Obama Administration Sets Harmonized Green Agenda

TORONTO - Global auto sales continued to improve in April, led by record volumes in key emerging markets, according to the latest Global Auto Report releases today by Scotia Economics.

"Purchases in China, India and Brazil climbed to a record 10.3 million units (annualized) in April, up from 9.5 million in March and nearly one million units above the pre-crisis peak of 9.4 million set in May 2008," said Carlos Gomes, Scotiabank Senior Economist and Auto Industry Specialist. Volumes in the United States also strengthened through mid-April, but a late-month slowdown reduced purchases to an annualized 9.3 million units, down from an average of 9.5 million during the previous three months. The late-month deceleration likely reflects heightened industry uncertainty, and the concern about the influenza outbreak in April.

Canadian passenger vehicle sales remained steady in April, at an annualized 1.42 million units for the second consecutive month, well above the 1.34 million unit pace of the first quarter. Four manufacturers - including two Korean automakers - reported record monthly sales, suggesting that confidence is returning to the Canadian market.

U.S. Greenhouse Gas Emissions Standard

President Barack Obama recently announced that the U.S. Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) will work together towards a harmonized greenhouse (CO2) emission and corporate average fuel economy standards. It is important to note that the NHTSA is not imposing a 35.5 miles per gallon (mpg), as has been widely reported. Rather the EPA is proposing greenhouse house gas (GHG) emissions standards that, based on its estimates of the 2016 model year sales, will result, in fleet average CO2 emissions of roughly 250 grams/mile.

"The key point of this U.S. proposal, and the major reason that every major automaker has voiced its support, is that it creates a new harmonized federal standard, thereby eliminating the potential for a patchwork of individual state emission regulations," added Mr. Gomes. "Automakers had previously fought against state-by-state emissions regulations, arguing this would create a patchwork of rules, resulting in billions of dollars of additional costs, or prevent the sale of some car and trucks in certain states."

Canada is likely to move in line with this U.S. proposal. The Canadian government has set a tailpipe emission standard through the 2011 model year, and has pledged to update those numbers on a year-by-year basis. The Environment Minister has also indicated that the best outcome going forward would be the emergence of a North American standard, a condition met by the recent U.S. proposal.

The new U.S. proposal moves up the increase in fuel efficiency by four years (to 2016 from 2020, as was required by the Bush Administration). This condensed time frame puts the industry under added pressure to reduce vehicle weight and invest in green technology. A similar development occurred in the late 1970s, when a surge in oil prices prompted the U.S. government to introduce CAFE standards that led to a historic downsizing of vehicles. From 1976 to the mid-1980s, the weight of a typical North American-built vehicle dropped by nearly 1,000 lbs. (450 kg), mostly due to reduced steel usage, enabling fuel efficiency to jump by roughly 70 per cent.

"To facilitate these investments at a time when the industry is cash-strapped, the U.S. government will provide automakers with up to US$50 billion to fund new technology," concluded Mr. Gomes. However, there is still the issue of increased costs to consumers. The Obama Administration has said the efficiency upgrade could cost just $1,300 per vehicle and consumers could look to recoup much of that by spending less on fuel. However, industry estimates suggest that higher fuel emissions standards could add between $5,000 and $12,000 to the retail selling price.