Tighter Fuel Economy Rules Threaten Premium Europeans.
“If the targets are tightened they would not be possible to reach”
In a logical world, lawmakers in Europe and the U.S. would be looking again at laws which impose ever-tighter and hugely expensive fuel consumption rules on car manufacturers.
After all, when the laws were first mooted, the conventional wisdom stated that fossil fuels would be running out soon, while the global warming scare made it easier for politicians to make a case that it would be better for everybody if the cars and trucks were as miserly as possible with precious gasoline and diesel. So much the better if the technology required priced the poorest out of their cars and forced them on to public transport.
The recent developments in fracking technology for oil and gas has boosted the supply to unimagined new highs, and the price of gasoline at the pump has plunged, to the surprise of many experts. So one pillar supporting the case for swingeing improvements in fuel consumption has bitten the dust. Meanwhile the case that burgeoning amounts of carbon dioxide (CO2) being released into the atmosphere are warming the climate is being questioned by the likes of author and columnist Matt Ridley.
“Although the world has warmed since the 19th century, the rate of warming has been slow and erratic. There has been no increase in the frequency or severity of storms or droughts, no acceleration of sea-level rise. Arctic ice has decreased, but Antarctic sea ice has increased,” Ridley said in a recent article in the Wall Street Journal.
Ridley said the earth’s surface has failed to warm as fast as predicted over the past 35 years despite fast-than-expected CO2 increases, with less than two-tenths of a degree per decade which has slowed almost to a halt.
“For decades to come we will continue to rely overwhelmingly on the fossil fuels that have contributed so dramatically to the world’s prosperity and progress,” Ridley said.
Ratchet up pressure
But the CO2 rules are continuing to ratchet up pressure, particularly in Europe which demands average vehicle emissions of 130 grammes per kilometre of carbon dioxide (CO2) – that’s the equivalent of 43 miles per U.S. gallon – by this year. This will tighten to 95 g/km by 2021 or 57.4 miles per U.S. gallon. The U.S. requires a slightly less aggressive 54.5 mpg by 2025. The European industry reckons it already has the 2015 regulations beaten, but it faces a huge amount of spending to meet the 2021 target, which, according to a recent report from PA Consulting, will likely leave premium manufacturers like BMW, Mercedes and Volkswagen’s Audi, and India-owned and British based Jaguar Land Rover in particular facing huge fines because they won’t meet the targets. Regular mass car makers like Ford and GM Europe, Renault and Peugeot of France and Fiat Chrysler look to have done enough to avoid E.U penalties.
“For the three German carmakers, this (possible fines) range from around 100 million euros ($109 million) for BMW and Daimler, up to one billion euros ($1.1 billion) for Volkswagen,” PA Consulting said.
There is another possible scenario though which would engulf all Europe’s manufacturers, from cheap and cheerful through to premium. Current E.U. regulations allow manufacturers to compare fuel consumption across all their output has come under pressure from politicians who say they are too laboratory-based and fail to reflect real world driving conditions. There is pressure to reform this and force manufacturers to reveal actual driving fuel consumption. This would likely mean nobody would be able to meet tougher rules by 2021.
New engine generation
It would require further effort from carmakers to develop a new generation of engines, cut vehicle weight and redesign at an additional cost per car of up to 1,200 euros ($1,300). This would wipe out any profits, and then some. PA Consulting said the E.U. needs to postpone any redesign of the testing regime until after 2021.
Professor Stefan Bratzel of the Center of Automotive Management in Bergisch Gladbach, Germany, agrees that it will be very difficult for the German premium manufacturers and JLR to meet the 2021 rules, but also sees problems for General Motors’ Opel-Vauxhall. If the rules are tightened, this will spell disaster for the premium car makers, which will have to dump some higher priced models, shut down production and fire workers.
Bratzel said the likes of BMW, Audi, Mercedes and JLR will have to increase their plug-in hybrid output, which will be very expensive. Margins will have to be cut to bring prices down to encourage sales.
“It’s not that easy to meet the current 2021 targets, but I’m pretty sure they will make them. I don’t think they will take the image risk of being fined for non-compliance, but it is very hard to achieve that for sure, and will cost a lot of money. Tightening those targets is no option at the moment and they (the industry) are lobbying very hard. If the targets are tightened they would not be possible to reach,” Bratzel said.
“If the targets are tightened that would mean the conventional power train for bigger premium segment cars would be more or less dead. This would also be bad for suppliers and it is a decision that would cost a lot of production and employees their jobs, so I don’t think the E.U will go that far and tighten in the next two to three years,” Bratzel said.
Tough, but makeable
Peter Fuss, partner in Frankfurt, Germany based EY Automotive said the original regime for 2021 will be tough, but makeable.
“Although the 2021 CO2 rules will be tough for all car manufacturers, some car makers may have a higher challenge than others as the individual car fleets of each car maker is different regarding CO2 emissions. As the premium carmakers know, that their burden to reduce CO2 emissions is higher, they are working very hard to get new innovations in to the car – either in powertrain technologies, in the combustion engine or in light weight structures with new material,” he said.
He agrees premium makers will include new plug-in-hybrid technologies to reduce CO2 emissions significantly. Electric vehicles will be further developed and introduced to the consumer, but might not reduce the fleetwide CO2 emission level by car makers as originally expected, Fuss said. He doesn’t expect the rules to change before 2021.
Andrew Fulbrook, director of global powertrain forecasting at IHS Automotive, said the situation in the U.S. looks much tougher for the manufacturers.
“If we think the European system is bureaucratic, long-winded and complex, the U.S. is extremely difficult for most to comprehend. We don’t see any manufacturer missing 2016 CAFE (corporate average fuel economy) targets, but the 2025 limits are another matter entirely. They are incredibly tight for car and (light) truck makers in the U.S., and if you take a business as usual approach, I struggle to see them making the targets unless there are some pretty big moves in terms of downsizing the fleet, strong electrification and more advance transmissions and engines. Even then it is going to be quite the challenge,” Fulbrook said.
Back in Europe, the industry awaits word from Brussels about tightening the rules. At the Paris Car Show last fall, VW CEO Martin Winterkorn said if the CO2 rules were tightened it would be “fatal” for the industry. Perhaps we’ll soon find out if that was hyperbole or not.
Neil Winton, European columnist for Autos Insider, is based in Sussex, England. E-mail him email@example.com