Chaos reigns supreme as OEMs try to make sense of the new world order
With so much visibility these days on trade and tariffs with respect to the activity of the U.S. President, what has flown somewhat under the radar screen has been Trump’s efforts to eviscerate seemingly any and every piece of environmental legislation and regulation.
Yet in my view the ramifications of Trump’s actions on the environment could in, in many ways, be far more transformative to the automotive industry than the tariff activity that we have been experiencing for the past eight months.
Here’s why it could have a big impact on Canada.
President Trump has moved once and for all to revoke California’s ability under the Clean Air Act to regulate its own emissions. Additionally, the President has gutted the EPA and is working to eliminate its ability to regulate GHG emissions, along with reversing the “endangerment finding” associated with the ability to regulate CO2 emissions.
You would think that the automotive industry would be cheering with this news, but I think if you were to dig beyond the surface, you would find this is not the case.
The reality is that the automotive industry has spent probably $1.5 trillion globally to facilitate the transition to electrified vehicles and they are looking for a return on that investment.
Unfortunately, Trump’s actions have the real potential to render an already uncompetitive North American automotive industry into a regional rump with a market that comprises the United States, Canada and maybe Mexico. They are causing this by overtly removing any supports or incentives implemented by the previous administration to try to provide the U.S. auto industry with the investment signals and tools required to allow them to catch up to the Chinese with respect to the development of electrified vehicles and the electrified battery and battery components ecosystem.
The decisions that are being undertaken now by the Trump administration undermine investments and investment decisions that had been made — or in the process of being made — with respect to the migration of the industry away from one built around the internal combustion engine and towards one built on various forms of carbon reducing technology.
These technologies include conventional hybrids, plug-in hybrids, range extended electric vehicles, pure battery electric vehicles, hydrogen fuel cell vehicles, hydrogen combustion vehicles etc.
Much of the investment in this transition of the U.S. auto industry is (or at least was) occurring in Red states I might add. No business likes uncertainty in the policy and regulatory structure in which it is operating. Such uncertainty brings with it a significant amount of risk and risk brings with it a significant amount of cost.
If what I have outlined is true, then it seems that the President is doing everything in his power to increase the uncertainty, which then increases the risk, which then increases the cost of building automobiles in the United States.
From draconian and unjustified tariffs, to the war on anything that remotely resembles the regulation of greenhouse gas emissions coming from automobiles, President Trump is inflicting unprecedented chaos and uncertainty for those OEMs that build or sell vehicles in the United States.
The work on removing all GHG references related to the “endangerment finding” is likely to be completed before the end of the year and, as the late Brian Wilson sang as frontman for the Beach Boys God Only Knows where we are going to end up with tariffs on the auto industry.
So… we are at a pivotal point in time and unless greater clarity is brought to this situation quickly, my fear is we could be standing on the cusp of watching America become an automotive backwater of high priced, vehicle offerings, with outdated technology.
So, what are the implications for Canada?
Typically, the suite of vehicles available in this country are a subset of the vehicles available in the United States. Canada has, for years, harmonized both its safety and its emissions standards with those of the United States, which has been largely predicated on the fact that Canada and the United States have been building vehicles together on both sides of the border for one another’s market for the past 60 years.
The automakers I represent typically have a much broader suite of vehicles available for global markets. If American auto CEOs and product planners, however, can’t see the U.S. market embracing a particular vehicle offering — even though that vehicle might do extremely well in the Canadian market — it is in most cases, simply not brought to North America as our market is not large enough to support a so-called “Canada unique” vehicle.
The question that needs to be asked, and the question that I believe Environment and Climate Change Canada — along with the whole federal cabinet is wrestling with — is if the entire automotive regulatory regime as it relates to greenhouse gas emissions is being blown up, then what do we harmonize to?
There are some who are suggesting that this is a key reason why Canada must hold fast to its unachievable zero emissions vehicle mandate because at least this provides regulatory certainty in the absence of any solid regulatory authority in the U.S. to which we can align.
My response to that line of thinking is having a burdensome, costly, and unachievable ZEV mandate only adds more chaos and static to an already highly problematic situation.
This is why the Global Automakers of Canada has been urging the federal government to take a “Pause and Review” approach, not only with respect to the problematic ZEV mandate but to all environmental regulation and enforcement.
In saying that I am not advocating for automakers to have the ability to run amok with the regulatory “freedom” that would provide. Rather I am saying trying to predict where the U.S. will land is a little like throwing darts at a dartboard — we need to let the dust settle to know what type of regulatory environment we are going to be dealing with.
At the very least, we need to pause, review and amend the ZEV mandate — and as of this writing the government just announced plans to pause the program for a year while undertaking a 60-day review.
The bigger picture suggests they need to also pause all other related emissions regulations where they currently are with respect to the automobile because we can’t harmonize or align with chaos and the industry needs certainty to move forward.
