPA last year. The group represents a dozen automakers, including GM, Ford and FCA.

Under the 2012 agreement with the industry, the EPA was given until April 2018 to decide whether the standards were feasible under a "midterm review," but the agency moved up its decision to a week before Obama left office in a bid to maintain a key part of his administration's environmental legacy.

An EPA analysis indicated that compared with previous rules, the 2025 standards would result in savings of between $1,460 and $1,620 over the lifetime of a vehicle and payback for new technology required to meet the new standards of around five years.

The Obama administration said the rules would cost the auto industry $200 billion over 13 years, but save motorists $1.7 trillion over the life of the vehicles.


(Additional reporting by Bernie Woodall, Emily Stephenson and Susan Heavey; Writing by Will Dunham; Editing by Lisa Shumaker and Jonathan Oatis)