April 2017 Newsletter

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April 2017 Newsletter

Fuel Economy Standards on Target

Based on the EPA’s recent provisions report, U.S. automakers have outperformed the mandated U.S. fuel economy standards for 2015. The report, which summarizes fuel economy and carbon dioxide emissions from 1975 - 2015 has recorded four consecutive years of improvement.

Fuel economy has increased from a combined 13 MPG in 1975 to 24.8 MPG in 2015.

In 2015, cars have increased from .7MPG to 28.6 MPG, while trucks increased from .7MPG to 21.1 MPG.

Adjusted CO2 emissions also reflect the positive developments, falling from 695 grams per mile in 1975 to a record low 358 grams per mile in 2015.

The full report is available on the EPA’s website:
https://www.epa.gov/fuel-economy/light-duty-automotive-technology-carbon-dioxide-emissions-and-fuel-economy-trends-0


Proposed Border Tax on Imported Vehicles

A U.S. border tax is currently under consideration by the U.S. legislators, according the Michigan-based research firm Baum & Associates. This proposed tax would significantly impact vehicle purchase prices to the tune of thousands of dollars per vehicle. Companies without U.S. manufacturing plants would be most affected by the border tax. Conversely, automakers who predominantly manufacture in the U.S., such as Tesla and Ford, would feel less impact.

According to the 2016 Baum & Associates study, the proposed tax would result in rising vehicle acquisition costs for consumers and businesses that rely of vehicles for business operations. The study estimates that carmakers are unlikely to raise prices more than a couple thousand dollars per vehicle and the automakers themselves will most likely need to make up the difference.

In consideration of businesses that use vehicles for their daily operations, the proposed tax and corresponding vehicle acquisition costs could have an impact to the bottom line. Frequently, fleets are made up of light-duty and medium-duty trucks manufactured by the big three U.S. automakers: General Motors, Ford, and Fiat Chrysler. Both G.M. and Fiat-Chrysler have truck production facilities in Mexico. While, Ford, in contrast, produces its trucks models in three U.S. manufacturing plants.

If the proposed tax is passed, fleet managers and business owners will need to add an additional layer of consideration when it comes to selecting the right vehicles for their business. Baum & Associates estimated the following price increases per vehicle:

  • Ford: $282 per vehicle
  • GM: $995 per vehicle
  • VW: $6,800 per vehicle
  • Volvo: $7,600 per vehicle

Sticker Shock? Graph

https://www.nytimes.com/2017/02/13/business/general-motors-mexico-pickups.html?_r=0
http://www.denverpost.com/2017/02/06/trump-import-tax-could-raise-car-prices


Automotive Accidents on the Rise

National Highway Traffic Safety Administration (NHTSA) has reported that for the first six months of 2016, there has been an increase in automobile related fatalities. 19,100 people were killed in crashes through June 30, 2016 on US roadways, a 9% increase over the same period in 2015.

After five decades of continuous improvement, 2015 saw the first reversal, which industry experts suggest was driven by a 3.5% increase in net vehicle miles traveled in 2014.

The Institute for Highway Safety (IIHS.org) is optimistic that advanced vehicle technology will help reduce fatalities in the future. According to IIHS, the following technologies will increase driver safety:

  • Backup cameras are expected to significantly mitigate accidents that occur when a driver is backing up. While accidents that happen while a driver is in reverse are rare in frequency, the practice accounts for 25% of all collisions.
  • IIHS is now ranking the effectiveness of headlights, noting a wide diversity of nighttime visibility performance and advocating Federal standards.
  • Forward-collision avoidance systems are quickly becoming available in most trim levels. This technology detects and even intervenes when a rear-end crash is imminent.
  • NHTSA Secretary Anthony Foxx announced the agency’s intention to require auto and phone manufacturers to block most internet and texting applications while vehicles are in motion.
  • Electronic Stability control is available in many new cars, which helps drivers maintain control of their vehicle during extreme steering maneuvers by keeping the vehicle headed in the driver's intended direction, even when the vehicle nears or exceeds the limits of road traction.

http://www.detroitnews.com/story/business/autos/2016/11/25/car-tech-lobbies-bristle-call-lock-phone-apps/94447414/
http://www.nhtsa.gov/About-NHTSA/Press- Releases/nhtsa_distraction_guidelines_phase2_11232016


Mexican Production Facilities Causing Longer Lead Times

Since the North American Free Trade Agreement (NAFTA) was signed in 1994, auto manufacturers have been moving manufacturing facilities to other countries, including Mexico, in pursuit of lower production costs. Ford, Chrysler, Nissan, Toyota, Kia, Audi, and other manufacturers have built facilities in Mexico and are manufacturing many vehicles at this location today:

  • In 2015 Mexico exported 2.9 million vehicles, 70% to the U.S market
  • Mexico is expected to export 5 million vehicles by 2020.
  • Mexico is the world’s seventh largest automotive manufacturer, a significant increase over the past five years.

Unfortunately, the increase in production in Mexico has substantially delayed order-to- delivery (OTD) lead times for U.S. consumers. According to Business Fleet Magazine, Mexico has a shortage of rail cars needed to export the vehicles. Only three main rail lines are available to support the heavy 286,000-pound transport, therefore congested rail lines are only moving at an average speed of 7 miles per hour, causing late deliveries. The Mexican government plans to upgrade rail capacity with a $100-billion spending package.


Recommended Reading

Expansion of Auto Manufacturing in Mexico Will Create Rail Constraints Impacting Fleet OTD
http://www.automotive-fleet.com/blog/market-trends/story/2016/09/expansion-of-auto-manufacturing-in-mexico-will-create-rail-constraints-impacting-fleet-otd.aspx

Automakers and Suppliers Find More than Lower Labor Costs in Mexico
http://www.cargroup.org/?s=Automakers+and+Suppliers+Find+More+than+Lower+Labor+Costs+in+Mexico+

Mexico Overtakes Canada as No. 2 U.S Exporter
http://www.detroitnews.com/story/business/autos/2016/12/06/mexico-canada- exports/95056058/


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