AutoTidbits

A Regulator's Nirvana

What could be better than exploring the global confluence of car regulations by a serious and quirky business news reporting organization?  The answer, of course, is very little. You can imagine my delight when my podcast feed showed the latest episode of NPR's Planet Money podcast, which was adeptly titled Why Cars From Europe and the US Just Can't Get Along.

The timely backdrop of the show is the 2014 New York Auto Show and the show’s hosts question manufacturer representatives about the regulatory requirements which result in completely reengineered vehicles in the US and Europe.  Long time readers will note this blog’s continuing coverage of conflicting automotive regulations across the globe.

The Planet Money piece did not break any new ground, but it did expose a larger audience to an otherwise little noticed failure of the free market to create basic efficiencies.  The industry’s only glimmer of hope rests with the nascent Transatlantic Trade and Investment Partnership (TTIP).  Theoretically, the proposed agreement could lead to the lifting of a whole host of non-tariff trade barriers, such as differing safety standards imposed on automakers.  Since these agreements tend to be far reaching, complex and controversial, it is likely that any agreement would start with a broad set of principles and create a mechanism for tackling industry-specific regulations by a joint decision making body.  This approach would help all governments involved by being able to support free trade and not have to take any difficult votes that could anger domestic industries.

As always, agriculture seems to be one of the main hurdles. Even if the negotiations touch the much less contentious automotive space, regulators on both sides will be pushing for their rules concerning emissions and safety.  In the interim, it’s business as usual, which in this case means spending millions of dollars and euros on reengineering anything from catalytic converters to windshield wipers.

Ford Partners with State Farm for Usage-Based Insurance

Ford Motor Company is partnering with State Farm insurance to provide driving data of Ford customers.  The goal is to verify which drivers are low-mileage customers and to reduce their insurance rates.   In this case, low-mileage translates into less than 1,000 miles driven per month. 

It is logical to assume that those who spend less time exposing themselves to the dangers of public roads will also have fewer insurance claims. In a sense, this is an even tradeoff. The insurance company verifies that the policy holder does not drive much and in return provides a discount. Ford’s financial stake in this arrangement has not been disclosed.

State Farm is not the first insurance company to tap into vehicle data to monitor policyholders. Progressive Insurance offers a similar service. Instead of tying themselves to a singular make, the company sends enrollees a device that plugs into the car’s OBD II sensor. The device, termed “Snapshot”, monitors driving habits for an initial 30-day period. This baseline assessment is used to adjust the driver’s insurance rate, which the company claims will not be increased due to poor driving habits. After six months, drivers send the device back to Progressive and stay at their current rate.  Information collected by Snapshot includes vehicle speed, time of day and distance drive. The company provides discounts to drivers who don’t drive at night, brake slowly and drive fewer miles.

According to Ford’s press release, State Farm will only collect the actual mileage driven by its members. One does wonder if there might be additional information that the insurance carrier could utilize to set insurance premiums. Location information, coupled with speed data, would make an excellent variable in setting rates. As would seat belt usage.  Presumably, the driving public would have to be informed of such data gathering practices. Then again, this appears to be a partnership between two corporate entities with the drivers as third-party beneficiaries.

This leads to an interesting question: “Who owns my driving data?”  Most automobiles for sale in the US already include Event Data Recorders (EDR). These devices collect all sorts of good data that can be used by police and insurance companies in analyzing car crashes.  Thus far, auto manufacturers have been quietly collecting the data without disclosing it to third parties. Read your car insurance contract closely, because according to the Insurance Institute for Highway Safety, only few states prevent insurance companies from requiring policy holders to provide access to this data.

White House Floats 56.2-MPG CAFE Plan for 2025 - AutoObserver

via www.autoobserver.com

Yes, you read correctly. If the Environmental Protection Agency (EPA) and the National Traffic Highway Administration (NHTSA) get their way, the "average" car in 2025 will get 56.2 mpg. That sounds pretty good, if somewhat unrealistic.

In the US, the federal government regulates the efficiency of the fleet of vehicles each auto maker sells. On average, a manufacturer's fleet must meet certain fuel efficiency standards. This is called the Corporate Average Fuel Economy (CAFE). The key term here is average. Certainly, not every vehicle will have to attain 56.2 mpg in 2025. Some will be much less efficient, such as trucks, sports cars, SUVs, etc. That also means that some will have to be more efficient to bring up the average.

