Trump Wants to Relax Fuel Economy Standards, Automakers Don’t Agree

August 22, 2019
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Former President Barack Obama introduced sweeping efficiency rules, which President Trump wants to roll back during his current term. Trump has criticized automakers this week for not backing his plan.

The world’s largest automakers have been pushing for higher fuel economy in recent years. Higher economy means lower operating costs for consumers but lower revenue for oil and petroleum companies. Development costs may also be passed on to consumers, resulting in more expensive vehicles.

Under the current Obama-era rules, automakers need to achieve an average fuel efficiency of 46.7 miles per gallon by 2025. Trump’s proposed rollback calls for 37 miles per gallon by 2026.

Trump Says Ford is Bowing to California Regulators

In a direct attack on Twitter, the President said that “Henry Ford would be very disappointed if he saw his modern-day descendants wanting to build a much more expensive car, that is far less safe and doesn’t work as well, because exec’s don’t want to fight California regulators. Car companies should know that when this Administration’s alternative is no longer available, California will squeeze them to a point of business ruin.”

President Trump was referring to a set of California fuel efficiency regulations that Ford has voluntarily agreed to comply with. Honda, BMW, and Volkswagen have also agreed to comply.

California’s new regulations will be more relaxed than Obama’s rules but would be significantly more rigid than what President Trump is proposing through the EPA. California claims that Trump’s proposal to roll back Obama-era regulations would result in more than 540 million metric tons of pollution being released into the atmosphere.

Trump has dismissed the claims, saying that rollbacks would “lower the average price of a car to consumers by more than $3000, while at the same time making the cars substantially safer. Engines would run smoother. Very little impact on the environment! Foolish executives!”

Why Fuel Efficiency is Such a Hot Topic

Looking at the figures, it’s not hard to see why this topic is being debated at the highest level.

  • Trump’s rollback would increase oil consumption in the U.S. by 500,000 barrels per day within the next ten years.
  • Regulatory costs for automakers would be reduced by up to $300 billion.
  • The average yearly price increase of a new vehicle would be reduced by up to $1,850 per year by 2030.

While clearly a heavy political issue, fuel efficiency has a real impact on investors, through the automobile market and the oil and petroleum markets. Shareholders in any affected sector should watch related news closely, as it could influence stocks and earnings in the coming years.

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