Politics & Policy

The Auto Industry Under Assault

Filling up at a gas station in Paris, France. (Reuters photo: Benoit Tessier)
France, Volvo, and Trump’s timely withdrawal from the Paris Climate Accords

One of the Trump Administration’s most crucial economic decisions was its withdrawal in June from the Paris Climate Accords. Politically, the decision upheld a campaign promise. Practically, it avoided saddling the country with the deal’s arbitrary, restrictive CO2-emissions caps.

Just how suffocating those strictures could have been was illustrated this week when the French government upended its automotive sector by mandating the elimination of gas and diesel engines by 2040 in order to meet the climate accord’s targets. The decision will give French consumers — and manufacturers — no choice but to transition to expensive, unproven battery-powered vehicles. It comes on the 25th anniversary of the publication of Al Gore’s Earth in the Balance, in which the then-senator called for eliminating the internal combustion engine by 2017. Needless to say, none of the environmental calamities Gore predicted a quarter century ago have come to pass.

But that hasn’t slowed the march of wrongheaded policies meant to combat climate change. Just 24 hours before the French government’s decision, Volvo announced that it would electrify every vehicle in its lineup beginning in 2019. The move may be intended to place Volvo at the forefront of the electric-vehicle revolution — but in fact it shows how deeply government global-warming diktats threaten the future of global automakers.

Volvo’s announcement was met with universal praise from left-wing U.S. media; it was also universally mis-reported. “Volvo Vaults to Volts, Planning to Pull Plug on Gasoline Engines” Bloomberg’s headline blared. “Volvo going electric, phasing out gas and diesel engines,” read the Seattle Times’. “Volvo Moves to Phase Out Conventional Engines,” declared the New York Times.

Not quite. In truth Volvo’s decision will help perpetuate the internal combustion engine, which still makes up the overwhelming majority of vehicle sales. While the automaker will add a plugin-hybrid option to every model line and build five all-electric cars beginning in 2019, its core, best-selling gas- and diesel-engine variants will simply add a small, 48-volt battery to compliment existing twelve-volt batteries.

Where traditional twelve-volt batteries turn on a car’s lights and infotainment systems, the 48-volt unit will help power the influx of electric features — steering racks, brake pumps, etc. — into modern cars, while increasing fuel economy by 10–20 percent in order to satisfy looming Chinese and European CO2 mandates. (Europe will force automakers to reduce the CO2 emissions of their vehicles to 95 grams per kilometer by 2021.) In short, contrary to news reports that Volvo is ending gas engines, the company is merely making such engines compliant with the coming rules.

“Sensationalist headlines today suggest Volvo is going 100 percent electric and ending gasoline and diesel engines,” wrote auto-industry analyst Anton Wahlman. “The Volvo announcement was not (about) going to 100 percent EVs. It wasn’t even about setting an end-date for gasoline or diesel cars. It was about making 48 volt systems standard in all cars.”

If more countries follow France’s lead in banning the gasoline engine, other automakers will similarly struggle to turn a profit.

Volvo’s compliance strategy is understandable, because few customers are buying electrified vehicles. In France, just 1.1 percent of new cars sold are fully electric. In the U.S., despite over 50 new battery-powered vehicles introduced since 2009, fully electric models have just a 2.4 percent share of the automotive market.

Volvo itself currently sells only one battery-powered vehicle, a plugin version of its best-selling Volvo XC90 SUV that costs $18,000 more than its $50,000 gasoline model. This year, Volvo has sold just 807 XC90 plugins, accounting for a mere 7 percent of the XC90’s overall sales. Yet, in adding more electric and plugin hybrids to its lineup this week, Volvo CEO Håkan Samuelsson claimed that “people are increasingly asking for electrified cars and we want to meet our customers’ current and future needs.”

To be sure, many auto executives count themselves members of the global elite that shares Gore’s belief in the “mortal threat” posed to society by the gasoline engine. The green religion is strongest among upper-middle-class buyers who purchase premium cars from the likes of BMW and Audi, which are also pursuing 48-volt strategies. But despite $7,500 tax breaks offered to American consumers who purchase fully electric models, even the wealthy have been shy to take the plunge. Tesla’s miniscule pool of customers is the exception, but Elon Musk’s company has yet to turn a profit, despite average prices in excess of $100,000 for its Model S and Model X vehicles.

If more countries follow France’s lead in banning the gasoline engine, other automakers will similarly struggle to turn a profit.

In condemning the Trump Administration’s withdrawal from the Paris Accords, media darling and former Obama EPA official Marge Oge told the New York Times that “the rest of the world is moving forward with electric cars. If the Trump administration goes backward, the U.S. won’t be able to compete globally.”

In reality, the opposite is true. Thanks to less-stringent emissions rules and low gas prices, the U.S. is essential to most automakers’ profits, driving as it does the high-margin sales of popular pickup trucks and SUVs that can’t be sold elsewhere in the world. GM, for example, withdrew from the European market this year because its small cars are unprofitable there.

Ford joined the corporate chorus in condemning Trump’s Paris withdrawal saying that “we believe climate change is real, and remain deeply committed to reducing greenhouse gas emissions in our vehicles and our facilities.” Yet the politically correct statement would seem a financial death wish. Some 80 percent of Ford’s profit reportedly comes from U.S. pickup sales. A France-like gas-engine ban to satisfy CO2 targets would destroy the company’s bottom line.

Chinese-owned Volvo’s 48-volt strategy will, say experts, increase its cars’ prices by $1,000-$1,500. Though that’s not insignificant, it likely won’t prove prohibitive for those who would otherwise purchase the premium XC90. But mainstream automakers such as Ford and Chevrolet have not committed to installing 48-volt systems as a baseline in their cars, precisely because their profit margins are slimmer than Volvo’s already.

“A 48-volt system is an expensive add-on for a $16,000 basic car,” Wahlman writes. “For a $38,000 Volvo, not as much.”

Force compact cars — currently popular in France — to go all-electric at an additional cost of $5,000–$10,000 each and they will simply become unaffordable.


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