Currently, the Toyota Prius gets the highest combined fuel rating in the US, returning 48 miles of travel per gallon of gasoline consumed. That means, that the Toyota Prius will have to increase its fuel efficiency by 16.7% until 2025 just to be average. This sounds like a tall order.

Here is where it gets tricky. To make things more interesting, the numbers the EPA uses to calculate CAFE differ from those found on the window sticker. (For a detailed explanation about what is on those stickers, see my prior post). Apparently, per an AutoObserver analysis, these CAFE numbers equate to about 41 mpg combined on the window sticker. That's better and less alarmist.

Still, it's worth noting that hybrids currently only comprise about 5% of US auto sales. (It's also worth noting that the Toyota Prius accounts for 50% of those sales.)  That will have to change if these CAFE numbers are enacted. Will this usher in the golden era for diesel in the US? Probably not, but it won't be long before enthusiasts will try to make their case, mostly to each other. If the market demanded them, they would be for sale. Years of trying to educate the US market by  German manufacturers have shown little result.

On a personal level, the idea of legislating fuel efficiency strikes me as counter-productive. Why force manufacturers to build expensive and highly efficient vehicles that most consumers don't want. Instead, let's do the sensible thing and increase the price of fuel. High fuel costs will spur market demand for more efficient vehicles. It would also raise more tax money for public roads and reduce the regulatory burden on auto manufacturers.

NYTimes.com - How a European Fiat Had to Change Before It Could Immigrate

Courtesy of Chrysler, LLC

The absurdity of divergent auto regulations between the US and EU have not escaped everyone's scrutiny, as evidenced by an excellent article in The New York Times. This blog has tackled auto regulations in the past.

The Fiat 500 is a good example of a European model adapted for the US market.  Due to financial considerations and the many required changes in design due to the aforementioned regulations, Chrysler is building the Fiat 500 in Mexico, as opposed to shipping it here from Europe.  Adapting a car for another market means more than adhering to different regulations.  Consumer tastes and preferences play an important role as well.  For the Fiat 500, market-driven changes include the following:

• Cup holders
• Cruise Control
• Additional Insulation
• Different Tires
• Stronger A/C
• Different Rear Axle

Changes implemented due to regulatory requirements include:

• Front & Rear Facias
• Air Bags
• Fuel Filler
• Rearview Mirrors
• Windshield Wipers
• Tail lamps
• Headlights
• Rear Body Structure

The one thing not mentioned, but likely affected as well, are engine tuning and emissions equipment.  Considering the above-mentioned changes, we are left with a car that looks very similar, but doesn't share many parts with its Italian cousin. 

Some of the US-mandated changes are good.  We have more stringent crash-test requirements, which necessitated changing the rear body structure and fuel system.  Other requirements strike me as less useful.  Can't we at least agree on common windshield wipers?

Following Federal Safety Regulations Not Enough to Shield Mazda from Lawsuit

As previously discussed, in the US, its NHTSA’s job to regulate vehicle safety.  To that end, NHTSA regulates many issues, such as vehicle lighting, air bags, safety belts, distracted driving amongst others. Any vehicle for sale in the US must adhere to NHTSA guidelines, which is one of the reasons the US market does not include many small, niche manufacturers who would have to modify their existing designs to adhere to US regulations.

The husband of a woman who died in a minivan accident sued the minivan’s manufacturer, Mazda.  More specifically, it is likely that the lap belt she wore caused her grievous injury.  If you recall, until 2007 cars had to be equipped with three-point harnesses (lap & shoulder) for any seat facing the outside of the vehicle, whereas seats that were not adjacent to the outside, such as a center seat, could have simple lap belts (such as those in airplanes). If your memory can take you even further back, you might remember that when seatbelts were first introduced they were all simple lap belts. For obvious reasons, lap and shoulder belts are much safer than lap belts. 

A state appeals court kept the suit from moving forward, reasoning that Mazda had followed federal rules and was therefore immune.  Mazda’s defense was that it adhered to federal regulations and that federal law preempts state law, therefore shielding it from state product liability lawsuits.

 Today, the U.S. Supreme Court ruled just the opposite.  It is allowing the lawsuit to move forward because regulators aimed to set only a minimum standard.

