The Trump administration’s proposal to weaken Obama-era fuel economy standards threatens to unravel the remarkable gains that the U.S. auto industry has enjoyed since the height of the financial crisis.However, there’s now a problem: While tariffs and trade wars continue to dominate auto-sector headlines, the Trump administration has been pushing a quieter agenda to revise the successful fuel economy program. With key decisions remaining to be made, the administration’s actions–if not carefully crafted to secure support from both the industry and the state of California—could very well unravel a good portion of the auto sector’s gains.
The threat is real and potentially far-reaching. In 2012, the U.S. Department of Transportation (DOT), the U.S. Environmental Protection Agency (EPA), and the state of California (which has authority under the Clean Air Act to establish standards stricter than federal ones and that can then be adopted by other states) worked together to promulgate ambitious fuel economy standards for new cars and light trucks through 2025. Following the rescue of GM and Chrysler, which stabilized the entire domestic auto industry, these new standards were one component of a coherent strategy to facilitate investment in the auto sector, encourage innovation to improve American competitiveness, and ensure a clear and consistent regulatory framework that balanced costs and benefits consistent with environmental and economic objectives. The approach was widely supported by industry, labor, and environmental groups.
Auto suppliers in particular have done well, increasing employment more than 50 percent since 2008. Central to all of this has been the creation of a single national standard for fuel economy—one that required the industry to meet increasingly stringent targets announced far in advance.
The U.S. auto supply chain, after all, employs some 1.5 million people: four times as many people as do U.S. auto manufacturers. Many of these workers are employed by small and medium-sized firms making components like piston rings, heat shields, and turbochargers—all products that are in increased demand due to the fuel economy standards. The failure of GM and Chrysler during the Great Recession would have decimated U.S. auto suppliers and in turn the U.S. auto sector. By contrast, the extraordinary rescue of GM and Chrysler in 2009 stabilized U.S. auto suppliers, while subsequent actions to enact a single set of fuel economy regulations with a long-term horizon helped provide the clarity needed to promote investment and innovation amongst suppliers.
The result has been a relatively vibrant auto sector. Since 2008, auto suppliers have increased their employment by more than 50 percent, in part due to investments in new technologies like those that helped automakers meet steadily increasing fuel efficiency standards. At the same time, the auto supply sector remains an important source of innovation in the U.S. Today the industry accounts for 40 percent of robot use, is a top user of new lightweight materials, and leads U.S. implementation of advanced operations methods, such as continuous improvement and just-in time-production (techniques that only recently have been diffused to other industries).
In this fashion, the motor vehicle industry—including the 200,000 employed in assembling cars and trucks—directly accounts for 13 percent of all U.S. manufacturing employment. Including workers employed at parts suppliers other than in the first and second tiers, suppliers of raw materials, and makers of general-purpose equipment used in the auto industry, this figure would easily double. Overall, then, it is safe to say that at least one-quarter of U.S. manufacturing employment is strongly tied to the automotive industry. Nor do the local economic benefits flow only to Detroit or a few states. Currently, the auto supply chain extends into hundreds of local economies in 45 states, including all along Interstate 75, which runs from Michigan to Georgia (see map).
All of which underscores that all Americans—and especially those whose communities depend on a vibrant auto sector—should be urgently hoping for an acceptable compromise between California and the federal agencies on fuel economy standards.