Last Thursday, I noted that the EPA released the latest annual report laying out how well each manufacturer is doing when it comes to meeting the increasingly stringent standards for passenger cars and trucks—the simple answer is that the industry is doing very well. But just looking at a single year doesn’t tell the whole story.
Cars take about 5 years to develop
With our laptops and smart phones, we tend to accept their “planned obsolescence” and get used to seeing new product releases from Apple or Samsung every year. But while cars and trucks may be just as integrated in our daily lives, their lifetime is a lot longer, and so is the amount of time it takes to develop a new product.
Vehicle product cycles are long—about 5 years between redesigns and at least two years before a “refresh”—so significant new options such as a new engine or transmission are only added to a vehicle platform every few years. In terms of fuel economy, manufacturers inevitably see year-to-year ticks up and down based on where in the product cycle their portfolio of vehicles are. Recognizing this fact, the agencies measure rule compliance over a four-year period.
Are manufacturers falling behind?
The latest report from EPA shows that the industry as a whole is ahead of where they need to be, but that doesn’t mean that every company is in the same place. There are three manufacturers who are struggling the most right now to meet the 2013 standards: Jaguar-Land Rover (Tata Motors), Mercedes-Benz, and Fiat-Chrysler (FCA). However, all three have some clear product plans moving forward to improve their respective standings. And the important aspect about these standards is that it offers manufacturers critical flexibilities as they begin to get those plans in place.
For Jaguar-Land Rover, there is a strong push toward lightweight materials, particularly aluminum, as well as a whole new set of engines that are significantly smaller and more efficient than the previous generation. The new Range Rover and Range Rover Sport—the latest generation of Jaguar-Land Rover’s best-selling vehicle—are almost 20 percent more fuel-efficient than the 2013 class covered by this latest report. These types of investments take time to gradually phase into the entire fleet but are an important first step. Aluminum is a key pursuit for Tata Motors to reduce its emissions, evidenced by recent major deals with both Novelis and Alcoa, who just yesterday announced a new Department of Energy loan that will help it expand manufacturing capacity for this lightweight material to keep up with an increasing demand.
Fiat-Chrysler (FCA) made large strides in its cars from 2012 to 2013 with the introduction of a new vehicle, the Dodge Dart, and the next compliance report will show great strides in its truck fuel economy with its efficient Ram EcoDiesel, which already meets 2022 fuel economy standards. Plus, FCA has the added benefit of a large amount of banked credits under EPA’s 2009-2011 “early credit” program designed to push manufacturers to improve their fleets ahead of schedule. Those credits will keep FCA in compliance while investing in the implementation of its long-term vision.
For Mercedes, the credit deficits in the current report are a little deceiving because it does not include credits for the start-stop technology that pervades their entire fleet but was only recently approved for credits by the EPA. Our estimate is that this should cut around 30 percent off their current deficit. And one of the most recent developments from Mercedes is a continued focus on electrifying its fleet, expanding their plug-in offerings by 10 vehicles by 2017.
Why this indicates that the standards are working
For manufacturers like Fiat-Chrysler, the ability to bank credits has allowed them to put in place a cohesive plan ranging from smaller engine platforms all the way to the first-ever plug-in hybrid minivan, a plan that I touched upon in this blog. In the meantime, the flexibility to trade credits with other manufacturers has allowed them to purchase credits from Nissan and Tesla who are better positioned today to reduce their fleet emissions, earning FCA more lead-time to invest in the technologies necessary to put that long-term strategy into practice.
These flexibilities are exactly what the manufacturers asked for. Each company has its own portfolio of vehicles with unique customers: developing a plan to make those vehicles more efficient in an economically-sound way is no small matter. But the certainty of a long-term approach to the standards, which are set a decade out, all the way to 2025, allows for exactly this level of long-term planning and plenty of lead time. The ability to average, bank, and trade credits gives manufacturers additional flexibility in seeing through the respective strategies to meet this long term vision.
Manufacturers are well on their way to achieving the levels of fuel and emissions reductions necessary for our country and the environment—the flexibilities in the rule help every manufacturer move forward to give its customers what they want while making this progress.
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