 This is a surprising and perplexing decision by a majority-conservative Supreme Court.  The obvious effect of this ruling is an expected increase in product liability lawsuits against car manufacturers.  Another possible outcome is the reduction in new and innovative technologies.  Already, we have seen U.S. Department of Transportation Secretary LaHood take a strong stance against distracted driving. I could imagine a lawsuit alleging that infotainment systems are too distracting and lead to accidents.

Multiple and Conflicting Regulations Cost Millions, Reduce Choice, Add No Value

This is not a political blog.  As such, I will try to refrain from sharing my political ideals (and ideas) with you.  However, politics and regulation go hand-in-hand.  When regulation affects the automotive sector, it becomes fodder for this blog. 

A current political battle on Capitol Hill focuses on regulations, and what some term “job killing” rules.  We must recognize that regulations tend to exist for specific reasons and that those affected by the regulations tend to dislike them.  This is reasonable, since the regulations were created to curb the behavior of those affected to begin with.  It stands to reason that any industry affected by regulation tends to dislike those regulations.  This holds true for the automotive sector as well.

Many of the regulations covering the automotive industry are redundant, conflicting and costly.  A streamlining of these rules would save millions of dollars for automotive manufacturers and open the US market to vehicles that were previously unavailable, many of which are very fuel efficient.

Focus on Emissions

Unlike some other industries, the global nature of the automotive industry does not easily lend itself to national and even state-level regulations.  In the USA, the primary auto regulatory body is the National Highway Traffic Safety Administration (NHTSA). A second regulatory body that is just as influential, if not more, is the Environmental Protection Agency (EPA).

NHTSA focus is on safety.  According to their website, NHTSA

“investigates safety defects in motor vehicles, sets and enforces fuel economy standards, helps states and local communities reduce the threat of drunk drivers, promotes the use of safety belts, child safety seats and air bags, investigates odometer fraud, establishes and enforces vehicle anti-theft regulations and provides consumer information on motor vehicle safety topics.”

[Technically, odometer fraud, vehicle theft and fuel economy are not safety related…]

Unlike NHTSA, the EPA focuses on the environmental impact of motor vehicles.  This translates into regulating the emissions of motor vehicles, with a particular focus on NOx (Nitrogen Oxides), and fuel formulations. 

As if two regulatory bodies weren’t enough, the California Air Resources Board (CARB) continuously promulgates its own regulations on vehicle emissions that are more stringent than those created by the EPA.  California alone has a large market for new vehicle sales. However, there are at least 13 other states that follow CARB standards.  This means that vehicle manufacturers must either design vehicles to adhere to CARB standards or create two separate models, one that follows CARB and one that follows the EPA. It must be said that CARB has been a leader in emissions regulations with the EPA often playing catch-up. 

Streamlining Regulations

States should not be able to regulate vehicle emissions regardless of existing federal laws.  One federal standard, applied evenly across all 50 states would do much to reduce the regulatory burden on this industry.  But there is more. 

While we have conflicting rules in the US, we are not the only country regulating vehicle emissions.  For one, the European Union (EU) has its own set of emissions standards, albeit not currently mandatory.  The EU standards vary by vehicle type and become more stringent with each tier (Euro 1, Euro 2 … Euro 6).  Each tier sets out the maximum allowable emission for Carbon Monoxide, Hydrocarbons, Volatile Organic Compounds, Nitrogen Oxide Hydrocarbons + Nitrogen Oxide and Particulate Matters. Yes, those are a lot of very detailed rules and regulations; let’s use them.

There is no reason why CARB should essentially dictate auto emissions in the US and there is no reason the US needs to separately regulate auto emissions when the EU is doing it already.  I know, it’s a shocking concept, but abdicating responsibility for regulating vehicle emissions and harmonizing those rules internationally is a win-win situation. 

The winners of this approach would be:

• Environment & Public Health – EU rules are much more stringent and cover more compounds than those in the US
• Consumers & Auto Industry – Following one set of common standards would severely reduce the cost of bringing many newer and more fuel efficient engines and vehicles  the US market
• Taxpayers – Due to historic deficits, any reduction in federal expenditures needs to be considered

The only possible downside to this approach is an affront to national pride in following someone else’s rules.  Let’s face it folks, global trade does not thrive when national and regional laws widely conflict with each other.  As it turns out, Australia is already following the EU lead. They are as proud and independent as anyone. We can do the same.

If we ever get that far, maybe we can harmonize the various lighting, seatbelt, crash worthiness and regulations that make this business so complex and costly to operate in.