Critics Say California ZEV Rules Set Up Auto Industry for Fall

If the recent regulatory package is implemented as written, with the mandate that ZEVs and PHEVs account for one of every seven new cars sold in the state in 2025, another vehicle-market downsizing is inevitable, dealers warn.

Erik Derr 1, Correspondent

February 21, 2012

5 Min Read
EVs and hybrids accounted for only 43 of newcar purchases statewide and 21 nationwide last year
EVs and hybrids accounted for only 4.3% of new-car purchases statewide and 2.1% nationwide last year.

LOS ANGELES – Policy leaders in California are celebrating the recent passage of the Advanced Clean Cars Program, a set of emissions standards that call for 1.4 million zero-emission and plug-in hybrid-electric vehicles on roads here by 2025, but some industry players are not impressed.

Peter Welch, president of the California New Car Dealers Assn. (CNCDA), warns the new regulations may be setting up the state’s auto industry for another fall. “Three or four years ago, when it really was a Golden State, we could afford such lofty goals,” he tells WardsAuto.

But if the regulatory package is implemented as written, with the mandate that ZEVs and PHEVs account for one of every seven new cars sold in the state in 2025, California will see another vehicle-market downsizing sometime around 2018, Welch believes.

“We’re going to hit a brick wall,” he predicts.

“Auto makers are already producing advanced-technology vehicles, and if there is market demand for them, a mandate is not needed,” says Gloria Bergquist, vice president-public relations for the Alliance of Automobile Manufacturers.

“If there is minimal market demand and these vehicles sit unsold on dealer lots, jobs will be at stake.”

Experian Automotive AutoCount data shows there is minimal market demand for low-emissions cars in California, where consumers purchased about 1.3 million new vehicles in 2011.

Among them: 60.4% were passenger cars; 26.3% SUVs; and 13.3% pickups and vans. ZEVs and “transitional ZEVs,” such as the Chevy Volt extended-range EV, accounted for only 4.3% of new-car purchases statewide and 2.1% nationwide last year.

Mary Nichols, chairwoman of the California Air Resources Board, the powerful regulatory panel that sets environmental policy for the state and often influences national standards, counters that the new emissions rules will transform California into “the advanced-car capital of the world.”

The state, she says, “is now in pole position in the race to provide next-generation ultra-clean cars to the global car market.”

The Advanced Clean Cars regulations include controls for soot, smog-causing pollutants and greenhouse-gas emissions, along with directives for increasing the delivery of ZEVs. These include all-electric cars, PHEVs and hydrogen-fuel-cell cars.

One of the program’s main goals is for ZEVs to represent about 87% of all vehicles on California roads by 2050. For that to happen, nearly 100% of all new vehicles sold by 2040 must be ZEVs.

Data provided by CARB indicates the new regulations could save the state’s drivers $5 billion in operating costs in 2025, and $10 billion by 2030 with the development of more-advanced vehicles. The numbers also suggest consumers would see nearly $6,000 in fuel-cost savings over the life of a car by 2025.

Nichols says these fuel-savings would spur 21,000 new California jobs by 2025 and upwards of 37,000 by 2030.

In a position paper submitted to the state panel, the CNCDA maintains imposing such aggressive ZEV requirements onto a market where the technology still is not perfected and widely accepted by consumers will leave auto makers with just two pricing approaches.

They either can “price the vehicles at or above cost, sell what they can and then ration the sales of their traditional vehicles or face enforcement efforts; or they can price ZEVs under their cost and subsidize the loss by increasing the price of their traditional vehicles.”

The latter option, which the dealer group’s analysts suspect will be the preferred choice, would end up artificially lowering new-car sales and make used cars more attractive.

The CNCDA paper also says “the 15.4% mandate would require 200,200 ZEVs and TZEVs (transitional ZEVs) be delivered for sale in California.

“If 40% of new-vehicle sales continue to be made up of SUVs, pickups and vans, over 25% of the 785,000 passenger vehicles delivered for sale would necessarily be ZEVs or TZEVs under the regulation – an incredibly high adoption rate of new technology that would be without precedent in the automotive industry,” the dealer group says.

Welch says the current obstacles to greater public acceptance of ZEVs and TZEVs, such as sacrifices in affordability, convenience and utility, will prove too much to overcome within the timeframe envisioned by the regulatory proposal.

Bailey Wood, a spokesman for the National Automobile Dealers Assn., says numerous polls show people want to buy more fuel-efficient vehicles. But to craft industry standards on the assumption consumers will forego space, cost-efficiency and utility simply to advance green technology is a mistake.

“If everybody really wants to save the Earth that much, why aren’t they buying ZEVs?” he says. “There were 250,000 Ford F-150s sold last year, compared to about 8,000 (Chevrolet) Volts. “The best poll, the only poll that matters, is when people put money on the table. And consumers aren’t interested in the Nissan Leaf or Toyota Prius, either.”

It’s been 13 years since the first hybrid vehicle, the ’99 Honda Insight, hit the U.S. market, and annual sales for low-emissions cars generally only now are topping 4% in the state, Welch says. So, expecting consumer demand to quadruple from now until 2025, the next 13 years, is “totally unrealistic.”

Making CARB’s push for more electrified vehicles even more difficult to attain, from a supply-side perspective, is a production loophole for auto makers in the new regulations themselves.

Car companies, for example, that comply with greenhouse-gas limits by cutting the emissions of every vehicle in their current fleet 2%, conceivably could  meet the air board’s quality requirements and avoid building as many ZEVs as they would otherwise.

Against this scenario, CARB is advising the driving public to buy ever-more numbers of ZEVs.

California’s new emissions standards prove once again, says Wood, that “there’s a complete disconnect between government and consumers.”

About the Author(s)

Erik Derr 1

Correspondent, WardsAuto

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