By: John Bozzella, Global Automakers' President and CEO
My automotive career started at Ford Motor Company as the 1994 Detroit Auto Show opened. Walking the floor of Cobo Hall, I was transfixed by edgy concept vehicles and wowed by the sizzle and sound of new product reveals.
In January of ’94, the industry had just finished a year of strong auto sales; Americans bought 13.9 million cars, minivans, SUVs and pickups in 1993. 1994 sales would increase by more than a million and remain strong through the turn of the century.
The policy environment for the industry changed during that period as well. The North American Free Trade Agreement (NAFTA) had just been ratified. States, particularly in the northeast, adopted California’s emissions standards, effectively cleaving the U.S. market into two. (That problem was resolved, temporarily, years later.) Safety regulators focused on better crash protection, setting the stage for widespread deployment of smarter air bags, anti-lock brakes, and electronic stability control, among other advancements.
Fast-forward to another decade: a newly-elected President walked the Detroit show floor talking to worried executives as the auto industry stared into the abyss of what would come to be known as the Great Recession. Sales in 2008 fell by 3 million units. Neither consumers nor businesses could avail themselves of credit. No one knew where the bottom was. It turned out to be 2009, when sales totaled only 10.4 million units.
I was one of those worried executives, part of the Chrysler team working to restructure the business into what would become Fiat Chrysler Automobiles (FCA). No part of the industry escaped the carnage – not the dealer networks, not the supply chains, and certainly not the vehicle manufacturers – which scarred working men and women, businesses, and communities.
Since then, the U.S. industry has been on a roll, for the last four years sales (above 17 million units), production and exports at or near record levels. The digitization of personal mobility has given breakthrough automated driver assist systems, making driving safer than ever. Sensing and computing capabilities in today’s vehicles, combined with AI, have led to the testing of highly automated vehicles. Electric-drive vehicles – battery electrics, plug-in hybrids and hydrogen fuels cells –are available to consumers more than ever (though the market, while growing, remains small).
But the future isn’t so clear. While experts have suggested we are at a peak period in the auto cycle, it’s the policy environment I find more concerning.
America’s changing international trade policies have created huge business uncertainty. In the last year alone, steel and aluminum tariffs increased the cost of building cars and trucks in the U.S. A revised NAFTA, if adopted, will introduce new production costs and complexities. The Department of Commerce is studying the “national security threat” posed by auto imports that could result in tariffs of 25 percent on imported cars and car parts—raising prices by thousands of dollars, reducing sales, lowering production, and ultimately leading to layoffs. Additional tariffs have been imposed on automotive and other imports from China, and China has reciprocated with their own tariffs. The government is considering restrictions on exports of new automotive technologies which would dampen R&D investment and make it U.S.-based companies less competitive.
Environmental and energy policy are similarly uncertain. The impasse between federal agencies and California on fuel efficiency standards could again result in two separate car markets, raising costs and complexity with likely no incremental environmental benefit. Tax credits spurred markets for electric and hydrogen vehicles, but they’re slated to expire, slowing sales and investment in the U.S. while China ramps up its own zero emission vehicle industrial base.
Finally, as automated safety features enter the mainstream and testing and investment in automated vehicles increases, policymakers are sending mixed signals. Congress failed to pass legislation that would have provided clear interim running rules regarding the testing and deployment of automated vehicles while assuring they are as safe as, or safer than, conventional vehicles. The federal policy vacuum is being filled by states – where
inconsistencies and conflicts could slow or stop innovation of critical safety and mobility solutions.
So what’s the point? Policy matters. Decisions made in Washington and other capitols can greatly influence the success or distress of industries.
Here are six actions Washington should take that would ensure a more stable automotive policy environment amidst the business uncertainty:
1. Eliminate the steel and aluminum tariffs on trading partners.
2. Drop the idea of imposing tariffs on imports of autos and auto parts under the pretext of national security.
3. Make sure that new North American trade rules remain workable.
4. Enhance export opportunities by negotiating trade agreements with Japan, the EU, and the UK, and by resolving the ongoing trade dispute with China.
5. Resolve the standoff between the federal government and the states on fuel efficiency with a sensible, unified national program that increases fuel economy substantially every year – in the midpoint between the federal agencies’ proposed pathway and California’s current rule – while rewarding innovation.
6. Establish clear federal running rules for automated vehicle testing and deployment that ensure safety.
Let’s keep these policy debates and decisions in the proper context. The U.S. ceased to be the largest car market in the world in 2009. Given China’s growth, our market won’t be the biggest again, but it remains the world’s most innovative market, attracting cutting-edge automotive investment and talent to produce the most advanced automotive products on the planet. The right public policies will extend that lead into the future.